Insight CAESARS ENTERTAINMENT
CAESARS’ ET TU, BRUTE? WEEK
A catalogue of calamities hits Caesars Entertainment with blows raining upon the US operator from all angles
The final week of October proved to be a cata- clysmic one for Caesars Entertainment. The largest casino operator in the US was asked by the Suffolk Downs race course to withdraw from the joint casi- no project in which they were jointly pitching for the single Greater Boston resort casino licence. Suffolk Downs was worried that Caesars would fail its mandatory state background check.
Suffolk Downs Chief Operating Officer, Chip Tuttle, said: “Based on recent information and the briefing we received from the investigative bureau of the Massachusetts Gaming Commission, we have asked our management partner, Caesars Entertainment, to withdraw as a qualifier from our license application.”
The Massachusetts Gaming Commission report has not been made public, however, it is believed that concern was raised about one of Caesars’ business relationships outside the US with a person alleged to have family members involved in organised crime.
The 600-page investigative report issued by the Massachusetts Gaming Commission asserted that Caesars, which operates 54 casinos in 13 states, was not suitable to manage the casino. The commission suggested that the Suffolk Downs Race Track remove its partner in the project.
The report is thought to focus on the New York- based Gansevoort Hotel Group, which was licens- ing its name to the boutique luxury hotel Caesars is creating out of Bill’s Gamblin’ Hall. A Gansevoort investor reportedly had ties to the Russian mafia. As a result, Caesars Entertainment is severing its $185m agreement with Gansevoort Hotel Group to
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Gary Loveman, CEO and President of Caesars Entertainment Corp.
“I’m astonished. We are the most heavily scrutinized gaming operator in history. We’ve never, in 75 years, had an abject finding. No one thought this relationship was objectionable. This sort of finding is extraordinary. It’s unprecedented.”
develop Bill’s Gamblin’ Hall & Saloon into a lavish hotel on the Las Vegas Strip. Caesars Executive Vice President Jan Jones confirmed the decision which came just a few days after Caesars was dropped by Suffolk Downs.
Questions have also been raised concerning Caesars’ titanic $23.5bn in long-term debt. The report by the Massachusetts Gaming Commission states that the interest payments alone consume virtually all of the company’s current cash flow.
Caesars is currently meeting its debt covenant requirements, however, should the economy fail to recover sufficiently or if another downturn occurs, it could become complex for Caesars to meet its debt service & covenant requirements.
At a Nevada Gaming Control Board meeting in July, Caesars Deputy General Counsel Michael Cohen admitted the company’s debt — $10bn higher than that of MGM Resorts International — was large, but a burden that could be handled. “We think it’s manageable, but others disagree,” Mr. Cohen said.
In the same torrid week, Caesars had to report in a filing with the Securities & Exchange Commission that the company is being targeted in a federal investigation for possible violations of the Bank Secrecy Act at Caesars Palace.
Caesars says the federal government is investigat- ing the owner of its namesake hotel as part of a crackdown on money laundering in the gambling industry. The casino company said in an SEC filing that Desert Palace is under investigation by the Financial Crimes Enforcement Network of the U.S. Department of the Treasury for alleged violations of the Bank Secrecy Act. A federal grand jury inves- tigation is also being conducted. Desert Palace owns and operates Caesars Palace, its flagship hotel and casino in Las Vegas. Caesars Entertainment said in the filing that it plans to cooperate fully with both investigations.
The US Treasury Department meanwhile is looking into whether it should assess a civil penalty or take additional enforcement measures against Caesars Palace, according to the SEC filing.
Also, Massachusetts asserted a “significant issue” surrounded the company’s handling of high roller Terrance Watanabe, who lost more than $100m at Caesars Palace and the Rio in 2006-2007. Mr. Watanabe refused to pay his markers, saying Caesars plied him with alcohol and encouraged him to gamble while intoxicated.
Mr. Watanabe sued Caesars in District Court in Clark County, where the matter was settled. Caesars revised its compliance programme and the New Jersey gaming regulators fined the company $225,000 for the matter.
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