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Best of Liz Benston

Gaming Guru

Liz Benston

More Sales May Follow Caesars' New Orleans Riverboat Deal

25 October 2004

Analysts say the sale of the Bally's riverboat casino in New Orleans by Caesars Entertainment Inc. may not be the last move by Caesars in the coming months as the company prepares for its merger with Harrah's Entertainment Inc.

Caesars on Friday announced an agreement to sell the property to an affiliate of Columbia Sussex Corp., a privately held owner of hotels nationwide, for about $24 million. Caesars said it doesn't expect to record any material gain or loss from the sale.

Caesars spokesman Robert Stewart said the sale isn't contingent upon the merger with Harrah's but said there has been more interest from potential buyers in casino assets since the $9.4 billion deal was announced in July.

The property is one of several that had been identified on an internal short list of casinos, compiled before the merger, that Caesars intended to sell, analysts say. The other properties include Flamingo Laughlin, Caesars Tahoe and the Reno Hilton.

Stewart declined to comment on those properties or their presence on a short list. He also declined to say whether it was likely that Caesars would sell any more of its casinos in the near future.

Las Vegas resort broker David Atwell said the Laughlin and Reno properties were on the market until the merger announcement, when offers were put off for consideration until more recently.

Atwell said the properties, while not incredibly profitable or in prime locations, will likely sell.

"The market is so active and the financing so readily available and favorable to the gaming industry today that I feel quite confident that they will sell in the future," he said.

The Bally's riverboat is Caesars' smallest casino with the exception of a racetrack casino in Delaware and is the company's only casino without a hotel. The property has had its share of problems.

The casino has been losing business to Harrah's New Orleans, a land-based casino with better access to customers and that is more centrally located in downtown New Orleans. The Harrah's property has emerged from bankruptcy to become a profitable destination in large part because it was later granted the right to build a hotel and add restaurants and other amenities.

By contrast, the Bally's casino sits in Lake Pontchartrain, above New Orleans and surrounded by suburbs. It was the only property to survive a string of riverboat failures in the 1990s.

The riverboat also was the site of a long-running dispute between Caesars and its business partner over the management of the property, resulting in improvement delays. Caesars eventually bought out the partner and wrote off $43 million in charges last year to settle the suit.

In a statement, Columbia Sussex Corp. President William Yung called the New Orleans transaction a "great opportunity" and said the company planned "significant improvements and changes" to the property. Yung couldn't be reached for further comment.

Columbia Sussex, among the largest operators of Marriott hotels nationwide, has steadily increased its casino business in recent years. The Fort Mitchell, Ky.-based company bought and redeveloped the old Maxim hotel and casino near the Las Vegas Strip, which reopened in 2003 as a Westin hotel with a small casino. Columbia Sussex later purchased the River Palms casino in Laughlin and most recently agreed to buy a Vicksburg, Miss., casino from Harrah's. Columbia Sussex plans to rename the Mississippi property the Horizon Casino, the same name as a casino it operates in South Lake Tahoe.

Stewart said Caesars is receiving offers from potential buyers "all the time" and has a responsibility to shareholders to evaluate all offers.

Caesars recently announced a deal to sell two casinos to Colony Capital, another private investment firm building a casino chain of its own. The sale of the Atlantic City Hilton and Bally's Tunica also isn't contingent upon the merger but is widely viewed as a move aimed at appeasing regulators with the Federal Trade Commission, which is reviewing the Harrah's deal. Harrah's also is selling its East Chicago, Ind., and Tunica, Miss., casinos in the package deal with Colony. Those casinos are located in areas that already have a concentration of Harrah's or Caesars properties, analysts say. Harrah's Chief Executive Gary Loveman hadn't identified New Orleans as a market where either company would sell assets.