Harrah’s: Slump hasn’t hit us

By Liz Benston (contact)

Thursday, Jan. 3, 2008 | midnight

Consumers nationwide may be tightening their purse strings but they're still opening their wallets at Harrah's properties, the company's top executive said recently.

Before the Nevada Gaming Commission approved the historic acquisition of Harrah's Entertainment by Apollo Management and Texas Pacific Group, Harrah's Chief Executive Gary Loveman was asked about the effect of the economic downturn on business.

Higher gas prices and the housing slump don't seem to be hurting the company yet, said Loveman, an ex-professor who holds a Ph.D. in economics.

Loveman said it's more of a concern at Coach and FedEx, two companies at which he holds a board seat, because consumers may be seeking cheaper alternatives.

Las Vegas accommodations are still a “very good value” compared with those in other major cities, he said.

Loveman also repeated what other industry titans have said about the teachers union's proposed gaming tax hike. Nevada should have a broader tax base rather than relying mostly on gaming, he said, though that argument has been a “tough row to hoe” in state politics.

Not only do investors dislike tax increases, they abhor uncertainties about how taxes will be levied in future years, he said.

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In recent years Nevada regulators have expressed some concerns about East Coast private equity companies snapping up Las Vegas casinos like so many colorful yet expendable Monopoly deeds. So it was no surprise when Nevada Gaming Commission Chairman Pete Bernhard made it a point to ask the two multibillion-dollar buyout companies whether their investment in Harrah's would be “a number on a piece of paper” or a thoughtful investment with Nevada's economic interests in mind.

“We think about the gaming business as a people business,” Bernhard said, implying that many of these new faces will now be making financial decisions from New York or San Francisco.

“We are entrepreneurs who are deeply involved in these businesses,” replied Marc Rohan, co-founder of Apollo Management, which will make its largest investment ever in the Harrah's purchase with Texas Pacific Group.

Unlike public companies, which leave open the opportunity for shareholders to wrest control, change frequently or remain unknown to management, private equity companies can give regulators some comfort because their investors are known entities that remain invested for many years at a stretch, the companies said.

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The lead negotiator for the Culinary Union has stopped short of demanding that regulators revoke the license of Columbia Sussex in Nevada. But Culinary Union Secretary-Treasurer D. Taylor, upset by contract negotiations that have stalled in recent weeks and by the company's threat to opt out of the union's premium-free health care plan for workers -- a cornerstone of the union's benefits -- had strong words for state regulators.

The Gaming Control Board says it's keeping close tabs on Columbia Sussex, especially now that the company has been denied a gaming license in New Jersey. That decision will force the sale of its Tropicana casino there and trigger sales in other states besides Nevada.

Chiding the board for what he sees as inaction, Taylor said regulators “have either abdicated their responsibility or decided they're not going to live up to the statutes on the books.”

In New Jersey, Taylor said, “this company's officers have perjured themselves, they have not lived up to internal audits, and they have not cooperated with state agencies. That's serious stuff.”

“Their silence is deafening here -- it's a joke,” he said.

The Gaming Control Board says it hasn't yet found any violations of Nevada law, though regulators can seek to punish companies that violate laws elsewhere.

“I think the Nevada Gaming Control Board will come under national scrutiny if they don't step up to the plate,” Taylor said.

Sun reporter Michael J. Mishak contributed to this report.

Liz Benston can be reached at 259-4077 or at benston@lasvegassun.com.