We're glad you asked. The odds may favor the house but they're no guarantee against incompetent management and the many other factors that can send a casino into the toilet. "Failure" is a relative term, in the sense that many casinos have crashed and burned financially, but few close outright, never to return. Somebody is usually there to pick up the pieces, usually for a bargain price. Sometimes even an unfinished casino can become the object of a bidding war, as when Carl Icahn and Penn National Gaming jousted in bankruptcy court over the carcass of Fontainebleau. (Icahn prevailed.)
The most common reason for casino failure is that ownership has become financially overextended, either by spending too much up front or by heaping onerous refinancing burdens upon the property. A textbook case is Trump Taj Mahal, the only casino in Atlantic City to still bear the name of Donald Trump. The latter loaded it up with $820 million of debt, including $675 million in junk bonds that carried a 14 percent interest rate. Janney Montgomery Scott analyst Marvin Roffman predicted that the Taj would need to gross an unprecedented $1.3 million a day in order to service its interest payments alone. The notoriously thin-skinned Trump had Roffman fired but the analyst got the last laugh, when the Taj went bankrupt in 1991, a year after it opened. It also sucked Trump Plaza and Trump's Castle into its undertow, cannibalizing their business and sending them into Chapter 11.
Although it now runs a consistently profitable Station Casinos, the Fertitta family once brought it to the brink of ruin. In 2007, with the help of private equity fund Colony Capital, the Fertittas took Station private at the cost of 14 times cash flow – double the industry average and insanely high for a locals casino company. To make matters worse, Station's market exposure was almost entirely in Las Vegas, ensuring that it would be the worst-equipped to weather the recession that struck in late 1988: By July of the following year, Station was filing for Chapter 11. Despite holding the majority share in the company, Colony's investment was wiped out, while the Fertittas remained in control.
Colony, run by Tom Barrack, left a wide swath of casino-industry destruction in its wake. It bought the Las Vegas and Atlantic City Hiltons and proceeded to borrow heavily against them, in the process accruing debt burdens that crushed the casinos when the Great Recession hit. Colony so mismanaged the properties that they lost the rights to their Hilton flags. The Atlantic City one declared bankruptcy (and is now closed) and the Las Vegas property went into foreclosure, re-emerging as the Westgate Las Vegas.
Atlantic City recently lost several casinos in a severe market correction. The former Atlantic City Hilton was bought up by a tandem of Caesars and Tropicana Entertainment, who closed it, removing a competitor from the market. Heavily exposed on the Boardwalk, Caesars also closed the Showboat, while abysmal revenues took their toll on bottom-feeding Trump Plaza, which was shuttered in September 2014, just days after Revel (of which more to come).
Sometimes a casino doesn't "fail" in the sense of bankruptcy or closure, but takes a bath all the same. On the Strip, The Cosmopolitan of Las Vegas has had to shake off the perception of failure. It was budgeted at $3.9 billion, steep even by Vegas standards, and while developer Ian Bruce Eichner owned the underlying land, he had no further skin in the game. Deutsche Bank was carrying the project and eventually took it over from Eichner. The bank saw The Cosmopolitan through to completion and opening but could never post a profitable quarter. High interest costs surely played a role, but the casino's operating performance was upside down, with gaming revenues running a distant third to restaurants and hotel rooms as money generators. Deutsche Bank unloaded "the Cosmo" to Blackstone Group at a steep loss (sale price: $2.2 billion). With less interest to pay and new, casino-savvy management at the helm, the megaresort is now consistently profitable.
Tomorrow: The doomed-from-the-start Aladdin and Revel, along with several more casino duds.
