Las Vegas Hilton sale might be in jeopardy

Lisa Snedeker

Friday, Jan. 5, 2001 | 9:19 a.m.

Park Place Entertainment Corp. says the proposed sale of the Las Vegas Hilton to a Los Angeles developer is in jeopardy and predicts it will badly miss its fourth quarter earnings estimate.

Gaming analysts saw the news as evidence of a downturn in the Las Vegas economy.

Officials for the gaming giant announced Thursday they expect to report little or no profit in the fourth quarter, compared with analyst expectations of 13 cents per share and a profit in the third quarter of $68 million, or 22 cents per share.

Park Place said a dispute has arisen over the delayed completion of the Hilton sale. Ed Roski Jr., owner of the Silverton hotel-casino and developer of the $400 million Staples Center, already paid a $20 million deposit for the Hilton. The agreement called for him to close the deal by Wednesday or pay an additional $5 million to extend the deadline to Feb. 7.

But Roski, who also is an owner of the Los Angeles Lakers and the Los Angeles Kings, has not provided the company with the extension payment "and has asserted alleged breaches by Park Place under the agreement," Park Place said in a statement.

Park Place didn't elaborate, but denied wrongdoing, and said it will "endeavor to complete the sale or pursue its remedies under the agreement."

Repeated calls to Roski were not returned.

The sale of the 3,200-room Las Vegas Hilton Hotel for $365 million to Roski was announced in July.

"If, as the company believes is likely, Mr. Roski fails to complete the purchase, then Park Place expects that it will cease efforts to sell the property and continue to operate it," a Park Place statement said.

Roski had said he planned to transform the Hilton into a locals-oriented property, but he wasn't able to get the financing he needed, according to Jason Ader, a gaming analyst for Bear Stearns.

"He (Roski) talked to all the usual sources and the demand wasn't there," Ader said. "The price was too high relative to the property's cash flow."

As the lending environment became more difficult at the end of the year, "it became increasingly apparent this transaction was in jeopardy," said David Anders, gaming analyst for Merrill Lynch.

The Hilton's cash flow has declined in recent quarters, Anders said. In the third quarter, cash flow was a negative $1 million - down $13 million from a positive $12 million in the same quarter of 1999.

The news sent Park Place stock down to 10 at close - down 16.23 percent. Several prominent gaming analysts downgraded the stock.

Park Place blamed the lower-than-expected earnings on several factors - poor table game "hold" or win totals at its Las Vegas Strip-area properties; the level of play declined at Bally's and Paris compared with a year ago; the impact of winter weather on its casinos in Atlantic City, Mississippi and Indiana in December; and a "continued competitive environment" in the Mississippi market.

"Obviously hold percentage or luck is out of their control," Ader said.

The company also said it will record a $15 million one-time charge during the quarter related to "compensation and benefits costs" associated with the contract of former Chief Executive Arthur Goldberg, who died in October.

Anders said he was surprised by the magnitude of Park Place's losses.

"Normally, when casinos miss estimates, it's not as significant," he said. "You can't have this type of mess without some implications for gaming markets in general."

Park Place's losses could be evidence of a slowdown in the Las Vegas gaming industry that began in August, Ader said.

"I believe 2001 will be a year that gaming revenues slow down, unless there's some new reason for people to go to Las Vegas," he said. "There's nothing new happening for the next couple years."

Park Place is the largest gaming company in the world, with an interest in 28 gambling properties, including Caesars, Flamingo and Hilton. It has 28,000 hotel rooms and 57,000 employees.

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