Board recommends OK for purchase of Aladdin

Thursday, Aug. 12, 2004 | 11 a.m.

CARSON CITY -- A group that is buying the Aladdin hotel-casino out of the bankruptcy court in a $637 million deal has big plans to make the resort a major competitor with others on the Las Vegas Strip.

The Aladdin will be renamed Planet Hollywood, its hotel will be a Sheraton, it will create a 1,300-seat theater on the mezzanine and will build a 500-unit time share on 4.6 acres at the rear of the hotel.

After a six-hour hearing Wednesday, the state Gaming Control Board recommended approval for the group that intends to spend $100 million on improvements. The group is led by Doug Teitelbaum, managing principal for Bay Harbour, a company that invests in distressed companies; Robert Earl, co-founder of Planet Hollywood; and Starwood Hotels and Resorts Worldwide, which owns the Sheraton brand.

Earl said the Aladdin has been a "dormitory" for other hotels on the Strip. It has good room occupancy but the guests spend less there on gaming and food. For instance, he said the average Aladdin guest plays $70 in the slot machines but at the MGM Grand it's $120 for guests that stay there. The Aladdin guest spends $69 on food compared with $105 a day at the MGM.

The group, he said, plans to make it a "must-see attraction."

The board members expressed some concern. Planet Hollywood has been in bankruptcy two times in the past four years and the Aladdin is just coming out of bankruptcy court.

Board Chairman Dennis Neilander questioned whether Planet Hollywood would be "viewed negatively" because of its bankruptcy problems.

Teitelbaum said people don't talk about bankruptcy. "People have a love affair with celebrities. It is a big deal to people," and that's one of the things the Aladdin will concentrate on.

The board grilled Earl for more than an hour on why he failed to list information on his applications, his association with a murdered German man who may have been a member of the underworld and why Planet Hollywood forgave large loans to celebrities when its stock was failing.

Earl apologized for not providing the information and agreed he "did a poor job" in filling out the application for a gaming license. But he said he rectified that when he completed the new application.

Planet Hollywood agreed to guarantee a loan to the German man and Earl said he did not know his possible ties to the underworld. Board member Bobby Siller told Earl he should "do due diligence" in his business and personal associations.

Siller also questioned the decision of Planet Hollywood to write off the loans to celebrities. Earl said it was a business decision and no SEC rules were violated.

The board was particularly critical of the refusal of the independent auditors of Teitelbaum's company to let board investigators review their working papers. Board member Scott Scherer said the investigation was not complete since there was no review of the working papers. Siller said this was "almost a deal breaker." He said reviewing these working papers can lead to valuable information.

Teitelbaum said his outside auditing company DeLoitte and Touche instructed its auditors not to release the information. He said the only way it would be given to investigators would be if each of his several hundred investors gave permission.

Teitelbaum said he has asked DeLoitte and Touche to give the information to the investigators but it refused. He said he would try again to get the national accounting firm to reverse its position.

Scherer suggested that if DeLoitte and Touche refuses, Teitelbaum fire the company. He said this application should not have been on the agenda because the state investigators were denied access to the working audit papers.

Teitelbaum said, "I'm in a frustrating position. I fought with these people but they denied access to the audit papers." He said he has nothing to hide. Teitelbaum was given two weeks to talk to DeLoitte and Touche to see whether it would change its mind.

Scherer said the auditing firm "was taking an unreasonable position." This is the first time board investigators have been denied access to the working papers of independent auditors and he didn't want this to set a precedent.

The board also expressed concern that Teitelbaum's company was an "open-end" investment firm. Anybody could invest and the board would not know whether individuals were funneling money into the Aladdin. But Teitelbaum agreed to notify the board of new investors and they could be subject to licensing.

Of the $637 million in the deal, the partners are putting up $40 million. Neilander said he would have liked to see more equity in the project. Teitelbaum said there was cash flow now of $60 million.

Figures presented to the board by company officials showed the new owners expect $276 million in revenue with cash flow of $43.1 million the first year, growing to $434 million in revenue in year five with $121.4 million in cash flow.

The group said the Desert Passage mall at the resort will get a new theme and its facade will change. The Aladdin's new owners intend to improve the traffic flow in the casino floor, install new slot machines, add a poker room, bring in new first class restaurants and cordon off the 7,000 seat theater to about 3,500 seats. It would be opened up with big shows on the weekends.

There will be a TV study and the group hopes to show movie premiers.

Improvements should start around the first of the year and take about one year to complete.

The deal is to close Sept. 1 after approval from the state Gaming Commission that meets Aug. 26. Most of the 2,600 employees will be retained but there will be some changes in upper management. Michael V. Mecca, a veteran of 30 years in the gaming business, will be in charge.

In voting for approval, Neilander said Teitelbaum has a history of turning money-losing properties around. He said Earl has made some "questionable business decisions" but he will be involved only in the marketing and not the casino.

Siller said he was impressed with the new management. He called Earl "the weakest link" but added Earl would be surrounded by strong partners.