Has the Rio lost its shine for buyers?

By Liz Benston

Monday, June 21, 2010 | 2 a.m.

When billionaire Phil Ruffin bought Treasure Island last year, speculation swirled about other Las Vegas hotels that could be sold by cash-strapped casino giants.

The name game fizzled, however, as the big corporations chipped away at their massive debts. Banks are helping out by granting extensions and more flexible terms on loans, some in exchange for higher interest rates. And few potential buyers — less than half a dozen entities, by some measures — have Ruffin’s resources and industry background.

For those casino companies that have not fallen into bankruptcy or defaulted on loans, the desire to sell has waned. As long as they can restructure their debts outside the courtroom, they are not going to be eager to unload casinos that are still earning money.

Unless, of course, you are talking about the Rio.

Although the 20-year-old property has distinguishing features that appeal to locals and tourists, such as its rooftop Voodoo Lounge, respectable Carnival World Buffet and popular shows such as “Chippendales” and “Penn & Teller,” it lacks the cachet it once had under owner and local builder Tony Marnell. Long before the arrival of the Palms and Hard Rock Hotel, which pushed the envelope to cultivate a casino atmosphere for young men, the Rio catered to a flashy crowd of high rollers attended by attractive cocktail servers wearing what were some of the skimpiest outfits in town.

Harrah’s Entertainment’s interest in selling the Rio has more to do with its location, which is far removed enough from the rest of the company’s center Strip empire to make cross-marketing a challenge.

Nine of Harrah’s 10 local casinos front Las Vegas Boulevard, with some featuring newer attractions to lure passers-by. The Rio, however, doesn’t benefit much from walk-by traffic. Nor is it as easy for the Flamingo Road hotel to benefit from Harrah’s marketing strategy, which centers on rewarding customers for spending money within the chain. It’s easier for tourists on the Strip to walk next door or across the street than to catch a cab to the Rio.

In short, the Rio isn’t central to the company’s marketing ambitions in Las Vegas and could help it reduce $19 billion in debt. Striking a deal is easier said than done, however.

Because the company’s Total Rewards loyalty card program has boosted profit at casinos Harrah’s has acquired from competitors, potential buyers lacking a comparable program would likely seek a discounted price, knowing they can’t generate the same earnings as Harrah’s, analysts say.

It’s an open secret that Harrah’s has entertained multiple offers for the Rio, although no deal is imminent.

The latest, and perhaps most legitimate, offer came from Penn National Gaming this year.

The Pennsylvania-based chain, flush with cash after narrowly missing the debt trap that snared some of its counterparts, sought entry into Las Vegas after a late-breaking leveraged buyout fell through in 2008.

Penn offered about $450 million for the Rio and had negotiated a deal to keep the World Series of Poker there this summer, according to a source familiar with the deal who declined to be identified. Harrah’s agreed and discussed contingency plans for moving the poker tournament to Caesars Palace or another Harrah’s casino, the source said.

That sale price would have been well under the $1 billion high-water mark that major casinos could have fetched some years ago, but is considered within the range of fair value today. It’s not clear why the deal fell through, although some industry watchers wonder if Penn balked when it got a better tally on how much more money it would have to spend to restore the property to its pre-recession glory.

Penn spokesman Joe Jaffoni declined to comment other than to reiterate the company’s interest in buying a Las Vegas resort — for the right price.

And when the Sun asked Harrah’s spokesman Gary Thompson about a potential sale, he gave the standard industry response: “We don’t comment on rumors or speculation.”

Faded from its salad days as the first big resort with a major nightclub, the Rio has been subject to numerous complaints about maintenance and service. Employees blame the problems on cost-cutting by Harrah’s.

But it’s also an industry maxim that companies don’t reinvest in properties they intend to sell.

When asked about it last month, Jan Jones, Harrah’s senior vice president of communications and government relations, said the Rio still gets its share of attention and maintenance dollars. The customer service scores, as recorded by surveys and other internal measures, have not plummeted in the recession, she said.

“It wouldn’t make sense” for Harrah’s not to keep up the Rio, given that it must remain competitive and may not be sold, she said.

As flashy kingdoms for those who can afford them, casinos on or near the Strip attract would-be buyers in any economy.

In April, Bloomberg News reported that Colony Capital and Starwood Capital Group were eyeing the Rio, although neither will comment publicly.

They may have some competition from bargain-shopping locals.

The recession has yielded a bumper crop of out-of-work or semiretired casino managers. Entities affiliated with Las Vegas managers have expressed interest in the Rio, although none has raised the money needed to execute a deal, the unidentified industry source said.

For now, the Rio will remain part of Harrah’s.