Harrah’s Entertainment starts making tax payments for casino

Alan Sayre

Wednesday, March 1, 2000 | 11:16 a.m.

NEW ORLEANS -- Casino giant Harrah's Entertainment Inc. of Las Vegas said Tuesday that it has taken over the $100 million annual tax payment the New Orleans casino is obligated to make to the state.

Harrah's holds 43 percent share of the casino's ownership company, JCC Holding Co., which is responsible to the state for making equal daily payments that will add up to the entire annual tab, no matter how much the casino takes in from winnings from gamblers.

The two companies made the announcement after the financial markets closed Tuesday. Harrah's will guarantee the $100 million payment that will be owed the state from April 1, 2000, through March 31, 2001.

In a news release, JCC Holding said Harrah's had initially guaranteed the tax payments for the first year of operation as part of the financial arrangements between the two companies that led to the casino's opening in late October. Until Monday's installment, the daily payment of about $274,000 had been made by JCC Holding.

"These payments by Harrah's Entertainment Inc. will provide additional liquidity for the project in view of the cash pressures on JCC associated with the daily minimum payment to the state," said JCC Holding president Fred Burford.

Harrah's covered the tax payment to the state for Monday and is expected to continue to make the payments, JCC Holding said. Through Harrah's making the payments, JCC "will be able to meet its normal operating expenses through fiscal 2000," which ends March 31, 2001, JCC Holding said.

Under its contract with the state, JCC Holding is required to find a guarantor for the state tax for each year of operation, effective April 1 of each year, whether the casino stays in business or not for the entire year, Burford said.

The casino, which is located across from the French Quarter and carries the Harrah's brand name, won $20.9 million from gamblers in January, $14.8 million in December and $16.2 million in November. The daily payments to the state have translated into a tax rate of above 50 percent.

"This insures all of our daily payments," Burford said. "The issue has never been paying our employees and vendors. It has been making this huge payment to the state."

Various Wall Street analysts have said the casino needs to win $21 million to $24 million per month from gamblers to break even. To be a long-term success, analysts have put the figure at $26 million to $31 million per month. JCC and Harrah's have been tight-lipped about making long-term revenue projections.

Asked if the casino would seek a lower tax from the Legislature, Burford said: "We need to take more time to evaluate our options."

For now, he said, the casino will be able to continue building its business without the burden of the tax payment.

"It gives us some breathing room," Burford said.

Casino critic C.B. Forgotston said he still believed the project would ask for tax relief from the Legislature this year.

"I think they have to have tax relief by the end of October or they won't be able to find anyone to guarantee the $100 million," Forgotston said. "If they don't get tax relief, who's going to guarantee it?"

JCC Holding is the successor company to Harrah's Jazz Co., which originally owned the project. Harrah's Jazz shut its temporary casino after less than seven months of operation in November 1995 and filed for bankruptcy reorganization.

The $100 million minimum tax was a major sticking point in the reorganization efforts. Gov. Mike Foster insisted that the full tax, called for in the original 1992 law that authorized the casino, be paid and guaranteed. However, a simple majority of the Legislature can reduce the tax.

Also on Tuesday, JCC Holding said that Harrah's Chairman Phil Satre will become a member of the JCC board.

"Any time you have a person of the stature of Phil Satre on your board, it's a positive," Burford said.