LV Hilton lawsuit could open doors to Park Place dealing

James Rutherford

Tuesday, July 3, 2001 | 11:01 a.m.

Much of what happened inside Park Place Entertainment Corp. after the unexpected death last year of its hard-driving chief executive, Arthur Goldberg, remains cloaked in the official secrecy of the company, the largest casino operator in the world.

That silence could end, however, if a legal battle that has been developing for months over ownership of the venerable Las Vegas Hilton, where Elvis Presley once performed to sellout crowds, goes to the courtroom.

Assertions that Hilton Hotels Corp. engineered a swift behind-the-scenes takeover of the empire that Goldberg left behind -- ownership or ownership interests in 29 casinos, including the Las Vegas Hilton -- are the basis of a lawsuit filed in Clark County District Court in January by Edward Roski Jr., a Los Angeles real estate developer and an owner of the NBA's Los Angeles Lakers and the NHL's Los Angeles Kings.

Roski has contended that Hilton's management poisoned his $365 million deal with Park Place to buy the hotel after Goldberg died on Oct. 18. Roski says the deal was abhorred by Barron Hilton, the Hilton chairman, who has an office in the Las Vegas Hilton and is a Park Place director and its largest individual shareholder. Hilton owns 7.7 percent of Park Place, and the Conrad N. Hilton Fund, a charitable foundation named for his father, owns an additional 5.5 percent.

All the adversaries in the fight declined to comment on the litigation, and no trial date has been set. But if an out-of-court settlement is not reached, the world could get a rare glimpse into the nasty details of how deals are done -- and undone -- in the gambling industry.

Reports that the Las Vegas Hilton deal was in tatters surfaced on Jan. 4, when Park Place announced without explanation that the sale was not likely to be completed and that Roski had "asserted alleged breaches by Park Place under the agreement." A couple of weeks later, Park Place sued Roski in state and federal court to retain his $20 million deposit on the Hilton, and for more than $20 million in damages, contending that he had reneged on the deal.

Those "breaches," Roski asserted in a countersuit, were that Park Place gutted the Las Vegas Hilton of experienced management and redirected its biggest gamblers to other Park Place casinos, particularly Caesars Palace.

Roski is far from an amateur at high-stakes business dealings. He owns the Staples Center, where the Lakers and Kings play, and is president of Majestic Realty, a commercial real estate development company with holdings in nine states. His personal fortune was valued by Forbes last year at $900 million. But he asserted that the damage at the Hilton was such that he was unable to secure a $260 million mortgage to finance the purchase.

As it turned out, in the last months of Goldberg's life, the Hilton's cash flow, a standard measure of a casino's profitability, had nose-dived to a negative $1 million in the quarter ending Sept. 30, 2000. The Hilton posted $31 million in cash flow for all of last year, well below the $59 million of 1999.

In its Jan. 4 news release, Park Place said it would "cease efforts to sell the property and continue to operate it" if the sale collapsed, which it clearly had.

The company's position was a turnabout from the posture taken by Goldberg, who had been eager to sell the hotel, now 30 years old. It had fared poorly lately in the face of new, more flamboyant competition on the Las Vegas Strip.

What had changed, Roski said in his lawsuit, was that Goldberg was dead and that Hilton Hotels was firmly in charge.

Thomas E. Gallagher, Hilton's chief administrative officer and general counsel, assumed Goldberg's title and his board seat the day after Goldberg died of complications from a bone marrow disease.

Henri Lewin, a retired Hilton Hotels executive and confidant of Barron Hilton, said Gallagher's qualification for the job of running Park Place Entertainment's vast holdings was that he was "noncontroversial." If there was dissent over his appointment, it never left the circle of directors who elected him at the behest of Stephen F. Bollenbach, Park Place's chairman, who is also the chief executive of Hilton Hotels.

Bollenbach has previously denied Hilton Hotels has increased its influence over Park Place. In June, he said Park Place alone had made the decision to keep the Las Vegas Hilton, calling rumors to the contrary "grassy knoll theories."

"(The rumors) are not true ... that's about all you can say about it," Bollenbach said.

If Roski's assertions about Hilton Hotels are true, the power shift in the gambling business would be as stunning as the original $3 billion merger of Hilton Hotels and Goldberg's Bally Entertainment Corp. in 1996. Under that deal, in which the combined company kept the Hilton name, Goldberg held control of all gambling assets of the hotel chain. To all appearances, Hilton Hotels has reasserted control of those gambling assets, which it spun off in 1998 in the formation of Park Place.

Those assets grew substantially, as Goldberg bought properties in Mississippi, Atlantic City and Las Vegas, capped by his $3 billion purchase in 1999 of Caesars World Inc.

Park Place generated $4.9 billion in revenue last year. Even with its stock languishing in the $10-to-$12 range, the company still has a market capitalization of $3.5 billion, compared to $4.1 billion for Hilton Hotels.

Goldberg's business acumen was such that Bollenbach, whose position as chairman was largely titular during Goldberg's reign, recognized the value in leaving him alone. But it was no secret in the gambling world that there was tension between them, partly because Goldberg wanted Bollenbach's job. Bollenbach, for his part, had left Goldberg seething when, in 1999, he sold 5 million shares of Park Place stock only weeks after Park Place opened the $785 million Paris Las Vegas resort on the Strip.

Goldberg was also busy consigning the Hilton name to gambling oblivion, wiping it off the Flamingo casinos in Las Vegas, Reno and Laughlin. It was a blow to Hilton corporate pride and hardly a plug for the vaunted hotel chain, which sells time-share apartments in the Flamingo and Hilton in Las Vegas and is building a third time-share complex, this one 33 stories, at the north end of the Strip.

The spinoff agreement required Goldberg to retain the trademark red "H" on the Las Vegas Hilton, but only until 2003. Roski, or any other buyer, was under no such obligation. That apparently did not sit well with Barron Hilton. "It is his home; he loves the hotel," Lewin said.

The Hilton's gleaming 30-story tower has been Barron Hilton's home in Las Vegas since he convinced his father, Conrad, that casino gambling was an acceptable way to make money. When they bought the property from billionaire Kirk Kerkorian in 1970 for $37 million, an astounding price at the time, it was the largest resort hotel in the world. There, Elvis Presley staged his comeback in the 1970s and Barbra Streisand made her Las Vegas debut in 1969.

While Barron Hilton is officially retired from day-to-day operations, his affection for the hotel has never wavered, and Lewin said he was "very involved" in it until control passed to Goldberg after the spinoff. "He never would have sold the hotel," Lewin said. "He bought it and made it a success. He wanted this to be the flagship for Hilton's fleet of hotels." As for Roski's price, "$365 million, that's nothing," Lewin said. "It's a gift."

Despite the property's lackluster performance last year, or perhaps because of it, Gallagher appears determined to squelch any talk that the Las Vegas Hilton may yet be offered for sale. He was upbeat about it at Park Place's annual shareholders' meeting in May. He said Park Place was repositioning it as a convention and meeting destination, the Hilton's "bread-and-butter business," as he described it -- and has said the property should receive a significant boost when the Las Vegas Convention Center's 1.3 million-square-foot expansion opens in January.

In his lawsuit, Roski is asking the court to force Park Place to go through with the sale, but at a reduced price to compensate for its "diminished value."

Gallagher has said it is not for sale.

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