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Horseshoe May be Sold to Harrah's12 January 2004
Las Vegas Sun
By Liz Benston and Jeff German
LAS VEGAS -- Binion's Horseshoe owner Becky Behnen was in serious negotiations this morning to sell the closed downtown hotel-casino to Harrah's Entertainment Inc., sources close to the negotiations told the Las Vegas Sun.
A deal could come as early as today but would not necessarily mean the casino would reopen, the sources said.
The talks intensified Friday after U.S. marshals forced the casino's sudden closure when they seized nearly $1 million in cash from the casino, which was founded by Behnen's legendary father, gaming pioneer Benny Binion, more than 50 years ago.
The marshals had two court orders authorizing them to seize more than $2 million -- effectively depleting the casino's reserves -- to pay debts owed to the Culinary Union's pension and welfare funds for casino workers.
Gaming regulations require casinos to maintain a certain amount of cash on hand to pay off gamblers.
Behnen and Harrah's spokesman Gary Thompson declined comment on the sale talks this morning.
But Harrah's, sources said, has been in discussions with Behnen the past two weeks about its interest in buying the rights to the Horseshoe brand in Nevada.
As part of an unrelated deal announced in September to buy Jack Binion's riverboat casino operation Horseshoe Gaming Holding Corp. for $1.45 billion, Harrah's said it might buy the downtown property to acquire Behnen's rights to the Horseshoe brand in Nevada. Jack Binion is Behnen's brother.
At a special meeting Saturday, the Nevada Gaming Commission approved a stipulation signed by Behnen stating that the casino would remain closed until it has sufficient funds to meet minimum bankroll requirements. The chairmen of the Nevada Gaming Commission and the Gaming Control Board, the state's casino enforcement arm, would need to approve the re-opening of the property. The casino also must pay casino taxes and related fees while it remains closed.
Gamblers were told to cash in their winnings immediately before the casino's sudden closure Friday. Behnen assured regulators Saturday that the casino would pay gamblers still owed money, including people owed jackpots and those who have chips, safe deposit boxes of cash on the property or front money deposited at the casino.
The Horseshoe has advised gamblers owed money to call the property starting this afternoon to collect their cash, the Gaming Control Board's chief of enforcement, Keith Copher, said after Saturday's meeting.
In a recent letter to some 1,500 employees at the property -- which has 366 rooms and a 59,000-square-foot casino -- Behnen thanked workers for their service over the holidays and vowed to "never give up" the Horseshoe, according to an employee leaving the property Friday who declined to be identified.
At a recent court hearing concerning a lawsuit filed by one of a group of landlords seeking lease money from the Horseshoe, attorneys for the landlord said the Horseshoe was having difficulty making payments on time but that Behnen was seeking loans to pay off the leases on the property.
Behnen may have been unwilling for the Horseshoe to file for bankruptcy at the risk of losing control of the property, said two sources familiar with the property.
In 1998 Jack Binion agreed to sell most of his stock in the Horseshoe to his sister to settle a lawsuit filed by Behnen that alleged her brother was mismanaging the casino. Binion, who maintains a 1 percent interest in the Horseshoe and a Nevada gaming license, had managed the property for more than three decades.
The 1998 agreement included a provision stating that Jack Binion would be able to effectively control the property again should the Horseshoe file for bankruptcy protection, the sources said. However, it's unclear if Jack Binion would be interested in exercising that right in the event of a bankruptcy.
Behnen also has defaulted on payments she agreed to make to her brother, who held a promissory note of about $19 million secured by the property, the sources said. Binion recently agreed to the sale of the note to Harrah's as part of his deal with the giant casino corporation.
Another source who declined to be named said Behnen "would end up with basically nothing" if the Horseshoe filed for bankruptcy.
The property owes more money that it's worth, the source said.
"Under her management, it loses money every day," the source said. "If she comes out of it with money she's lucky."
A spokesman for Boyd Gaming Corp., which already owns three downtown casinos and helped broker the deals the Culinary Union struck with area properties, said it's "too early to tell" whether the company might step in to buy the Horseshoe.
"We haven't had any talks yet," spokesman Rob Stillwell said.
"It's sad that it comes at a time when so many good things are happening downtown," he added. "We really do believe that ultimately when we look back at this event it will be seen as a blip rather than a major setback."
Business at the Horseshoe began to decline steadily after Behnen and her husband Nick took over the property, said a former Horseshoe insider.
The declines are partly attributable to several moves that were probably intended to cut costs but ended up hurting the casino in the long run, including lowering limits on table games, the sale of a wall display of $1 million in bills, closing a bingo room and converting a popular coffee shop into a buffet, a former employee said.
"People came from all over the world" to see the $1 million on display, while shutting down bingo hurt food and slot machine revenue, that source said.
Perhaps most damaging was lowering the high table limits that had made the Horseshoe a world-class draw among gamblers looking for serious action. The casino also removed single deck blackjack games, replacing them with multiple decks and turning off casino regulars who favored the supposedly better odds on single-deck games, the source said.
"Under Benny, there were no limits on a game. Whatever you wanted to put on a game, that was your limit."
Lowering limits meant less risk for the casino and a smaller bankroll required by law to keep on hand to pay off gamblers, the source said.
The result was most obvious during the National Finals Rodeo in December, a big draw for the Horseshoe and many other casinos in town, the source said.
"It used to be wall to wall cowboys. This past December was deplorable. There were some cowboys and old timers loyal to the Horseshoe but other casinos were able to capture all the serious rodeo business."
Some regulars turned away from the casino Friday said they had noticed fewer crowds in the Horseshoe and telltale signs of problems, such as the property shutting off its neon lights outdoors in the wee hours of the morning.
