Friday, Jan. 17, 2003 | 11:05 a.m.
Building a megaresort on the Las Vegas Strip is supposed to be easy money, but that wasn't the case with the $1.4 billion Aladdin hotel-casino, the latest of the city's glittery gambling temples.
The Aladdin, which filed for bankruptcy protection just a year after its August 2000 opening, is now looking for something that has long attracted the broke and broken to Las Vegas: a second chance.
The Arabian nights-themed casino needs a buyer, one with pockets deep enough to cover a $400 million to $500 million asking price. A new owner would also need the cash and the vision to reinvent it -- and find a way for the casino to stop losing money on its gambling operations.
"The property got off to a bad start," Bill Timmins, Aladdin president and chief operating officer, said recently. "It never really had a chance."
What seemed like a good business plan, one that industry analysts had even touted before the casino opened, turned out to be deeply flawed.
The Aladdin, which has 2,565 hotel rooms, quickly flopped after running over its construction budget by about $400 million. There were delays while it was built and the casino even had to postpone its grand opening for a day because it needed more time to test its fire safety system.
Design flaws including poor casino access for pedestrians and vehicles kept many visitors away. Those who managed to find their way inside discovered there was relatively little to do other than gamble and eat because the Aladdin's owners had broken a steadfast rule in Las Vegas -- give the people plenty of nightlife.
Soon the Aladdin could not make interest payments on its bond debt. Then came the precipitous tourism dip following the Sept. 11 terrorist attacks. The Aladdin was forced to file for bankruptcy on Sept. 28, 2001, only the third Strip casino in two decades that filed for bankruptcy.
After more than 15 months of reorganizing, the Aladdin limps along with a work force that has been reduced by 30 percent. It's trying to draw more gamblers and their money while seeking a suitor.
Aladdin officials have refused to publicly name any possible bidders. Whoever buys the casino would require the approval of U.S. Bankruptcy Court Judge Robert C. Jones, who is overseeing the reorganization.
But in the past several months, the Aladdin has taken small steps toward solvency that have helped stave off a desperation sale. Court records indicate the casino has managed to settle a pivotal lawsuit that threatened to derail sale efforts and completed several projects that now give people a reason to spend money inside the casino.
"The property is much more competitive than it was when it opened," Timmins said. "We've made a lot of headway because we had to."
Progress has not been easy, given the competing interests and dozens of lawyers involved in the costly bankruptcy proceedings. The Aladdin owes secured creditors more than $537 million and about $85 million to unsecured creditors, according its most recent monthly operating statement.
Part of the reason the banks have been patient is because the Aladdin should show about $40 million in cash flow at the end of the year, almost double what it was in 2001, Timmins said. By the end of November, the casino had generated about $33 million in cash flow, still tens of millions less than what a thriving casino would be earning.
Cash flow, reflecting earnings before interest, taxes, depreciation and amortization, is a widely used barometer of profitability in the casino industry, and for companies in bankruptcy.
At least "on an EBITDA basis it's still making money," said Andrew Zarnett, a Deutsche Banc Securities casino analyst.
On the hotel side of the business, money continues to trickle in thanks to occupancy rates that have hovered above 90 percent and consistent room charges. But the property is functioning as an overflow hotel for the Strip, not ideal because the Aladdin was built to operate primarily as a casino, not a hotel.
Timmins acknowledged that the Aladdin is not making its money on slots and table games. Space devoted to gambling is small by Las Vegas standards -- the main casino floor is about 100,000 square feet.
At least, Timmins said, the Aladdin can now draw more people than in the past. With a new adult show and popular nightclub, a 400-seat showroom for entertainment acts and the second biggest spa in Las Vegas, people have reason to drop their dollars at the Aladdin.
The Desert Passage mall continues to draw more than 45,000 people a day to its retail shops and restaurants.
The newest attraction is a new Spanish steakhouse and Latin nightclub, Sevilla Las Vegas, which opened Thursday in the Desert Passage. Entertainer Charo is scheduled to perform her "Bravo" show at the 35,000-square-foot club.
William Brandt Jr., president of Development Specialists Inc., a bankruptcy restructuring company headquartered in Chicago, said the Aladdin is probably close to a sale, given what's at stake for the company.
"The Aladdin doesn't serve anybody's purpose limping along without some kind of outcome," he said. "It will not just continue to drift for another year. Giving a casino a year in bankruptcy is not unreasonable. Giving it a second year to see where it goes will be seen as questionable by many people."
Letting it close is even more unthinkable for others.
"If a very large casino closed that would be a sore point for all the Las Vegas area," said professor Bill Thompson, a gambling expert at the University of Nevada, Las Vegas. "We would have to answer the question: What's wrong with the economy? That's not a question we want to answer."
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