Future of historic resort unclear

Liz Benston, Alana Roberts, Richard N. Velotta

Friday, Jan. 30, 2004 | 11:20 a.m.

Gaming industry observers are split over whether the Castaways -- a historic 447-room hotel-casino at the north end of Boulder Highway that closed Thursday -- will ever open again.

After loping through eight difficult months in Chapter 11 bankruptcy, the former Showboat, blaming the Sept. 11 attacks and the high cost of union labor, closed Thursday afternoon and threw more than 600 employees out of work.

It was the second closure of a landmark Las Vegas hotel this month after the Binion's Horseshoe downtown was shuttered Jan. 9.

The future of the Castaways -- in foreclosure for more than a month -- may become clearer Monday morning when it is put on the auction block. If primary lender Vestin Mortgage wins the bid, it will turn around and sell the property to pay off investors, Vestin spokesman Steve Stern said. If another bidder is successful at the auction, that entity would be required to pay cash to Vestin for the Castaways, he said. Vestin doesn't know how much time will pass before the property could re-open if someone wants to re-open it, he said.

"I wouldn't say it's dead in the water," gaming observer Anthony Curtis, who publishes the Las Vegas Advisor newsletter, said of the Castaways. "It's in a tough spot, but it's not the toughest spot in the world. There's always somebody standing in the wings, ready to take over. Look, somebody's bought the Moulin Rouge and is trying to get that going."

But Las Vegas hotel broker David Atwell of Resort Properties of America was more pessimistic about the Castaways' outlook.

Atwell, who spent many hours at the property's fabled bowling center while contemplating a career as a professional bowler, said it suffered when its name was changed in an ownership transition from Harrah's Entertainment Inc. to VSS Enterprises LLC.

"The Showboat at one time was a great property that produced a very good cash flow, but unfortunately a lot of the charm wore off when the Showboat name left and the place started to die," Atwell said. "Now, with all of the competition from Station Casinos, Coast (Casinos Inc.) and Boyd (Gaming), it's a different day."

Atwell was referring to Boulder Highway properties Boulder Station and Sam's Town to the south of the Castaways and Coast Casinos' Gold Coast and Orleans properties, which have bowling centers that pilfered away business.

Atwell said the Castaways is not without hope.

"There's still some great potential, but they really have to have the right investor with really deep pockets," he said. "They have 23 acres of land, an RV park and a bowling center. But the locals' gaming market is a brutal business. You absolutely have to know what you're doing."

Atwell said when Harrah's was shopping the 19-story property in 1999 and 2000, a number of locals' casinos' operators considered an acquisition. VSS Enterprises, a partnership that considered other opportunities in Southern Nevada before taking over the Showboat, eventually acquired it in March 2000 for $23.5 million.

Atwell said that although the property's unlimited gaming license holds some value, it's possible that the land could be sold to make way for some other use. He said the decay of the property's surrounding neighborhood has made it less appealing as a locals casino site.

Vestin seized cash as collateral from the casino after 3 p.m. Thursday, Stern said. Castaways management made the decision to close the property down on its own rather than make the cash infusion necessary to keep it open, he said.

Castaways officials couldn't be reached for comment on why the casino closed. Typically, the seizure of cash from a casino would require the closure of the casino because of state regulations requiring enough cash to be on hand to pay off gamblers.

Dennis Neilander, chairman of the state Gaming Control Board, said his office was notified Thursday morning of Vestin's plans to seize its collateral and about 12 enforcement and audit officers were assigned to oversee the closure, which lasted through the night.

Neilander said the closure was orderly and the regulators were on hand to assist in the cash count and answer questions.

Vestin notified state gaming regulators and Castaways officials about the planned seizure, Stern said. The company doesn't yet know how much money had been taken Thursday because the cash -- some pulled by hand from slot machines and tables -- was still being counted as of this morning, he said.

Vestin -- which arranged a $22.2 million loan for the Castaways -- seized the money because Castaways owner VSS Enterprises violated stipulations it had agreed to follow relating to the use of the cash collateral, Stern said.

