Hit With Crisis After Crisis, Caesars Struggles to Keep an Even Keel
Posted on: October 28, 2013, 05:30h.
Last updated on: October 28, 2013, 05:56h.
If the old adage that bad publicity is better than no publicity holds true, then Caesars Entertainment Corp. is doing just fantastically well. By any other measures, however: not so much.
As if being forced – for PR reasons – to cut ties with its Las Vegas Strip new hotel and casino project partner Gansevoort and bailing from a $1 billion Boston-area casino project with racetrack Suffolk Downs weren’t enough, the casino giant is now reportedly the subject of federal inquiry into potential violations of the Bank Secrecy Act at Caesars Palace, their flagship Las Vegas property. Then add a bizarre and random shooting outside of Drai’s at Caesars-owned Bally’s in Las Vegas, a tragedy that left one patron dead who was trying to tackle the gunman, as well as two security guards wounded. And finally, a newborn baby’s body reportedly found behind Planet Hollywood on the Strip in the same week might have made it seem like the Apocalypse had landed in Caesars’ backyard ahead of schedule.
Problem After Problem for Caesars
Of course, the company’s industry-high $23.5 billion long-term debtload is not even news anymore; it’s just become a huge yoke that Caesars now carries around wherever it goes these days. The question is, which of these other disasters is going to hurt the company’s already tattered image the most.
A 600-page Massachusetts Gaming Commission report can’t have helped, that’s for sure.
“Caesars is currently meeting its debt covenant requirements,” the report noted in its recently released summary. “However, should the economy fail to recover sufficiently or if another downturn occurs, it could become difficult for Caesars to meet its debt service and covenant requirements.”
The Massachusetts investigating team – which has seemed to not only Caesars, but also competitor-for-a-Massachusetts-casino-license Steve Wynn more probing than the FBI, CIA and NSA combined – were critical of how the gaming company is handling both its debt and cash flow these days, noting that interest payments are pulling the majority of Caesars’ cash flow right now.
But that’s just the tip of the titanic iceberg for the publicity smacks coming their way.
Among many other issues noted in the Massachusetts report was one termed a “significant issue” – that of gambling whale Terrance Watanabe, who reportedly lost more than $100 million in Las Vegas at Caesars Palace and the company’s World Series of Poker kingpin property, the Rio, back in 2006 and 2007. Watanabe ultimately sued Caesars in Clark County District Court, claiming the casino encouraged him to drink and gamble even more while inebriated.
Although that suit was settled, Caesars got slapped with a fine from New Jersey regulators (the company owns four casino properties in Atlantic City) for a quarter million bucks, just as a kind of “don’t do that stuff here” warning, we suppose. The gaming company has since apparently revised its compliance program, but the folks in Massachusetts – who may or may not be aware they are dealing with gambling, not world hunger – were not impressed.
“The episode touches on numerous concerns, including the lengths to which casino operators will go to cater to high rollers and problem gaming,” the report noted. Good catch, Sherlock.
Scathing Massachusetts Findings
The list of perceived transgressions went on and on in the Massachusetts report. Newly formed Caesars Acquisition Co. CEO Mitch Garber’s seemingly shady past was noted, as Garber – who is also CEO of the company’s key online division, Ceasars Interactive – used to work for European Internet gaming companies that took wagers from Americans prior to the 2006 passage of the Unlawful Internet Gambling Enforcement Act (UIGEA). We’re not sure how you burn someone at the stake for something that wasn’t even illegal yet when it happened, but we’re not the witch-burning Salem court, either, so there ya go.
CEO Gary Loveman is taking the Steve Wynn approach with the Commission, and trying to make them look unreasonable; a goal that doesn’t take much effort. Speaking to The Boston Globe (he lives in the Boston area himself), Loveman echoed Wynn’s earlier sentiments when he said, “It’s going to be very difficult for sophisticated, multijurisdictional operators to tolerate the environment this commission has created.”
While it might seem to a casual observer that Caesars is well rid of the scarlet letter of Massachusetts, it could yet have far-reaching effects at the worst possible time for their casino business; both the Maryland Lottery and Gaming Control Agency and the Ohio Casino Control Commission have said they will review the report’s findings and decide how it could impact potential transgressions for land casino projects going up in both states. And even Nevada regulators are looking, along with the U.S. Treasury Department’s Financial Crimes Enforcement Network, known as FinCen, to see if any money-laundering laws were broken at the Palace, which could result in disciplinary action against Caesars.
Burning at the stake might be less painful than the possible whippings to come.
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