Harrah’s has potential bargaining chip for Binion’s Horseshoe

By Liz Benston (contact)

Friday, Dec. 19, 2003 | 10:58 a.m.

Harrah's Entertainment Inc.'s pending acquisition of Midwest gambling boat operator Horseshoe Gaming Holding Corp. includes a $19 million promissory note held by Horseshoe owner Jack Binion against Binion's Horseshoe, a downtown casino owned by his sister Becky Binion Behnen.

Harrah's did not mention the debt in September when announcing the $1.45 billion Horseshoe deal. But the note, secured by the Binion's property, surfaced recently in an ongoing lawsuit against the downtown casino by the Fremont Street Experience LLC, the membership company made up of downtown casinos that maintains the retail mall and light canopy downtown.

The note, which would allow Harrah's to foreclose on the downtown casino to collect the debt, may soon emerge as a key bargaining chip for Harrah's as it tries to obtain the rights to the lucrative Horseshoe casino brand in Nevada.

Harrah's executives said in September the company was interested in acquiring the downtown casino for the purpose of obtaining the rights to the Horseshoe name in Nevada -- rights now owned by Behnen.

Binion used to manage the downtown casino but transferred his interest to Behnen to settle a family lawsuit. Binion retains the promissory note as well as a 1 percent ownership stake in the property that allows him to maintain a Nevada gaming license.

He has built up the Horseshoe brand outside Nevada, where profitable gambling boats in Tunica, Miss., Bossier City, La. and Hammond, Ind., caught the eye of Harrah's and other competitors.

Harrah's will not acquire Binion's 1 percent stake in the downtown property as part of the Horseshoe Gaming deal, Harrah's spokesman David Strow said.

In a court brief filed in October, Binion's Horseshoe attorney Dominic Gentile said Harrah's could conceivably obtain the rights to the Horseshoe name in Nevada by foreclosing on the promissory note. However, Harrah's also could take an ownership stake or buy the casino outright instead of initiating a foreclosure, he said.

Harrah's declined to speculate on how the company will handle the note if the transaction is consummated.

"We are currently looking at all of our options with regard to Binion's Horseshoe," Strow said. "We remain very interested in acquiring the rights to the brand in the state of Nevada."

Any conceivable outcome of the Fremont Street Experience lawsuit could help Harrah's, Gentile said in a court filing.

A judgment against Binion's Horseshoe could "financially cripple" the casino by lessening the property's ability to repay its debts, he said. Yet if Binion's wins the case, it could be a more valuable asset for Harrah's without a multi-million-dollar judgment on its books, he said.

Behnen and attorneys for Binion's and the Fremont Street Experience could not be reached for comment.

Behnen told the Associated Press for an AP story Thursday that the company had been approached by Harrah's.

"I can't say anything at this point," she told the AP. "We are on ground zero."

"You could say neither of us are intent on wasting each other's time. The talks have been very amicable," Behnen's attorney Jerome DePalma told the AP.

Fremont Street Experience sued Binion's in August 2001, claiming the casino -- one of the company's original members -- failed to pay required assessments of at least $1.9 million for operating expenses and other costs.

Horseshoe filed a counterclaim against the Fremont Street Experience, alleging mismanagement of the company and a breach of the operating agreement. The Fremont Street was "unjustly enriched" at Binion's expense, the suit said.

In subsequent court briefs, Binion's has argued that its officials didn't attend regular member meetings of the Fremont Street Experience and therefore didn't approve of the assessments used to pay for the upkeep of the multi-million-dollar canopy. In court filings, the property has said that immediate payment of $1.9 million in alleged past-due assessments -- a figure that could now total more than $3 million -- could shut the casino down.

Evidence of financial problems at the privately held casino has surfaced in recent years, though the extent of those problems remains unknown.

Last month, the IRS slapped a $5 million tax lien on the property for allegedly falling behind on payments for employee payroll withholding taxes and Nevada Power Co. confirmed that the property was behind on its electric bills.

The state Gaming Control Board -- which has declined to discuss the casino's financial situation -- says it is aware of the situation.

"There are a lot of public issues regarding Binion's Horseshoe and the Board is aware of them and keeping on top of them," said Keith Copher, chief of the Gaming Control Board's enforcement division.

Harrah's expected to close the Horseshoe Gaming deal by the first quarter of 2004. An extension by the Federal Trade Commission to further investigate the deal could push the transaction into the second quarter. Harrah's also must sell its Shreveport, La., casino to alleviate concerns about market concentration in the area, where Harrah's also owns a racetrack casino, Louisiana Downs. Acquiring Horseshoe's Bossier City, La., casino would give Harrah's three casinos in the region.