CEO Gary Loveman Says Caesars Might Close One or More Atlantic City Casinos
Caesars Entertainment may consider Atlantic City closures, due to “market challenges”, according to Bloomberg Businessweek. Caesars CEO Gary Loveman admitted to pressure on the Atlantic City properties during a conference call this week. “All the businesses in A.C. are under tremendous pressure.”
In discussing retraction, Loveman said that reducing the supply of casinos is required at times. At present, Caesars Entertainment owns four casinos in the city: Caesars Atlantic City, Harrah’s, Bally’s, and The Showboat.
2008 Buyout Was Bad Timing
Caesars has struggled with solvency over much of the last 6 years, after a leveraged buyout in 2008. In January 2008, Apollo Global Management and Texas Pacific Group bought the Harrah’s Gaming for $20 billion, which left the gaming company $23 billion in debt. Three months later, the company changed its name to Caesars Entertainment, which was the most famous brand name in the company’s line of casinos.
The buyout might have worked, if investors had had the time to reorganize the company’s various gaming international gaming interests. Instead, only 8 months after the buyout, the Great Recession of 2008 hit. Suddenly, Caesars Entertainment was facing a saturated market with a massive debt burden and a public which did not have the money to spend on frills like gaming trips.
Casino Closings in Tunica and Atlantic City
In March 2014, Caesars decided to close a property in Tunica, Mississippi. Loveman says that decision set a precedent which might apply to other market like Atlantic City. Loveman added, “These markets can reach points when no new supply is indeed the right answer. In some cases, reducing supply is the right answer.”
When the subject of the closure of the Atlantic Club in January 2014 was mentioned, Mr. Loveman mentioned, “That’s the normal, self-correcting healing that you’d like to see in a market like this.”
Unknown Which Casino Would Close
During the teleconference, Loveman did not specify which casino might close. He did mention that the company had taken steps already to cut costs. Restaurant hours have been reduced to lower labor costs.
Caesars Entertainment is the largest owner of casinos in the United States, but its losses have continued to mount. Meanwhile, its three largest U.S. rivals–Las Vegas Sands, Wynn Resorts, and MGM Resorts–have seen profits expand with their investments in the Chinese gaming capital of Macau.
In the 1st Quarter of 2014, company losses mounted to $386.4 million. Last year, the losses were at $271.6 million. Sales fell 1.9% down to $2.1 billion, mainly due to the troubles on the Atlantic Coast and the American midwest.
May 2014 Refinancing and Sale of Interest
Earlier this week, the company announced a debt refinancing plan. This included the sale of a 5% interest in Caesars Entertainment Operating Co., the largest unit in the corporation’s assets. The parent company removed guarantees on a large portion of its borrowings. The move is meant to open the way to broader negotiations with creditors.
After news of these maneuvers was announced, the shares of the gaming company rose 14%, closing at $21.18. That remains the biggest gain since April 2013, though the shares are down 1.7% throughout 2014.
Wants to Build New York Casino
Though the company may be seeking retraction in one place, do not expect to see the company stop expansion elsewhere. Caesars has been an aggressive player in the fight for licensing in New York State. The New York legislature agreed to present four licenses for land-based casinos in the state, hoping to help the local economy in four select regions of the state.
Caesars wants to build a casino in Woodbury in Orange County, a plan which has drawn criticism from most others seeking licenses. Woodbury is 50 miles north of New York City, so an operation there could limit the costumers base for gaming venues in the Catskills further north. The question many have is whether New Yorkers would drive hours further north, if such a convenient gaming opportunity existed so close to the Big Apple.
If Loveman’s corporation could add such a license, it would be a coup. Despite such opportunities, many gambling industry analysts question the long term feasibility of the company. Recently, Steve Wynn said he saw bright futures for three of America’s big four gaming companies–but Caesars Entertainment was the one he felt was facing serious trouble.
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