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Posted At : March 6, 2009 01:47 PM | Posted By : D McKee
Related Categories:
Wall Street,Phil Ruffin,Harrah's,The Strip
Over the course of several conversations with people smarter than myself, I've been assured that while "goodwill" is conjectural, even arbitrary, the only thing out of the ordinary with Harrah's Entertainment's announcement is the sheer immensity of the writedown (though $5.5 billion is chump change compared to the record-setters). Its size is described as a concession on the order of, "There is no 'goodwill' in gaming these days, folks."
One theory offered is that Harrah's is writing off the remnants of the Park Place Entertainment acquisition (excluding the Caesars Palace brand). Another is that its Chester, Pa., and Atlantic City properties are taking turns cannibalizing each other, as they compete for Total Rewards players. Still another is that the U.S. is "over-casino-ed" and the industry has simply diluted its value.
Conventional wisdom used to be that premium acquisition prices (including hundreds of millions in "goodwill") for companies with a Strip presence could be justified because being on the Boulevard constituted an intangible force multiplier. (The Aztar Corp. auction took this premise to a suicidal extreme.) With regional markets posting rising numbers at Vegas' expense and in a week where Treasure Island just changed hands for $775 million, that contention will have to go on hiatus, on the shelf next to the all suspended or decelerated Strip projects.
Its a non cash charge. Does it really matter? Make to market accounting requires all companies to value assets and mark down value accordingly. Happens all the time in all industries.
It has its peculiarities but some of the alternative methods look worse.
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