{"id":5856,"date":"2011-03-02T13:05:18","date_gmt":"2011-03-02T21:05:18","guid":{"rendered":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/?p=5856"},"modified":"2011-03-02T13:05:18","modified_gmt":"2011-03-02T21:05:18","slug":"hrh-when-the-scheetz-hit-the-fan","status":"publish","type":"post","link":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/hrh-when-the-scheetz-hit-the-fan\/","title":{"rendered":"HRH: When the Scheetz hit the fan"},"content":{"rendered":"

\"\"Thanks to the S&G<\/em> reader who provided me with that ready-made headline. Yes, Morgans Hotel Group<\/strong> has closed the book on Scheetz’s Folly, the $770 million purchase of the Hard Rock Hotel & Casino<\/strong>. The Sun<\/em>‘s Liz Benston<\/strong> lays out the litany of disaster that followed<\/a>. It’s resourceful spin-doctoring by CEO Fred Kleisner<\/strong> to claim that Morgans’ ownership stake was whittled down to an eventual 13% as a strategic response to “strong headwinds” but the company was repaying DLJ Merchant Partners<\/strong> with chunks of equity long before the Great Recession hit. Nice try though, Fred. Now Morgans is scot-free but Credit Suisse<\/strong> sock puppet DLJ is still on the hook<\/a>.<\/p>\n

“We will ultimately dominate<\/strong> the most attractive segment in Las Vegas,” blustered then-CEO Ed Scheetz<\/strong> after Peter Morton<\/strong> took him to the cleaners<\/a>, then pressed and dried him for good measure. Scheetz’s goals were — in no particular order — to resume condo construction, party a lot<\/a>, raise room rates, party some more<\/a>, then increase EBITDA, which stood at $40 million a year in 2006.<\/p>\n

\"\"So what’s his legacy? Condos? None (prudently). Higher ADRs? They were $128\/night last year … after averaging $169\/night before Scheetz came along (his business plan was predicated on steady room-rate increases through<\/em> 2009, despite the intended doubling of the HRH’s room inventory).<\/p>\n

Improved cash flow? The Wall Street Journal<\/em> says 2010 EBITDA was only $22 million<\/a> — with Morgans’ share not sufficient to even make interest payments; a far cry for the visions of $140 million in annual cash flow dancing in executives’ heads when they planned bloating the HRH into a 1,800-room megaresort. Even shucking the Hard Rock-related encumberance leaves the hotelier wobbling beneath a 23:1 ratio of debt to cash flow<\/a>. Yikes!<\/p>\n

\"\"In other words<\/strong>, nothing went according to plan. Had the HRH been on<\/em> the Strip it might have worked. But it’s not and it didn’t. If Boyd Gaming<\/strong> is serious about finishing Echelon<\/strong> and if Morgans still figures in the grand scheme, someone needs to stage an intervention and put that co-dependent\/abusive relationship to an end. Echelon’s fate was sealed the day Ed Scheetz tied the Hard Rock millstone around Morgans’ neck. I believed it then, believe it now and am confident history will record a similar verdict.<\/p>\n

\"\"At one stage, Morgans desperately<\/span> generously offered Golden Gaming<\/strong> an opportunity to shoulder some of the burden, to the tune of a $100 million equity investment<\/a>, but CEO Blake Sartini<\/strong> clearly knew a boondoggle when he saw one and begged off. He did, however, briefly manage the casino under a burdensome financial arrangement<\/a> that nonetheless burnished Golden’s resum\u00e9. (Sartini doubtless knew he couldn’t make two nickels off the deal<\/a> but would enhance his stature considerably by being associated with the HRH. It sure didn’t hurt him when jockeying for a Kansas<\/strong> casino later.)<\/p>\n

The whole sorry chapter<\/strong> is just the latest one in the annals of total Vegas newbies (like Morgans, Swiss Casinos<\/strong>, London Clubs International<\/strong> and James Packer<\/strong>) who come in and blow a bunch of dough on a market they don’t yet understand — or in some cases, make no effort to understand. In the instance of Morgans, it was like a fifty-something guy having a mid-life crisis taking up with a girlfriend young enough to be his daughter and maxing out his credit cards on the flashiest, highest-maintenance sports car in the showroom. With the Hard Rock, Morgans bought an Alfa Romeo and converted it into a DeLorean. Nice going, lads.<\/p>\n","protected":false},"excerpt":{"rendered":"

Thanks to the S&G reader who provided me with that ready-made headline. Yes, Morgans Hotel Group has closed the book on Scheetz’s Folly, the $770 million purchase of the Hard Rock Hotel & Casino. The Sun‘s Liz Benston lays out … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[60,28,97,22,96,45,102,9,38],"tags":[],"_links":{"self":[{"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/posts\/5856"}],"collection":[{"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/comments?post=5856"}],"version-history":[{"count":1,"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/posts\/5856\/revisions"}],"predecessor-version":[{"id":5859,"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/posts\/5856\/revisions\/5859"}],"wp:attachment":[{"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/media?parent=5856"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/categories?post=5856"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lasvegasadvisor.com\/stiffs-and-georges\/wp-json\/wp\/v2\/tags?post=5856"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}