Las Vegas Hilton sticking with convention marketing strategy

By Liz Benston

Tuesday, March 4, 2003 | 11:05 a.m.

Park Place Entertainment Corp. expects to focus on driving convention business to its Las Vegas Hilton property, officials said today following an announcement that the company had settled long-standing litigation initiated after a failed deal to sell the property more than two years ago.

Park Place said Monday it had settled lawsuits involving Los Angeles developer Ed Roski Jr. that originated when Roski failed to close on the sale of the Las Vegas Hilton by a January 2001 deadline.

Terms of the agreement were confidential, but Park Place said it would take a one-time charge of $3.8 million for the fourth quarter as a result of the settlement.

"Clearly there are some high-end players ... but our principal focus is on a convention and business hotel, given its prime location next to the Las Vegas Convention Center," Park Place spokesman Robert Stewart said.

Stewart declined to say whether the company would consider selling the property at some point in the future.

"We're delighted that this thing is settled and can move forward with assessing plans for the property," he said.

Park Place is expected to continue its convention strategy -- a position it established when it initiated the lawsuit against Roski, Deutche Bank Securities casino analyst Marc Falcone said.

"I think that's the course they will still take, to try and maximize the operations of the property through the benefits of the expanded convention center," Falcone said. The expanded Las Vegas Convention Center is adjacent to the Hilton.

The company may still try to unload the property, he said.

"I think if the company was approached with the right offer I think they would consider it. But only at the right price."

"I don't think this changes anything," McDonald Investments analyst Dennis Forst said of the settlement.

"All things being equal I think they would probably try to sell -- but that hasn't worked in the past," he said.

The Las Vegas Hilton was the world's biggest hotel when it opened in 1969 as the International Hotel but it's off-Strip location was also called a major gamble. Billionaire Kirk Kerkorian's property was sold to Hilton in 1973, which then spun off the property and other gaming holdings to Park Place in 1998. The hotel has since been challenged by newer and more lavish resorts on the Strip that are also hosting convention-goers.

It generates a fraction of Park Place's overall cash flow in the region.

The property, along with the Reno Hilton, Caesars Tahoe and the Flamingo Laughlin, recorded a combined $62 million in cash flow last year. Including the Flamingo Reno, which was sold in late 2001, the properties reported $60 million in cash flow a year earlier.

Cash flow, typically defined as earnings before interest, taxes, depreciation and amortization, is a key indicator of casino performance.

By comparison, the company's Flamingo Las Vegas yielded $91 million in cash flow, Caesars Palace reported $81 million and the combined Paris-Bally's properties reported $189 million.

Cash flow margins improved at the Hilton in the fourth quarter, the company said in an earnings statement last month.

The failed sale hasn't tainted the property's future prospects, said Carlton Geer, director of commercial broker CB Richard Ellis' Global Gaming Group in Las Vegas.

"I see some good things happening for them in the future with the monorail, the business that's driven by Paradise (Road) and the development at (nearby luxury condo tower) Turnberry Place," Geer said.

Park Place's new chief executive, Wallace Barr, appears to be focusing on improving property performance and cross-marketing strategies, he said.

Barr replaced Thomas Gallagher, who resigned under pressure in November and amid concerns about the company's falling stock price. Gallagher, former general counsel for Hilton Hotels, replaced Arthur Goldberg after Goldberg's death in 2000.

Casino transactions have long escrow periods, which can complicate financing deals if the value of the asset changes during that time, Geer said.

"Transactions not closing isn't unique. The significance is that (the Las Vegas Hilton) was such a large transaction and a historical asset in Las Vegas."

Both parties expressed satisfaction with the settlement.

"We are pleased to announce that the parties have reached an amicable settlement of the litigation related to the Las Vegas Hilton," Park Place Senior Vice President and General Counsel Bernard DeLury said in a statement Monday.

"We're pleased by the outcome," added Craig Cavileer, general manager of the Silverton casino hotel in Las Vegas.

Roski owns the Silverton and has a stake in the Staples Center in Los Angeles as well as the Los Angeles Kings and Los Angeles Lakers professional sports teams. His Majestic Realty Co. develops business parks nationwide.

Roski is focusing on developing a mixed use casino and retail project on 100 acres he owns next to the Silverton and will continue remodeling projects begun last year at the property, Cavileer said. They will include $22 million of room renovations as well as upgraded restaurants and bars, he said.

Park Place agreed to sell the Las Vegas Hilton to Roski for $365 million in 2000, expecting to take a $32 million non-cash loss on the sale.

Goldberg, who was chief executive at the time, said the sale of the Las Vegas Hilton would allow the company to "consolidate its high-end gaming operations" at Caesars Palace. Park Place acquired Caesars Palace in 1999 when it bought the Caesars World Inc. chain. The flagship property competed with the Las Vegas Hilton for high-rollers, analysts had said.

Park Place fired off the first legal shot in January 2001, accusing Roski of breach of contract in federal and state lawsuits. Park Place asked for a declaratory judgment entitling it to keep Roski's $20 million deposit. The company also asked for more than $20 million in damages.

Roski immediately filed a countersuit in state court, accusing Park Place of breach of contract over a "significant and substantial downward trend" in cash flow at the Las Vegas Hilton, thwarting financing for the deal. Roski also asked for unspecified damages.

Much of the Las Vegas Hilton's high-end business had been moved to other Park Place properties in anticipation of the deal. The purchase contract called for Park Place to retain all of its high-end customers.

Roski also claims that he was to have received $30 million in financing from Park Place and that Hilton Hotels and its chairman, Barron Hilton, interfered with Goldberg's agreement to sell the hotel.

Hilton Hotels had been an unsuccessful bidder on the property, Roski said. Hilton and its chairman attempted to block the sale, finding it offensive that Park Place would sell what had been Hilton's flagship brand in Las Vegas, he said.

Roski's suit accused Hilton Hotels of exerting influence over Park Place after Goldberg's death by installing a management group dominated by officers loyal to Hilton. The two companies maintain close ties, with Hilton Chief Executive Stephen Bollenbach serving as board chairman of Park Place and Hilton board members Barron Hilton and Steven Crown also serving on Park Place's board.

Sources said that Roski had also held unsuccessful talks with financier Carl Icahn, now the owner of the Stratosphere, and International Game Technology Chairman Chuck Mathewson about becoming equity partners in the property.

Roski had aimed to reposition the Las Vegas Hilton from a high-end casino to a mid-level property and also had plans to boost its casino, food and entertainment offerings to attract more locals and compete with neighborhood casinos on the Boulder Strip. Roski also wanted to retain convention traffic generated by the adjacent Las Vegas Convention Center.

Federal securities laws require Park Place to record the one-time charge in the fourth quarter of the previous year because it has not yet filed its annual report with the Securities and Exchange Commission.

Including the charge, the company reported a net loss of $21 million, or 7 cents per share, in the fourth quarter. That compares to a loss of $18 million, or 6 cents per share, without the charge as reported informally last month. Adjusted earnings, which exclude one-time charges, remain the same at $16 million, or 5 cents per share.