Gary Loveman must be working on his stand-up act. In today’s Wall Street Journal, he calls the present economic pickle “the toughest environment we’ve faced.” It might not be 
quite so difficult had Loveman not steered Harrah’s Entertainment (and its apparently sheep-like board) into a leveraged buyout, an act for which Loveman was handsomely compensated by new owners Apollo Management and Texas Pacific Group.
It gets better. Loveman tells the WSJ, apparently with a straight face, that Harrah’s is “profitable.” Somebody must have hid the most recent 10-Q from him. That little piece of paper shows a March 31, 2007 profit of $185.3 million swinging to a $187.8 million loss one year later.
And if you’re “boosting visits to its regional casinos by chartering airplanes to fly in loyal customers,” it sounds like something’s wrong. I could understand that strategy if we were talking about getting them to Vegas, but why should you have to fly players to Caesars Windsor or Harrah’s Tunica? Wasn’t the beauty of the regional strategy that it brought the casino to the customer? And if you’re having pay the freight for your loyal customers, what does it take to get the more fickle ones through the door?
As a savvy industry observer put it, “The timing of the leveraged buyouts of several companies increasingly appears to have been exquisitely bad.” Station Casinos is having to use its Aliante opening, in part, to make a new home for workers forced out by a recent spate of layoffs.
Meanwhile, like Captain Ahab hot on the trail of Moby Dick, Penn National continues to pursue an LBO. Of course, if you were a Penn stockholder, you’d love this deal, as your shares would be bought out at more than double their current value ($67/share for a stock that closed at $29.73 today). If Penn were to abandon this LBO folly and think in terms of growth, it could probably pick up a lot of low-hanging fruit, from Harrah’s, Columbia Sussex, Isle of Capri and other overextended companies, thereby penetrating a plethora of new markets.
Isle had the invidious distinction of making the Motley Fool‘s list of “Deathbed Stocks,” with an Altman Z-Score that shows the company to be in very ill health indeed, hitting a nine-year low recently. (Some, though, maintain Isle is undervalued.) More of the old guard are being moved aside, too.
Of even greater significance, the recent reintroduction of the Lady Luck brand was couched as part of a new strategy “focused on increasing free cash flow through organic growth opportunities” In other words, no more growing revenue by simply opening new casinos … and no more chasing chimerical revenue opportunities overseas. Tomorrow’s Isle conference call should tell us if the new leadership team has other tricks up its sleeve for coping with the present adversity.
