Nevada Casino Expert: Caesars Bankruptcy Could Be Good News for A.C.

How much is Atlantic City’s casino industry struggling? You only need to look at the numbers to find out.

No, not the four casinos that closed last year or the thousands of workers who lost their jobs — though those are signs, too. But it’s this: Since 2006, Atlantic City casino revenue has been cut in half.

And the signs point to another casino closing this year. While it may be the Trump Taj Mahal — which is open still because of a cash infusion to keep it operating late last year — Atlantic City mayor Don Guardian recently implied Bally’s would be the next casino to close. “While he would not name it,” the Associated Press’ Wayne Parry wrote, “his description of it sounded a lot like Bally’s Atlantic City.”

Caesars Entertainment, the parent company of three Atlantic City casinos — Caesars, Bally’s and Harrah’s — said so much as well. “Given the balance of revenue we enjoy at Bally’s,” CEO Gary Loveman said last October, “we need to make money there.” And while most of the surviving Atlantic City casinos showed gains for 2014, Bally’s revenue went down by 8 percent. Only the Trump Taj, dogged by constant reports it was closing, had a bigger drop of the remaining casinos. (Casino win at Bally’s, however, rose five percent, while Caesars’ win dropped.)

Caesars’ operating unit filed for bankruptcy yesterday, but a judge ordered a modified stay. “The properties across the entire Caesars Entertainment network are open and will operate without interruption throughout CEOC’s reorganization process,” Loveman said in a statement. The operating unit includes both Caesars and Bally’s. Harrah’s, the best-performing of Caesars Entertainment’s three casinos in New Jersey, is not part of that unit. (Caesars’ corporate structure is incredibly complicated, which is why some junior noteholders are objecting to the bankruptcy.)

So why is Caesars Entertainment in such bad shape? It goes back to those numbers in 2006, when Atlantic City casino revenue was twice what it is now. That year, two hedge funds — TPG Capital and Apollo Global Management — purchased what was then called Harrah’s Entertainment in a leveraged buyout. (Sixers owner Josh Harris is a co-founder of Apollo.) The plan was to hold an IPO eventually.

But the sale didn’t close until 2008. Gambling revenue tumbled due to the recession and, on the East Coast, with increased competition from neighboring states. The two firms took on $10 billion in debt in the purchase, plus billions more to finance the deal. And though revenue in Las Vegas has improved and other casinos have made huge profits in casinos in Asia, Caesars Entertainment failed to build casinos on properties it had in Macau and South Korea. Caesars now has $23 billion in debt, most of any gambling company.

In Las Vegas, Caesars has been expanding on its non-gaming assets. “They opened LINQ, which is focused on entertainment and retail and dining — which is really the growth area in Vegas,” says David Schwartz, director of the UNLV Center for Gaming Research. “And they’ve rebranded an older hotel as the Cromwell which is more focused on nightclubs.”

Casinos in Atlantic City have attempted to expand non-gaming assets, too. But Caesars’ huge debt load has limited its ability to do so; it has instead focused on Vegas, where it makes about half of its money. The company has not even been able to upgrade decade-old slot machines at its Atlantic City casinos. Its two boardwalk casinos have little in the way of non-gaming attractions, with the Pier Shops at Caesars — recently sold to Bart Blatstein — a dead mall and a thin roster of upcoming events. (Fleetwood Mac, though!) Bally’s does have one new attraction that opened recently: A Guy Fieri Chophouse.

That doesn’t mean Bally’s is going to close this year, even if Atlantic City’s mayor hinted at it. In fact, Caesars bankruptcy might be good for the two boardwalk properties. Caesars bankruptcy filing may actually be a good sign. “I think the new capital structure might allow them to make more investments,” Schwartz says. Others agree with that assessment. A lighter debt load might be able to keep Bally’s off the chopping block.

Still, there are reasons to worry about its future. Caesars already closed a still-profitable casino, Showboat, in order to consolidate its Atlantic City holdings. (Stockton College has since purchased the casino to overhaul into an “island campus.”) The mayor’s comments make sense — Caesars could consolidate further. Only time will tell whether Caesars goes all in on Bally’s — or folds.

Follow @dhm on Twitter.