Fire sale at Caesars; Harvey vs. The Mob

Money problems at Caesars Entertainment are worse than we thought. According to the New York Post, the company is trying to shop as many as 10 Midwestern casinos in order to raise $500 million in development capital. The money would go toward Suffolk Downs (left) and other projects — such as a hotel in China or a Baltimore slot parlor–  to which the company is already committed. From what I’ve heard elsewhere, this might not be the only asset sale in the works.  When contacted by reporter Josh Kosman, Caesars declined to comment on his report, so we’ll take that as a “yes.” In his attempt to extend the reach of Caesars’ empire and tap new sources of revenue, CEO Gary Loveman is evidently having to cannibalize his regional casinos, severing the Total Rewards tree from its roots. The counter-argument is that Caesars in overexposed in the Midwest and does well to cut back there in order to reinvest in Ohio and points eastward.
This is actually a scenario I’d heard floated on Wall Street back when then-Harrah’s Entertainment went all LBO on us: That Apollo (Mis)Management and Texas Pacific Group would ease their debt load by chopping the company into pieces, in true corporate-raider fashion. That didn’t happen but now, if Kosman’s story is on the money, Loveman’s expansion strategy has overextended the company. And … 10 casinos to raise $500 million? That’s not just pathetic; it’s sad. Unless, that is, you’re an opportunistic buyer on the trail of distressed assets. Snap up a racino here, a couple of riverboats there and you’re a major regional player, sonny. If you see a flock of buzzards circling, you’ve found the right place to gnaw off a piece of Caesars.

With 15 casinos, riverboats and racinos from which to choose, Caesars could liquidate dogs like Harrah’s Council Bluffs (left), riverboats in struggling markets, like Horseshoe Bossier City or Harrah’s Joliet, modest performers like Harrah’s Metropolis, and surplus inventory such as Tunica Roadhouse Casino & Hotel, yet still retain at least five flagship properties. Obvious candidates for retention would be Horseshoe Hammond, Harrah’s St. Louis, Harrah’s New Orleans, Grand Biloxi and at least one of the three Tunica properties.

For a spot of good news, Caesars is going to retire $1 billion in 2015 debt maturities ahead of schedule. In return, it gets to postpone another $2.5 million in balloon payments into 2018. This comes at a price: $100 million a year in additional interest. Hey, Apollo and TPG: Wanna refund those $30 million annual “management” fees you’ve been skimming? If you didn’t have Loveman there, you wouldn’t even be able to find the john, metaphorically speaking.

Update: In another new development, Caesars is mothballing parts of Bally’s Wild Wild West and the Claridge, in Atlantic City, and laying off employees.

As bad as things may be within Emperor Gary’s court, they’re nothing compared to the plight of Mohegan Sun. It’s faced with either defaulting on $250 million in debt or obtaining refinancing using the casino itself as collateral. Were someone like Carl Icahn to quietly buy up that new debt, we could see the unique spectacle of a privately held casino on tribal land — unless the Interior Department moves to kibosh the terms of the restructuring. The Mohegans priority seems to be to keep pursuing their Massachusetts dream (above), in Palmer. But that’s a very long shot, in our opinion, and it sounds like the tribe needs to be minding the store in Connecticut, not chasing unicorns in the Bay State.

News of the Caesars yard sale comes a day too late for Paul Alanis, new co-owner of Crown Casino riverboat, which he bought from Isle of Capri Casinos yesterday (along with its license) for $15 million. Hey, Isle CEO Virginia McDowell, cash that check before Alanis and partner William Trotter change their minds! You could say Alanis and Trotter paid $14,999,999.99 for the license and a penny for the ship itself, which they plan to scrap (perhaps literally) in favor of building a new vessel in Shreveport. The $197 million Margaritaville Resort Casino will open in mid-2013. Alanis and Trotter have gone to a lot of trouble to put this deal in place but I wonder if they’d drop it like a bad habit if Loveman made them an offer too good to refuse.

The Harvey Whittemore scandal is growing spider legs. According to Las Vegas Review-Journal reporters Jeff German and Frances McCabe, the FBI is looking at gaming-industry rainmaker Whittemore for “conduit contributions,” which violate federal election laws. Politicos who could feel the heat from this include Sen. Harry Reid (D), Sen. Dean Heller (R), former Sen. John Ensign (R), Congressional candidate Dina Titus (D) and Rep. Shelley Berkley. Whittemore’s legal representation rationalized the probe in hilarious fashion: “[B]ased on the reckless accusations made in the civil lawsuit filed two weeks ago, law enforcement is requesting information from knowledgeable parties.”

Tell me another one, you say? How about Whittemore’s side of the story, in which he alleges that he was being  defrauded, shaken down, threatened and extorted by a couple of mobsters? That would Peppermill Spa & Casino co-owners Thomas Seeno and Albert Seeno Jr. If these allegations are credible, both the G-Men and the Nevada Gaming Control Board ought to be investigating. (And why didn’t old Harv go to the proper authorities when this allegedly took place?) Given the apparent lack of official interest, it looks as though Whittemore is blowing smoke.