Isle of Capri taking hit in LV, will sell Lady Luck

David Strow

Thursday, March 14, 2002 | 11:08 a.m.

Less than two years after its sale to Isle of Capri Casinos, downtown Las Vegas' Lady Luck hotel-casino is back on the sales block.

The Biloxi, Miss., casino operator said today it plans to sell the struggling hotel-casino, along with a second property in Tunica, Miss. It said it will take a one-time asset impairment charge of $55.4 million -- $34.5 million after taxes -- in the quarter ending April 28 in connection with the planned sale.

Isle of Capri bought the 792-room hotel-casino from Andrew Tompkins in September 2000 for $14.5 million. It paid Tompkins an additional $31 million for rights to the Lady Luck name.

"In the long run, the Lady Luck is not the best place for us to be in Las Vegas," said John M. Gallaway, president of Isle of Capri. "Downtown is a struggle. We felt we ought to take a look and see if someone else can do a better job there.

"This is not a major change in direction. This is just a reconfirmation of what we've been doing."

The two properties have been the trouble spots for Isle, which owns and operates 15 casinos across the country. Over the nine-month period ending Jan. 28, Lady Luck Las Vegas recorded negative cash flow of $2.26 million. The Tunica property lost $5.46 million on a cash flow basis.

For that reason, selling the two properties would be a big positive for Isle, said Larry Klatzkin, gaming analyst for Jefferies & Co. The performances of both casinos should improve, but he still projects they'll lose $3 million on a cash flow basis in the next fiscal year.

"These are the two problem childs," Klatzkin said. "I take this as a positive."

Even if Isle were to close both properties, it would be a positive for the company, Klatzkin said. That's because Isle would get a tax credit of more than $20 million from the write-downs, and would end its exposure to their negative cash flow, Klatzkin said.

Gallaway, however, flatly denied talk that the properties would close.

"It is not our intent to close this place (Lady Luck Las Vegas)," Gallaway said. "A few people have expressed interest, so we'll talk to them."

Selling the casinos, however, could be tricky. Gaming properties are typically valued on a cash flow basis, and neither one produces positive cash flow.

Boyd Gaming Corp. should be expected to at least look at the possibility of buying the Lady Luck Las Vegas because of its substantial downtown presence, said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. Boyd is the largest downtown operator, with three casinos in the Fremont Street area.

But Zarnett and others believe it's more likely an individual will step up to acquire the Lady Luck, which employs 521 people.

"There's a lot of very successful casino executives who, over the years, have made a fair amount of money, and are looking for something to do, something to keep busy with, a property that's theirs," Zarnett said. "On occasion, when they're able to put together their skill sets with a local property, where they're making a difference, they can turn that property around."

One way Isle can make the property more attractive, Gallaway said, is by proceeding with the development of timeshares in one of the Lady Luck's hotel towers. This project was approved by Las Vegas city officials in January.

"The timeshares are a terrific idea, and we'll continue to move along with them," Gallaway said. "Whoever buys it will find that a great advantage."