Tuesday, Jan. 13, 2004 | 11:07 a.m.
Harrah's Entertainment Inc. is expected to sell Binion's Horseshoe hotel-casino in downtown Las Vegas to another interested casino operator and retain the rights to the Horseshoe brand for use elsewhere in Las Vegas, experts say.
On Monday Harrah's reached a preliminary agreement to buy the Horseshoe from owner Becky Behnen. The agreement is subject to the execution of a definitive written agreement and approval from Nevada regulators and others.
In addition to owning the famed Horseshoe brand, Harrah's said it also would retain the popular World Series of Poker tournament that draws hundreds of poker fans to the property every spring.
"It's the largest sporting event in terms of prize money on the planet, it's got a great deal of tradition and it draws customers and players from all over the world," Harrah's spokesman Gary Thompson said.
Thompson declined to say where the next tournament would be held.
Behnen said this morning that she was happy with the deal, but sad that she didn't have more success at the downtown casino.
"There's an element of sadness that this is something my parents worked so hard to build, and I was unable to make it succeed," she said.
The property -- which earned a reputation for serious gambling action and a folksy atmosphere -- was founded in 1951 by Behnen's father, Texas gambler and Las Vegas casino pioneer Benny Binion.
The entire property is closed after its sudden shutdown Friday because of financial problems. The hotel could open without regulatory approval, but gaming regulators would need to approve the reopening of the casino. They must assure that the casino has enough money to pay off gamblers before the gaming floor can reopen.
Behnen said she expected that every employee who wants to continue to work at the Horseshoe will be able to under Harrah's ownership.
She also said she believe Harrah's will retain the name Binion's Horseshoe.
"It's a very strong name in the business," she said. "They want to carry that on."
When Harrah's announced a separate deal in September to buy Horseshoe Gaming Holding Corp. for $1.45 billion from Behnen's brother, Jack Binion, the company also said it was interested in acquiring the rights to the Horseshoe brand in Nevada that were still owned by Behnen. But the casino giant wasn't especially interested in operating Behnen's downtown casino as part of the deal, said sources close to the company.
The agreement calls for Harrah's to assume the Horseshoe's liabilities to entities including the Internal Revenue Service and union pension and welfare funds as well as gamblers and employees.
Terms of the deal weren't disclosed and Thompson declined to comment on the property's cost. But a source familiar with the agreement said the price is estimated at more than $50 million with liabilities in a similar range. Behnen will probably yield "a few million" dollars on the deal, the source said.
Behnen said the final sales price hasn't been determined as debts are still being tallied, but she expects to make some money on the transaction.
Harrah's will assume the largest chunk of debt -- a promissory note worth about $19 million held by Binion.
The agreement allows Harrah's to lock up the rights to the name rather than having creditors tie it up in bankruptcy court, said a source who looked at buying the property but passed on the deal. After settling the debts, Harrah's can then pass on the rights to lease the property to a new owner, the source said.
"The deal makes sense for Harrah's" and could also present a profitable opportunity for an entrepreneur to turn the property around, the source said.
In a research note to investors today, Merrill Lynch analyst David Anders said the deal was a "good strategic fit" that would "ultimately permit Harrah's to add a new casino in Las Vegas under the Horseshoe brand" outside of downtown.
Thompson said no decisions had yet been made about whether to keep all of the Horseshoe's employees but that the company would try to get people working as soon as possible.
Certain casino transactions can be approved in a matter of days through an expedited regulatory process, Gaming Control Board Chairman Dennis Neilander said.
Such a deal would require both Gaming Board and Nevada Gaming Commission approval and would allow Harrah's to reopen the property by operating under the Horseshoe's existing gaming license, he said.
Neilander said he had not yet received an application for the transaction as of early today and didn't know whether it met the criteria for the expedited process, which will depend on how the deal is structured.
Workers showed up to collect their paychecks Monday afternoon and were told they could also return today. There was no mention of repaying debts to gamblers who might have won money or left funds in the casino before it was closed Friday.
Observers have offered plenty of reasons for the closure of the Horseshoe, from mismanagement to lack of marketing and stiffening competition from tribal casinos nationwide. Culinary and bartender unions' health and welfare funds received a court order allowing them to seize up to $2 million from the casino, triggering the closure.