"A couple of years ago you had to work your way through people," said Las Vegas resident Greg Powell. "Now it's kind of like a ghost town."
Union pension and welfare funds have demanded payments from the Horseshoe since at least March, court records show. Those demands stem from charges filed with the National Labor Relations Board in November 2002 claiming the Horseshoe violated federal labor laws by failing to sign a collective bargaining agreement reached with the Culinary Union Local 226 and Bartenders Union local 165 in July 2002 and that it also failed to make payments to the union's medical insurance and pension plans on behalf of up to 500 Horseshoe workers.
Following an investigation, the NLRB charged the Horseshoe with those claims. The Horseshoe finally settled the charges in March 2003 by signing the collective bargaining agreement and agreeing to pay the funds owed. As part of the agreement, the Horseshoe didn't admit to violating the law.
In October, U.S. District Judge Roger Hunt approved a judgment against the Horseshoe on behalf of the respective unions' pension and welfare funds. The judgment called for the Horseshoe to pay the pension trust fund about $388,603 -- including interest accruing at a rate of 7 percent -- to settle claims discovered in a payroll audit for the period between January 1998 and December 2000. A separate judgment required the Horseshoe to pay the welfare fund $1.165 million plus interest accruing at a rate of 6.25 percent.
The court also approved a 22-month payment plan for the Horseshoe, which was allowed until Feb. 25, 2005, to pay the judgments in full. The union also was granted the right to seize the money if regular payments weren't being met.
"We held off a numerous amount of times," Culinary Secretary-Treasurer D. Taylor said late Sunday. "This was the ultimate last resort."
Taylor said the Horseshoe told some 450 union employees that they officially were on "layoff status."
Union leaders, he said, were to meet this morning to develop a strategy to help the workers.
"This is a sad day," he said. "The Horseshoe has always been a symbol of the greatness of Las Vegas."
Taylor said he was optimistic the Horseshoe would reopen.
Since the union judgments were filed against the Horseshoe, the Internal Revenue Service stepped in to file two federal tax liens against the casino for unpaid payroll withholding taxes. The first lien was filed in November for $5 million in unpaid taxes in 2002 and a second was filed last month for about $2.5 million in taxes owed last year.
As early as last week, the IRS said it had authority to seize the Horseshoe but wouldn't necessarily take action. Liens also are filed simply to notify others that an entity owes federal taxes, IRS spokesman Bill Brunson said.
Brunson said today he couldn't comment on whether the IRS was in the process of collecting on the lien. The IRS was not involved in the seizure of cash from the casino Friday, he said.
In a letter to Culinary Union workers Friday, union officials explained that the union trust funds have continued to provide benefits to workers even though the Horseshoe hasn't been contributing payments to the plans since June.
"The Trustees of the plans have bent over backward trying to help the Horseshoe," the letter read. "They gave the Horseshoe extension after extension in the hope that the promises made by Horseshoe ownership about getting substantial new money in the form of loans would come true. None of the promises has been fulfilled ... Trustees had the legal, fiduciary duty to collect for the benefits the plans have given you and simply could not wait any longer based just on hope and no performance by the Horseshoe ownership."
In July 2002 the Horseshoe agreed along with other downtown casinos to a $2.20 hourly increase in wages and benefits for each union employee over five years -- less than what Strip casinos agreed to pay their union workers. The Horseshoe was among four of the more financially strapped casinos allowed to defer payments for several months. Downtown casino bosses banded together to help get concessions for certain properties over concerns that boarded up casinos would hurt business for all.
There was no sense at the time that the Horseshoe would have to shut down should the increases go into effect, Taylor said.
In certain circumstances, creditors may file for an involuntary bankruptcy protection on behalf of a third party in order to get a shot at getting their debts repaid and to prevent a business from closing its doors, bankruptcy experts say.
But that usually occurs when a property has the ability to pay off its creditors over time or if there's some sudden factor that makes it difficult for a property to repay a debt, said Candace Carlyon, a Las Vegas bankruptcy attorney.
"If you can't make money, filing for bankruptcy just makes the hole deeper," Carlyon said. "You have a tremendous burden financially. We always say about Chapter 11 that it can't make your business profitable."
Also, creditors realize that they may not necessarily get paid in a bankruptcy proceeding in the rush to the courthouse, she said.
Despite rumors of problems, some employees Friday said they were stunned by the sudden closure of the casino and feared for their jobs.
"We were in the middle of serving customers and they told us to leave the building," said one worker who declined to give his name.
"We've got family. We've got kids to feed. I was going to buy a home," the worker said.
Another worker shrugged when asked whether he could find other work. "Who's hiring? It's a slow time now," he said.
A group of union workers leaving the casino said they never had problems receiving payroll checks or medical coverage, though they weren't able to cash their checks immediately.
"They'd tell us to wait 12 hours or the next day" to cash checks, one worker said.
Other employees expressed loyalty to the Horseshoe and said they expected to get their jobs back.
Andy Lu, a slot floor worker, said he appreciated the Horseshoe hiring him "without any experience."
Bartender Ernesto Martin vowed to return to the property should it reopen.
"People say a lot of bad things about this place but they have always had my check ready for me, on time," Martin said. "The Horseshoe has never failed me. It has made my life a lot better."
"They're going through a situation right now but they'll take care of it," he said. "That's business. You have ups and downs."
Customers outside the casino Friday said they regretted the closure.
Jennifer Ruban, a Chicago-based representative for Down Beat magazine, said visiting the Horseshoe was a "highlight of my Vegas trips."
"At one time this used to be the place to be," University of Texas student Bill Magoosh said.
Copyright © Las Vegas Sun. Inc. Republished with permission.