There was no significance to the timing of the seizure before Super Bowl weekend, he added.

"I think they just made a prudent business decision for the investors in this loan," he said. "Vestin didn't have any choice."

Vestin had previously received approval from U.S. Bankruptcy Court in Las Vegas to seize the money and didn't need to seek that permission recently, he said.

Attorneys for Vestin had earlier argued in bankruptcy court that the Castaways had "squandered" the loan money with little to show for it. Vestin and Castaways representatives also tussled over the potential value of the property. Castaways officials in court said the hotel-casino was appraised at about $60 million in 2002 and could have been worth more than $100 million as a Holiday Inn franchise. Vestin suspected the property was worth closer to $20 million.

Stern declined to comment on the reasons behind the violations and Castaways officials could not be reached for comment. Bankruptcy attorneys for Vestin and the Castaways also could not be reached for comment.

The Culinary Union, which represents more than 300 workers at the Castaways, was notified of the closure Thursday afternoon and met with workers a few hours later to discuss the next steps for the idled employees.

"We're going to do everything in our power to facilitate unemployment (benefits) from our union hall and sending (employees) out for work," Culinary organizer Kevin Kline said Thursday. "This is a difficult time."

The union already is working to re-train and find jobs for the hundreds of union employees who were put out of work when Binion's Horseshoe closed. That property employed more than 900 workers.

The Castaways, which has an 80,000-square-foot casino with 1,400 slot machines, opened in 1954. In addition to its 106-lane bowling center -- touted as one of the largest in the nation -- the property also has a 1,200-seat bingo parlor.

When Harrah's sold the property to VSS Enterprises in 2000, it held onto the Showboat brand name.

VSS Enterprises filed for Chapter 11 bankruptcy protection June 26, listing more than $50 million in debts and more than 200 creditors at the time.

The Castaways has been bleeding money on a monthly basis, court records show. It posted a $1.6 million loss in December with revenue of $1.7 million and expenses of $3.3 million. It was projected to lose another $1.3 million in January and since the company's initial filing, the property has lost $7.3 million, according to the company's most recent financial report to the court.

In a letter to employees Thursday, Castaways management blamed the closure on the business decline following the Sept. 11 terrorist attacks and also said the hotel-casino couldn't compete effectively with non-union properties.

But some workers question that line of thinking.

"This is the same (explanation) we've been getting," said Nick Micas, a valet worker who has been employed at the property for 23 years. "We don't feel we've been told the truth for a long time."

Kent Hampton, of Ogden, Utah, said he had a reservation to stay four days at the Castaways when he found out about the casino's closure. Hampton said Thursday he was planning to get married today. With less than a day before his wedding day, he said he was allowed to stay in a honeymoon suite Thursday night, but doesn't know what he'll do for the rest of his trip.

"This has been paid for. I don't have much money. This is a big (Super Bowl) weekend, I would think this place would be packed," Hampton said.

Stacy Rancher, a blackjack dealer at the Castaways, said workers at the hotel indeed expected it to be a busy weekend.

"They were supposed to be busy. They were talking about extra tables on the floor."

Rancher wonders if she'll be able to find another job soon, since she recently graduated from dealer school.

"I don't know if anyone hires you with only three months' experience," she said.

She said rumors about the hotel's impending closure have been circulating among workers ever since she worked there.

June Johnson, who worked at the Castaways for 10 years, most recently in the hotel's purchasing office, said she is unsure what caused the hotel's closure and how long the hotel will be closed.

"Some people are saying it's just a temporary thing. We could be back in weeks."

She also said she was unsure what she was going to do.

"Just play it by ear. Take a vacation and find a way to pay my bills. The saddest part is not seeing the people you worked with so long," Johnson said.

Sal Gugino, a Las Vegas attorney who represented the Castaways during its contract negotiations with the Culinary Union in 2002, called the event "deeply regrettable."

"It is my belief that management did everything in their power to keep the doors open during difficult times," he said.