Casino owner gambles on Showboat closing

Posted: June 29, 2014

The planned closure of the Showboat casino on Aug. 31 is a severe blow to its 2,100 workers and another deep bruise on the Atlantic City casino industry.

But at a Friday afternoon news conference outside the Tanger Walk outlets, where a Bass Pro Shop is under construction, Mayor Don Guardian kept his chin up and said, "Atlantic City is still on the move despite this economic hiccup."

The mayor called the decision by Las-Vegas-based Caesars Entertainment Corp. to close Showboat "a shame," and said it would motivate him to "work 24/7 to bring new investment to Atlantic City."

The move sent shock waves through the city of nearly 40,000 people - where the economy has depended almost entirely on gambling for decades - but it was not unexpected.

Caesars, which also owns Bally's Atlantic City, Caesars Atlantic City, and Harrah's Resort, wrote off 94 percent of Showboat's value over the last two years, slashed capital investment in the property, and poured $5.6 million into a renovation of Bally's casino floor last year.

From 2009 through 2012 only one casino in Atlantic City averaged lower annual investments in new carpets and other capital expenses than Showboat: the money-losing Trump Plaza, a white elephant in the middle of town that no one has wanted to buy.

"I think Showboat is typically regarded as their weakest property in terms of age and deferred maintenance," Alex Bumazhny, a Fitch Ratings director, said of Caesars' Atlantic City operations.

Bumazhny said Bally's may have gotten the nod for survival because it is closer to Caesars Atlantic City. "There's a lot of cost synergies between the two properties," he said.

Another potential reason for Showboat's demise is its proximity to Revel, which filed for its second bankruptcy last week and raised the possibility of closing if a buyer is not found quickly.

"While Revel initially targeted the Borgata customer, post-bankruptcy under new management, Revel focused on taking share from smaller properties located on the Boardwalk," said Srihari Rajagopalan, a trading desk analyst for UBS Securities L.L.C.

"Properties within close proximity, such as Showboat, were negatively impacted," said Rajagopalan, a debt analyst.

The closure of Showboat, which follows Caesars' shuttering this month of Harrah's Tunica, in Mississippi, is among the many recent maneuvers by Caesars as it wrestles with a $23 billion debt load from a $30.7 billion leveraged buyout in 2008.

Caesars has been shifting assets among three legal entities in a bid to shield what it considers to be its most valuable properties from creditors in a potential bankruptcy or other restructuring.

In Atlantic City, only Harrah's is in the relative "safe house" called Caesars Entertainment Resort Properties.

Bally's, Caesars Atlantic City, and Showboat - all on the Boardwalk - are part of an entity called Caesars Entertainment Operating Co., which is where Caesars stashed its weakest casinos.

Since the peak of the market in 2006, combined revenues at Caesars' Boardwalk properties have fallen by half and combined operating profits have plummeted by three-quarters. By comparison, at Harrah's, which underwent a $500 million renovation and expansion in 2008, revenues are down 15 percent and operating profits are down 43 percent.

Analysts were quick to point out Friday that Caesars - often rumored to be a potential bidder for Revel - has not given up on Atlantic City.

"They are putting more money into Atlantic City with the convention center, which is going to be closer to Harrah's Marina, so they do believe the market has some potential," Rajagopalan said.

The $126 million Harrah's conference center is scheduled to open in September 2015, according to the Casino Reinvestment Development Authority, which is contributing $45 million to the financing.

The addition of 125,000 square feet of meeting space by Caesars is the sort of non-gambling investment Atlantic City officials are counting on now that people can gamble legally in casinos all over the Northeast.

"In the end, it's about creating activities and events that continue to draw people to Atlantic City," said Liza Cartmell, president of the Atlantic City Alliance, whose operations are funded by a $30 million annual assessment on Atlantic City's casinos.

"And it's up to us to continue to get the word out that while we do have casinos, we have an incredible diversity of non-gaming amenities," she said.



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