Ohio casino regulators to explore financial condition of Horseshoe Casino Cincinnati operator

Caesar's Entertainment to brief casino commission

CINCINNATI - The Ohio Casino Control Commission will review the financial condition of Caesar’s Entertainment Corp. at its next monthly meeting May 22.

The Las Vegas –based gaming company is a 20 percent owner and manager of Horseshoe Casino properties in Cincinnati and Cleveland. It’s been struggling with a $23 billion debt load and recently announced the closure of a casino in Mississippi. CEO Gary Loveman told Wall Street analysts Wednesday that he is looking for ways to reduce costs in Atlantic City and could close a casino there.

“We are looking at all of our options to reduce the cost of doing business here,” Loveman said after Caesar’s Entertainment posted a first-quarter loss of $386.4 million in revenue of $2.1 billion. “All the businesses in A.C. are under tremendous pressure.”

As WCPO reported Wednesday , Horseshoe Casino Cincinnati is also looking to cut costs by asking table games employees to “bid” for new schedules in a process that will force some employees into part-time positions with no health benefits.

“Now that we have been operating for a full year, things have leveled out and we have a much clearer picture of our guests’ patterns in playing with us,” said an internal memo obtained by WCPO Reporter Jason Law. “Thus, we need to modify our current table games team schedules to match the business patterns and volumes.”

A Horseshoe Casino spokeswoman said the changes reflect "common practice" in the gaming industry and affect about 5 percent of its Cincinnati employees. A spokeswoman for Rock Gaming LLC, the casino's 80 percent owner, said the timing of the Cincinnati changes and Caesar's broader financial issues are coincidental and it isn't worried about Caesar's debt problems.

The Ohio Casino Control Commission has been working for weeks to schedule an update on the financial condition of Caesar’s Entertainment, said Matt Schuler, the commission’s executive director. Caesar's General Counsel Michael Cohen is expected to brief commissioners on recent debt-restructuring moves by the company. Commissioners may explore whether financial problems for the parent company could impact Cincinnati and Cleveland properties.

But Schuler stressed that regulators aren’t worried about the viability of Caesar’s Entertainment.

“I think worry would be the wrong word,” he said. “The commission is always interested. We have an obligation under Ohio law to always consider the financial integrity of all of our licensees.”

An expert on gambling law said Ohio regulators could push for assurances that financial problems at Caesar’s Entertainment won’t harm the state’s developing casino industry.

“What they want to see is a guarantee that there’s not going to be any change in the way the company treats its patrons or its employees,” said I. Nelson Rose, professor at Whittier Law School in Costa Mesa, Calif. Rose has several gaming regulators as clients and is the author of “Gambling and the Law,” a syndicated column and widely-cited textbook.

“Caesar’s will promise whatever it can within its framework,” Rose said. “If they’re planning layoffs, they’d have to tell the regulator that.”

Ohio University Professor Alan Silver said any negative impact from money problems at Caesar’s Entertainment will be tempered in Ohio by its minority status in the Horseshoe properties. The Cleveland and Cincinnati casinos are 80 percent owned by Rock Gaming LLC, a Detroit-based casino development company controlled by Quicken Loans Inc. founder Dan Gilbert.

“I’d keep up on what’s going on,” said Silver, an assistant professor who writes about gambling and teaches hotel and tourism courses in Ohio University’s College of Health Sciences and Professions. “You want to be aware of it, of course. But you know Dan Gilbert’s got a lot of money here too. I don’t think I’d lose any sleep over it. (Caesar’s debt restructuring has) been going on for a while. And we haven’t seen any major concerns.”

Caesar's Entertainment declined to comment for this story. Rock Gaming isn't worried about Caesar's debt woes.

"The brand equity in both Horseshoe and (Caesar's Total Rewards program) is highly valued," said Rock Ventures Vice President Jennifer Kulczycki. "Caesar’s has invested a lot of time, energy, dollars and goodwill in making that a highly valued brand. I personally don’t see that this whole situation would be taken out on Ohio in some way, shape or form."

Caesar’s Entertainment announced a debt restructuring Tuesday that is designed to avoid $1 billion in debt obligations due in 2015. According to the Las Vegas Review Journal , the restructuring will not reduce the company’s $23 billion debt load, but will result in $1.75 million in new debt with longer maturity dates.

It’s the latest in a series of debt-restructuring announcements

by Caesar’s, which has a capital structure that bond rating agencies have described as unsustainable.

“We expect Caesars to use substantial cash to meet interest expense, capital expenditures and debt maturities over the next year and forecast that the company will burn more than $1.2 billion in cash in 2014 to meet approximately $3 billion in fixed charges,” Standard and Poor's wrote in an April 8 report which downgraded the company’s debt rating to CCC- with a negative outlook. “The negative outlook reflects our belief that a restructuring of some form is increasingly likely over the near term.”

Bloomberg reported Wednesday that Caesar’s “removed guarantees by the parent company on a large portion of its borrowings” with the restructuring announced Tuesday. That sets the stage for “broader negotiations with creditors” in the months ahead.

Caesar’s Ohio properties represented less than 4 percent of its $2.1 billion revenue for the quarter that ended March 31. Its quarterly financial statement shows $74.7 million in net revenue from management fees at seven properties, including three Indian casinos, Caesar’s Windsor and three Ohio properties – ThistleDown Racino and Horseshoe casinos in Cleveland and Cincinnati.

Revenue was up 4.2 percent for that group of properties compared to last year.

Figures from the Ohio Casino Control Commission show revenue is down 5 percent in the first two months of Horseshoe Cincinnati’s second year in business. April revenue of $16.7 million is down 6 percent from a year ago.

The competitive landscape intensified May 1 as Belterra Park opened a new racino at the former River Downs horse track. Its 1,500 new video lottery terminals are likely to pull eastside gamblers away from existing casino rivals, just as Miami Valley Gaming eroded market share for Horseshoe Cincinnati and Hollywood Casino in Lawrenceburg, Ind. in its first five months. The new Warren County racino property raked in $10.7 million in April revenue. It now ranks third among five local gaming rivals with a 19 percent share of Cincinnati's $51.2 million in total revenue.

Horseshoe’s Cincinnati market share fell from 34 percent in the month before Miami Valley Gaming opened to 29.2 percent in April. Hollywood fell from 36.8 percent to 29.2 percent in the same period. Hollywood matched Horseshoe's revenue in April at $16.7 million, down 28.9 percent from one year ago.

Penn National Gaming Inc. recently projected that Ohio will grow from $1.4 billion in total gaming revenue this year to $2 billion by 2020. Ohio University's Alan Silver agrees with that projection.

“I know the ramp up’s been slow here. We haven’t hit (the state’s initial projections of up to $1.9 billion). But they’re just that: projections,” he said.

Silver said Ohio casinos are finding their niche by specializing in different areas, including rewards programs, concerts, restaurants, tournaments and other amenities. He thinks Caesar’s Entertainment will succeed in Ohio with a combination of all of those strategies.

“It all centers around developing loyal customers and treating them well,” Silver said. “Caesar’s has always been a good operator. They have a great rewards program, great people working for them.”