Owner: Harrah’s N.O. casino may never be profitable

Alan Sayre

Tuesday, April 4, 2000 | 11:03 a.m.

History

Key dates in the recent history of JCC Holding Co., owner of the New Orleans casino:

1992 Single land casino for New Orleans authorized by the Legislature and signed into law by Gov. Edwin Edwards.

May 1995 Temporary casino opened at the Municipal Auditorium by Harrah's Jazz Co. Work has begun on the permanent casino building across from the French Quarter.

November 1995 Temporary casino closed, work stopped on permanent building as Harrah's Jazz files for federal bankruptcy protection.

October 1998 New casino ownership company, JCC Holding Co., emerges from bankruptcy court. Majority owned by bondholders in Harrah's Jazz Co., with major minority share held by Harrah's Entertainment Inc.

October 28, 1999 Permanent casino opens to the public. Casino wins just over $12 million from gamblers during first 14 days of operation

November 1999 Casino wins $16.3 million during first full month of operation.

December 1999 Casino wins $14.8 million during second full month of operations.

January 2000 Casino wins $20.9 million during third full month of operations.

February 2000 Casino win $20.4 million during fourth full month of operations.

Feb. 29, 1999 Harrah's Entertainment agrees to make daily tax payments of about $274,000 to the state to free capital for JCC Holding to develop casino further.

March 30, 1999 In a report to securities regulators, JCC Holding reports losing $59.1 million for 1999, expects to sustain additional losses and says the casino may never be profitable.

NEW ORLEANS-- The owner of the struggling New Orleans casino lost $59.1 million last year, expects additional losses and warns it may never be able to operate profitably, according to a report filed with securities regulators.

JCC Holding Co., which opened Harrah's New Orleans Casino in late October, recorded sharply lower revenue than expected and sustained a loss of $5.88 per share in 1999, according to the company's annual 10-K report filed late last week with the Securities and Exchange Commission.

Revenue totaled $41.1 million.

JCC Holding is a publicly traded company, of which Las Vegas-based Harrah's Entertainment Inc. owns 43 percent. The casino is managed by a Harrah's subsidiary and carries the Harrah's brand name. The JCC Holding report does not concern Harrah's financial situation.

Although the company has filed monthly reports of its gambling revenue with the state, the SEC filing is the first in-depth look at the casino's operations since it opened on Oct. 28. Companies are required to file annual public reports of liabilities. In addition to complying with securities regulations, the reports can insulate the companies from lawsuits in the event something goes wrong.

Harrah's has said it is committed to the casino and is in for the long haul, relying on marketing the gambling hall to players at Harrah's other far-flung properties across the U.S. However, the project's critics have long said it cannot succeed financially without relief from its $100 million annual state tax.

According to the report, JCC Holding's losses were due primarily from lower-than-expected winnings from gamblers, plus $35.2 million in pre-opening expenses. During its first four full months of operation, the casino has averaged about $18 million a month in winnings.

However, industry analysts have said the casino probably needs to sustain monthly winnings of $21 million to $25 million to break even. The report said that although the visitor total of 1.1 million in 1999 exceeded expectations, "revenue fell short of expectations due to the fewer- than-anticipated gaming players visiting the casino."

State police figures have shown that the casino typically lags far beyond Louisiana's 13 riverboat casinos in average money won from each visitor.

The report to the SEC also contains several warnings:

In addition, JCC Holding may not be able to meet its payments on $464 million in long-term debt and at least $12.5 million in annual payments required to the city.

Earlier this year, Harrah's Entertainment, which has guaranteed the tax payments to the state, took over the daily payments to free up capital for JCC Holding to develop the project.

The report says that JCC Holding does not expect to make financial targets required by April 1, 2001, that would automatically require Harrah's to renew the tax guarantee.

There has been widespread speculation that JCC Holding will seek a tax break from the Legislature, although company officials have announced no plans to do so.

"The company cannot assure that, without the funding of the daily payments due to the (state) under the minimum payment guaranty, its sources of working capital will be sufficient" for JCC to operate the casino, the report said.

JCC Holding said it could not comment beyond the report filed with regulators.

As of March 17, the casino employed 2,652 full-time employees and 259 part-time workers, the report said.

The casino project was approved by the Legislature in 1992. Harrah's Jazz Co. opened a temporary casino in May 1995, but the gambling hall closed in November 1995 and filed for bankruptcy reorganization. JCC Holding emerged from the reorganization in late 1998.