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Gaming Guru

Joe Weinert
 

Atlantic City Roundup

5 April 2004

"You're fried!"

In terms not quite so blunt, auditors expressed "substantial doubt" that Donald Trump's casino company can continue as a going concern. Ernst & Young cited Trump Hotels & Casino Resorts' cash crunch and restructuring talks as reasons for their opinion.

Company officials and Wall Street analysts agreed that the opinion was justified but said the company is not in peril.

"We are addressing the issues that led to the opinion," said Executive Vice President Scott Butera, the former Wall Street banker Trump Hotels hired to lead the restructuring effort.

Trump Hotels last year used 85 percent of its cash flow to service $1.8 billion in high-interest debt. The company is asking bondholders to discount their holdings, which would result in a $400 million equity investment - and a controlling interest - by Credit Suisse First Boston.

"That's a standard opinion from the accountants when you're in a situation where you're negotiating with creditors. Today more than ever, they (auditors) are going to err more on the conservative side,"said CIBC World Markets analyst Jacques Cornet said.

Trump Hotels gave the impression in its annual securities filing that Donald Trump would no longer be chief executive if the restructuring succeeds, but he would remain chairman. The company said Trump, in the event of a restructuring, would likely receive more money or stock for lending his name and trademarks to Trump Hotels.

Trump Hotels began talking with bondholders last month. Butera said he hopes to complete the restructuring this summer.

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Borgata delivered increased revenue and decreased profits to the Atlantic City casino industry in the final quarter of last year, the New Jersey Casino Control Commission said in its annual financial report.

The industry's fourth-quarter net revenue grew 8.7 percent, to $1.1 billion, while gross operating profit (cash flow) declined 0.3 percent, to $231 million as casinos felt the impact of the 2,002-room Borgata, which opened last summer.

For all of 2003, the industry's net revenue grew 3.1 percent, to $4.3 billion, while cash flow declined 3.4 percent, to $1.2 billion. Casinos were hurt by heavy snow and the war in Iraq during the first half of the year and by Borgata in the second half.

"I think the city weathered it well, given all those factors. War, weather and the biggest new competitor to enter the market in over a decade - those are significant changes," said George Smith, an analyst with Davenport & Co.

"To experience any kind of demand increase, or revenue increase, in the midst of that is impressive. The gross profits decline - one could argue that's essentially stable in that type of environment," Smith said.

Only one casino, Showboat, reported a cash flow gain during the quarter and year, proving the benefits of hotel expansion. It opened a 544-room tower last May.

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The city's first casino, Resorts, said it will hold a July 4 grand opening for its 399-room hotel expansion. The rooms will begin opening in late June, President Audrey Oswell said.

The project includes the hotel tower, which has standard rooms that measure a market-leading 525 square feet; 26,000 additional square feet of gaming space; and a new porte cochere.

When completed, Resorts will have 879 rooms.

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A powerful Pennsylvania legislator did what many casino executives no doubt have wanted to do on occasion: blast Wall Street gaming analysts.

State Sen. Vincent Fumo, a Democrat from Philadelphia, said he's fed up with the unending Wall Street speculation about the purported twists and turns in the Pennsylvania's ongoing efforts to legalize casino-style gambling.

"Financial analysts may be competent when evaluating gaming businesses, but they are often uninformed about the policy issues and political concerns surrounding the Pennsylvania legislature's consideration of a slot bill. Baseless, over-hyped predictions undermine investor confidence," Fumo said in a prepared statement.

Analysts had fingered Fumo for killing a slot bill early this year through his reported insistence on taxing and regulating tribal gaming.

"A slot bill will pass when a consensus emerges around a single product - not before. While legislative leaders remain optimistic that a bill can pass prior to the summer recess, there is no guarantee," Fumo said.

"The citizens of the commonwealth, members of the General Assembly and shareholders of the companies impacted by this legislation would welcome restraint from financial analysts as we consider and debate this complex issue."

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Capitalizing on Harrah's Entertainment's recent acquisition of Binion's Horseshoe in Las Vegas, Harrah's Atlantic City will hold qualifying tournaments this month for the World Series of Poker.

The $250 buy-in no-limit Texas Hold 'Em qualifying tournaments take place April 7, 14, 21 and 28 at 6 p.m. each day. The top five scorers from each week advance to a May 5 tournament, with the top finalist winning a $10,000 entry into the May 22 World Series, along with round-trip airfare and lodging.

Harrah's Atlantic City will add other qualifying days based on demand.

(Joe Weinert is managing editor for Spectrum Gaming publications. He can be reached at This is his final Atlantic City Roundup for Gaming Wire.)