By SCOTT GOLDSTEIN
NJBIZ Trenton Bureau
Atlantic City, NJ, Aug. 20, 2007 — For the first time in the gambling resort's 28-year history, there will soon be more casino-hotels in Atlantic City run by private firms than by publicly traded companies.
The transition will occur when publicly traded Harrah's Entertainment Inc. completes its $17.1 billion sale of its casino empire — including its four casino-hotels in Atlantic City — to a pair of private equity firms.
After the takeover of Harrah's by Apollo Management Group and Texas Pacific Group — expected to close by the end of this year — there will be seven Atlantic City casinos owned by private firms and only four by publicly traded companies.
Harrah's properties in Atlantic City are Bally's Atlantic City, Caesars Atlantic City, Harrah's Casino Hotel and Showboat Casino Hotel.
The three casinos already owned by private companies are Tropicana Casino and Resort, owned by Columbia Sussex of Fort Mitchell, Ky.; and Atlantic City Hilton Casino Resort and Resorts Atlantic City, both owned by Los Angeles-based Colony Capital.
How will the sale of Harrah’s impact the city?
"The question is whether or not they can infuse money into Harrah's properties," said Joel L. Naroff, chief economist at Cherry Hill-based Commerce Bank. "I'm guessing they will have to. This is a very competitive market. I can't imagine they will go in there and cut workers and services. This is a labor- and service-intensive industry. To compete with the Borgata (Hotel Casino & Spa) and others, they will have to pony up some real money."
The two private equity firms, which are seeking approval from casino regulators to complete the deal, have said they would retain Harrah's current management, including CEO Gary Loveman. And Loveman has indicated that the company will continue to invest in its Atlantic City properties, like the $550 million expansion under way at Harrah's Atlantic City in the Marina District.
During a conversation with NJBIZ in May, Loveman said, "We continue to be enthusiastic about Atlantic City." He said the buyout represents a "change of ownership, not a change of direction." Being private has its advantages, like not spending time serving investors and answering questions from reporters and analysts, Loveman said. "We can focus on creating casinos," he said.
And what about access to cash that stockholders bring? "When you do $3 billion cash flow," he said, "you have no cash-access problems."
But some observers — including Atlantic City employee unions — wonder if the pair of private equity firms will operate like the new owner of Atlantic City's Tropicana Casino and Resort. Columbia Sussex, the private casino company that acquired the Tropicana last year, has laid off 700 employees, 15 percent of the casino-hotel's workforce. The company says that the casino was overstaffed. But Local 54 Unite Here, the hotel and restaurant employees union, says that the job cuts and related service cuts have relegated the casino to a second-class facility. Tropicana's revenue has dropped 7 percent over the first six months of the year since Columbia Sussex took over. By comparison, the entire Atlantic City market has fallen 4 percent.
"You look at the Tropicana and the layoffs and you wonder if the goal of the (firms) buying Harrah's is to turn these places around and make them profitable as possible in the short term and then flip them to make a profit," said Richard C. Perniciaro, director of the Center for Regional Business and Research at Atlantic Cape Community College. "No one is sure what the answer is to that question. For workers, there's a lot of anxiety."
But Mike Pollock, publisher of the Gaming Industry Observer, an Atlantic City-based newsletter that tracks trends in the gaming industry, says reinvestment and good management has nothing to do with public or private ownership. "Good management is good management regardless of whether they report to public
stockholders or private equity," Pollock said. "One could argue that a private company has more freedom to plan for the long term because they don't have
to worry about reporting to analysts and stockholders."
The key factor is the new owners' true intentions, said Rummy Pandit, assistant dean and executive director of hospitality management at Rutgers-Camden School of Business.
"If the private operators are in for the long term, I don't think there would be a significant change," Pandit said. "But if not, there may be some changes. They may start shedding properties and selling them piecemeal."
There's nothing inherently good or bad about private ownership, adds Naroff, the Commerce Bank economist.
"They are walking into an extremely competitive market, so the question isn't who's buying. The question is what are they going to do with it? Will they have the money to keep up Harrah's momentum?" Naroff asked. "It's not cheap to operate in Atlantic City. If they invest more money, it's likely to be good for the industry and the economy of Atlantic City."
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