Given the money-losing condition at the Horseshoe, the funds funds had "few other options" other than to seize cash from the casino, an attorney familiar with bankruptcy law said.
Creditors could have declared an involuntary bankruptcy procedure or appointed a receiver through the Clark County court system to prevent the property from being shut down -- but both procedures only make sense if a property is generating sufficient cash flow to clear its debts, the attorney said.
Others believe the Horseshoe's problems were specific to the property and involved mounting debts that spun out of control. One source who passed on an opportunity to buy the property believes a new owner will need to cut employees to make a profit and that it is over-staffed compared to larger Strip casinos.
Thompson said Harrah's will assess staffing once it has executed a definitive agreement and gets regulatory approvals.
"We are going to need a well-trained professional staff to open it back up and there are some great employees at the Horseshoe," he said.
Culinary Union Secretary-Treasurer D. Taylor said he was "cautiously optimistic" that the sale will preserve most of the jobs at the property.
Union leaders have scheduled an 11 a.m. meeting Wednesday at the union hall with both union and nonunion employees to discuss the Horseshoe.
Taylor said the union was "ecstatic" about the deal.
"The most important thing is to clear up all the debts. They're a tremendous operator."
Downtown has plenty of supporters including recent new owners with ownership changes at the Fitzgeralds, Four Queens and Lady Luck casinos as well as the pending sale of the Golden Nugget to young entrepreneurs Tim Poster and Tom Breitling.
Boosters say the closure will bring just a short-term setback for a region poised for growth.
"I think we're all sad to see the closure at Binion's especially when there's so much happening downtown," said Joe Schillaci, the new president of the Fremont Street Experience management company and the former president of the Six Flags Magic Mountain theme park in Southern California.
"The long term vitality and viability of downtown is very strong," he said, citing several commercial and retail developments under way and the April debut of an upgraded light show.
Mayor Oscar Goodman said Behnen has had "some hard days" but that the property "absolutely" has turn-round potential.
"I'm a betting man and I think this property will be open a lot sooner than people think," he said. "It's one of the greatest properties in gaming ... If it wasn't in a redevelopment area, I'd buy it."
Others aren't so sure.
"The actual value of the property and the business without the famous name becomes very hard to determine," said David Atwell, a casino broker involved in last year's sale of the Four Queens.
Downtown has limited redevelopment potential but could be the right opportunity for an entrepreneur with enough financial backing, said Jay Kornmeyer, chairman of Wells Fargo Bank Nevada.
"Other things have to evolve in the downtown area to make it viable," an outlook that's not so far fetched, he said. Simply tearing down and rebuilding the property would be difficult, however, given the interest of multiple lease holders, he said.
Spending money on upgrades is difficult for an operator on leased land because they may not ultimately own the improvements they make, according to a broker familiar with downtown.
"It's difficult to reinvest in the property, especially when your gaming win is going down," the broker said.
"Lease rates are high because of escalation rates from 40 years ago," the broker said. "Downtown was the place to be 40 years ago when these contracts were negotiated."
Some nearby casinos said they haven't yet experienced any change as a result of the Horseshoe's shutdown.
The Golden Nugget hotel-casino was at capacity over the weekend in part because of the Consumer Electronics Show and was unable to accommodate overflow from Horseshoe hotel guests who were turned away, spokeswoman Yvette Monet of owner MGM MIRAGE said. The casino was already busy and any change in business wasn't readily detected, she said.
Boyd Gaming Corp., which owns the Fremont, California and Main Street casinos downtown, said it also was busy for the electronics convention.
"We usually run pretty full downtown anyway," spokesman Rob Stillwell said.
Still, other businesses say they will see some immediate effect, though the extent isn't yet known.
Eric Carlson, game room manager at Jillian's restaurant, said it was "too soon" to assess damage but expected some residual effect. "Every day that the Horseshoe is closed is bad for the Horseshoe name," said Carlson, whose family has been in town since the 1950s. "They're running off their loyal players."
"It's upsetting a lot of the tourists that come downtown for Binion's and it's moving foot traffic back to the Strip," he said.
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