Chronicle of a bankruptcy, foretold

Dipping into Shakespeare, Howard Stutz endeavors to do justice to the Elizabethan complexity of the Caesars Entertainment bankruptcy. The fault is not in the stars
but in Gary Loveman, architect of the disaster. When it was rolled out, back in 2007, when Las Vegas was still going strong, the leveraged buyout looked like the second-longest of long shots (second only to Station Casinos‘ LBO). In order to work, two things had to happen: The economy had to keep improving and gambling revenue had to keep going up. It was a plan which made no contingency for adversity. Then-Harrah’s Entertainment was expected to grow, service its debt and pay it down. Well, one out of three still isn’t good.

(It was a bad sign when analysts were talking about asset sales before the deal had even closed.)

Loveman tried to spend his way out of trouble, building casinos and attractions as fast as he could, but it wasn’t enough to stay ahead of catastrophic financial losses. In the
end, the shiny new objects were shuffled off into financially stable subsidiaries and the jackals are left to feast on the Caesars Entertainment Operating corpse, comprising the bulk of the company’s older, less valuable properties. Perhaps some mistakes are only discernible in hindsight, as when Caesars tried to ride the gaming wave in Pennsylvania while largely ignoring a seller’s market in Atlantic City, where it became heavily overexposed. And let’s not forget the daffy attempt to get into Macao by buying a golf course and assuming more casino concessions would be forthcoming. We all know what happens when we assume. Loveman, Leon Black and David Bonderman ran Caesars into a wall, but there is no sign that they’ll face any consequences. Chances are, this time next year, they’ll still be running the show.

* Wisconsin Gov. Scott Walker (R) has put out a mess of conflicting signals with regard to the Hard Rock International casino proposed by the Menominee Tribe. He has amended the state’s compact with the Forest County Potowatomi, to make the latter whole for any business it loses to Hard Rock. Walker forwarded the document to the Bureau of Indian Affairs, while declaring himself still undecided. To cloud the waters still further, he had attorney R. Lance Boldrey send the BIA a letter saying the compact amendment might be unconstitutional in Wisconsin. “He said the governor doesn’t have the power to create annual spending obligations,” reported the Minneapolis Star-Tribune.

It is now for arbitrators to decide what obligations each side has to the other and for how much the state could be on the hook. ($100 million a year, say the Potowatomi.) The Ho-Chunk Nation already has a compact very much like this, so it’s unclear why Walker’s emendation of the Potowatomi one wouldn’t clear constitutional scrutiny. Walker could be laying the groundwork for saying that the negative economic impact of a Menominee casino in Kenosha would be too great. If so, he’s been devilishly subtle about the whole thing, so the casino proposal doesn’t meet his other criteria (universal tribal acceptance, no increased gambling) on its face.

* Genting Group hasn’t turned one shovelful of earth on $4 billion Resorts World Las Vegas, but it has the now-mandatory, 3-D flyover video with which to tout the project. Actually, the video wasn’t released by Genting but by EB5 Select, a group which drums up investment via the EB-5 visa program. Considering the cash flow of Genting’s casino resorts in Singapore and Malaysia, and at Resorts World New York, I’m surprised it’s have to rattle its tin cup in this fashion. Also, is it just me or does this look like the second coming of Fontainebleau? Nobody’s ever spent $4 billion on the Las Vegas Strip and seen a decent return on their investment.