Aladdin to Open Aug. 17 With Gaming Commission Blessing

28 July 2000

The $1.4 billion Aladdin hotel-casino received formal approval from Nevada gaming regulators Thursday, clearing the way for an Aug. 17 opening of the Strip's newest megaresort.

With the approval, Aladdin Chief Executive Richard Goeglein said the pieces are now in place for a full opening of the property in just three weeks. The doors of the Aladdin should open to the public around 6:30 p.m. on Aug. 17, followed by a fireworks show four hours later.

Just 800 of the resort's 2,567 rooms will be available on opening night, but Goeglein said this shouldn't be construed as a "soft opening." Within a week of opening, he said, all rooms will be available -- but that Aladdin management decided to phase these rooms in gradually to keep opening night stress among staffers to a minimum.

The licensing hearing, which lasted more than two hours, never saw the level of tension seen during the Aladdin's hearing earlier this month before the Nevada Gaming Control Board. The contentious hearing pitted LCI against the Sommer Trust, which owns 57 percent of the Aladdin.

The cause of the rift came with the cost overruns experienced by the Aladdin over the past two years of construction. When the Sommer Trust failed to meet capital requests made by Aladdin management, LCI was forced to put up the additional cash. LCI put an additional $60 million into the project in April, pushing its total Aladdin investment close to $200 million. "We were clearly disappointed the (Sommer) trust was unable to support the Aladdin to the extent London Clubs did," said Alan Goodenough, chairman of LCI. "But it is in both of our best interests to start with a clean slate, go forward and work together."

Despite the cooler mood that prevailed Thursday, Aladdin Chairman Jack Sommer did not escape some grilling by commissioners over the failure of the trust to put up funds for the Aladdin's cost overruns. Sommer explained that was the result of the trust's limited liquidity, as well as fiduciary responsibilities to all members of the trust.

But a recent loan agreement assured that Sommer will have to invest if the Aladdin needs funding once again. The Aladdin recently received a $50 million loan from the Bank of Nova Scotia, funds that will be used to get the property to its grand opening. "This will cover all preopening costs, marketing and working capital," Sommer said. "It's everything we need to turn the key."

As a condition of receiving this loan, Sommer said, the trust agreed that it will be jointly responsible for any capital required by the property from its owners -- and said the trust is liquidating some assets to ensure that those funds will be available if needed. Despite difficulties with cost overruns, the Aladdin's executives and owners all insisted the property was poised to be a financial success, and that future capital calls were unlikely.

Before the casino will be able to post a profit, it will have to meet at least $85 million per year in expenses to meet interest costs and capital maintenance needs, said Aladdin Chief Financial Officer Tom Lettero. That's the result of the Aladdin's capital structure -- of the $1 billion invested in the Aladdin, $375 million came in the form of equity.

The remaining $625 million comes in the form of debt, at an average interest rate of 11 percent per year, though officials expressed confidence the resort would produce enough cash flow to service the debt. As evidence, Chief Operating Officer Bill Timmins said reservations are now growing at a rate of 10 percent per day, and that the resort is now ahead on budget forecasts as far out as 2001. .

One key element in the resort's formula will be a reliance on LCI to draw from its clientele of European and Middle Eastern customers. To promote the Aladdin among these customers, LCI is holding "Aladdin parties" at its casinos in London, Egypt, South Africa and Lebanon, and is arranging trips for its high-end customers to the property.