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Gaming Guru

Jeff Simpson
 

Jeff Simpson agrees with New Jersey's decision not to renew the license of the Tropicana there

17 December 2007

aves from Atlantic City might be felt in Vegas

I'll admit I was shocked by Wednesday's decision by the New Jersey Casino Control Commission to refuse to renew the license of the Tropicana Atlantic City.

But after reading the commission's opinion and order denying license renewal, I think New Jersey regulators made the right call.

The opinion makes it clear that Tropicana Casino Resorts - the casino-owning business of William Yung, who also owns hotel operator Columbia Sussex - failed to live up to several important requirements of New Jersey gaming regulations.

Although TCR's New Jersey disaster won't immediately affect its Las Vegas, Laughlin and Lake Tahoe operations, the license loss could trigger creditors to call in the company's debt.

And it is hard to imagine new creditors the company is counting on to finance the planned redevelopment of its Tropicana site on the Strip willingly forking over billions to a company that was found unsuitable to keep its New Jersey license.

I've written several columns this year questioning the Tropicana Las Vegas operation and its meat-ax approach to staffing.

I've also noted that its inexperienced owners looked to be spoiling for a battle with its Culinary Union employees.

The property remains the only one on the Strip with a Culinary contract that has failed to negotiate a new one - property executives presented the union a ridiculous offer that would deprive its workers of their hard-won union health plan and a 40-hour workweek.

Nevada regulators take a more hands-off approach to casinos than New Jersey's do, and I doubt our regulators will compound TCR's problems by disciplining the company for its actions in New Jersey.

But they have the power to sanction Nevada license holders who violate rules in other jurisdictions.

In this case, I think regulators should seriously consider yanking TCR's licenses to operate the Tropicana and the Westin in Las Vegas, the Horizon and the MontBleu in Lake Tahoe, and the River Palms and the Tropicana Express in Laughlin.

The New Jersey violations were that serious.

The New Jersey Casino Control Commission found that TCR delayed setting up an independent audit committee, a vital group regulators count on to ensure that companies live up to state rules.

"In a word, Tropicana's regulatory performance since the TCR acquisition has been abysmal, and there is no more glaring example of that than what transpired with the attempts to establish an independent audit committee," the opinion said. "The committee essentially serves as a quasi-regulatory body with broad oversight in some of the most sensitive regulatory areas involving the casino's internal watchdog mechanism."

The opinion said: "Tropicana and TCR callously disregarded the importance of the independent audit committee"; it said that alone was enough to deny the license renewal. The commission also levied a $750,000 fine for audit committee-related violations.

But there was much more.

The opinion noted that Tropicana Atlantic City terminated massive numbers of employees after Yung assured regulators that, although "there may be some cuts" in staff, he would "try to make most of those cuts through attrition" as the "painless way to try to do it."

Instead, by the end of October, 1,319 of the property's more than 4,000 employees when TCR took over Jan. 3 were terminated, offset by just 422 new hires, for a net reduction of 897 employees.

"Simply put, Yung exhibited a lack of cooperation on a grand scale that did nothing to earn regulatory trust in his ability to operate in this marketplace," the opinion concluded.

Some of the most damning language in the report comes from its discussion of Yung's efforts to cut security staffing in and around the casino.

Regulators took issue with Yung's memory and honesty based on the TCR owner's sworn testimony about the actions he and other executives, including TCR Director of Security, Risk Management and Surveillance Glenn Koehler and Senior Vice President of Operations Kevin Preston, took to deal with security staffing issues.

The report makes it clear that regulators don't think Yung was honest in his sworn testimony.

"Unbelievable," the opinion concluded. "Yung clearly wanted to reduce Tropicana's security staff to a level that he believed was justified by a comparison with other Atlantic City casinos. Preston's narrative provided the structure to do just that. However, if the company gave any credence to Koehler's report, the rationale for Yung's predetermination would be undermined, so Koehler's report was buried.

"Unfortunately for Yung, that report has come back to life, only to bury him. That Koehler is a liar there is no doubt, and now it is plain why: to shield Yung. That Koehler remains in the company's employ is also telling."

I've seen a lot of bureaucratic reports, and the TCR opinion has some of the most blunt language I've read.

The opinion's conclusion is particularly direct: "The applicants could have taken the time to educate themselves in what it takes to operate successfully here, or they could have hired and retained sufficient staff knowledgeable in those processes. They have done neither and must bear the consequence. So too must their applications fail for lack of good character, honesty and integrity and contumacious defiance of the regulatory process."

I had to look up the definition of "contumacious," and according to a Random House Unabridged Dictionary definition on Dictionary.com, the word means: "stubbornly perverse or rebellious."

That's pretty blunt, and based on the commission findings, warranted.

Jeff Simpson is business editor of the Las Vegas Sun and executive editor of sister publication In Business Las Vegas.