Harrah’s: Casino won’t work without tax break, hotel

Alan Sayre

Tuesday, Nov. 14, 2000 | 10:19 a.m.

NEW ORLEANS - Harrah's New Orleans Casino is doomed without reducing its state taxes 50 percent and adding a hotel and unlimited restaurants so it can compete with Mississippi resorts, a city-state study panel was told Monday.

The casino simply has not met - and cannot be expected to meet - once-lofty projections of how much money it would take in from gamblers, the panel was told during the casino's first official public statement of what it wants to stay open.

The casino's ownership company, JCC Holding Co., says the casino likely will shut its doors March 31 without tax relief, costing 3,000 jobs. The company wants the minimum tax lowered to $50 million during the first year of a new deal, followed by $55 million the second year and $60 million thereafter.

In addition, the committee was told, JCC Holding will meet its debt holders in a "friendly bankruptcy" proceeding that will result in a top-to-bottom reorganization of the company.

Unlike when the original owner, Harrah's Jazz Co., filed for bankruptcy in 1995, the casino would keep operating and vendors would be paid, said Richard Nevins, of the Los Angeles-based investment banking firm of Jefferies & Co., which is handling a new financial plan for JCC Holding.

"Because of the level of money lost in the first year, there is no way to do this without restructuring," said Phil Satre, chairman of Harrah's Entertainment Inc., which holds about 43 percent of JCC Holding.

Nevins said that if the Legislature can agree to the change the casino law to cut the tax, lift a ban on the casino having its own hotel and allow the casino unlimited restaurants, the entire plan might be finished by March 31.

That date is the deadline when Harrah's Entertainment's guarantee of the $100 million tax expires. Satre said again Monday that Harrah's would not renew the pact under the current terms.

Negotiations already have begun with banks and some of JCC Holding's creditors, Nevins said.

Satre said the casino has seen encouraging signs of revenue growth, but the downtown New Orleans market simply missed both Wall Street and Harrah's projections of how much gamblers would be willing to lose. Most of the projection problem stemmed from overestimating how much convention visitors and tourists in the city would go to the casino, he said.

"We weren't even close to the mark," Satre said.

The casino has been winning about $22 million monthly recently, below the $29 million Harrah's projected in 1998.

To compete with the Mississippi coast casino market and to attract tourist-gamblers from other regions of the country, the casino also needs its own hotel and a wide variety of restaurants, both of which state law currently bans, Satre said.

William Eadington, a professor of gambling-public policy at the University of Nevada, Reno, said it was doubtful that any other casino operator would be willing to take on the project under the current terms. He also said it was unlikely that the state or city could operate the casino as a long-term success.

Converting the city-owned casino building into another use probably would result in more competition to existing businesses, such as restaurants, than an unrestricted casino would, Eadington said. In addition, another use would not generate the same revenue, said Eadington, who made a paid presentation for Harrah's Entertainment.

"Because of the tax revenue, the state and the city are de facto partners in the casino," Eadington said. "It would be suicidal for the state and the city to allow the casino to collapse."

The casino's tax rate actually would be 18.5 percent - the same as Louisiana riverboat casinos pay - with the applicable minimum, which the riverboats do not have.

Under the "friendly bankruptcy" plan, which would have to be approved by a federal bankruptcy judge, about $500 million in various JCC Holding debt would be converted to equity in the form of stock. Current JCC Holding stockholders would get nothing, Nevins said. Harrah's Entertainment would wind up with 30 percent of the reorganized company.

Harrah's Entertainment has been making the $274,000 daily tax payment to the state, making it one of JCC Holding's largest debtholders.

The city-state study committee is expected to make a non-binding recommendation to the Legislature and Gov. Mike Foster later this month. Foster has said he will call a special legislative session if there is widespread consensus of what to do.