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Best of Liz Benston
Liz Benston

Sale of Tropicana in Atlantic City stalls

2 February 2009

ATLANTIC CITY, New Jersey -- While the recession is fueling price wars in Las Vegas, an Atlantic City casino has bigger problems due in large part to the depressed economy.

The New Jersey Casino Control Commission pulled the Tropicana's gaming license in December 2007, saying its owners, who also own the Tropicana in Las Vegas, were unfit to run a casino. Over the past year, the state has attempted to sell the casino to the highest bidder, as required by law.

The process has been an instructive example of Murphy's law, affecting regulators, potential bidders and former owner Tropicana Entertainment, which has been fighting to regain control of the casino for more than a year.

This unprecedented regulatory decision, coupled with an unprecedented downturn, has created problems for trustee Gary Stein, the retired New Jersey Supreme Court justice who has been overseeing the sale.

Last summer, amid souring business and a Chapter 11 bankruptcy filing by Tropicana Entertainment, Stein rejected all bids for the property as too low and got the go-ahead to start over.

A couple of promising bids at $850 million and $950 million came in before the market meltdown. After the dust settled, Cordish Co., a Baltimore company that has developed malls and other tourist attractions, stuck in the game with a $700 million bid.

The process stalled when Tropicana Entertainment appealed the denial of its casino license. As expected, the New Jersey Supreme Court sided with the Casino Control Commission, citing regulatory violations and myriad management problems.

With earnings at the Tropicana continuing to slide, Cordish is now offering less money, though how much less is unknown.

Now the company's creditors have jumped into the fray.

Subordinated creditors — a group likely to get little, if anything, in a bankruptcy proceeding — want the property returned to Tropicana Entertainment to own and manage.

Senior creditors, which stand to get a lot of money from the sale, were initially in favor of the Cordish bid. As the purchase price has slipped with the economy, they are now protesting the sale.

This group was responsible for booting former Chief Executive Bill Yung and now, in an attempt to protect its economic interests, finds itself on the same side as management.

With all new executives and, for the first time, an independent board of directors, Tropicana Entertainment hopes it can persuade regulators to let it take back its Atlantic City casino, once the company's largest and most profitable asset.

"There's a lot more value in this property if we can get in there and manage it," said Scott Butera, who succeeded Yung as chief executive in June. Under a bankruptcy reorganization plan filed last month, Yung, who owned 100 percent of the company, forfeits his equity, potentially worth hundreds of millions of dollars, to senior lenders.

Regulators don't appear eager to reverse course even with Yung, who was ultimately to blame for the company's problems, no longer having any economic interest in the company.

Covering all the bases, the company has filed a petition for officials to determine whether it is in compliance with gaming regulations.

Regulators have an obligation to determine whether an operator is suitable to hold a license. What they do with the information is another question.

If investigators determine, as expected, that the company is in compliance, reborn with new and improved management, would regulators be obligated to return the license? That would contradict months of effort and state resources expended to accumulate a mountain of evidence and a determination that no court has yet to overturn.

It also seems, to a growing number of gaming industry onlookers, like the best course of action.