Published: Sunday, September 10, 1995
Column: James Gill
Byline: By James Gill
Good morning, sucker!
Yes, you, the Orleans Parish taxpayer.
The casino boys are having another good laugh at your expense.
You were pretty pleased last year when Mayor Morial persuaded Harrah's to pay $37.5 million for the extra police, fire and sanitation services required with the opening of the casino.
Harrah's guaranteed $1.25 million annually to pay off a 30-year bond issue, and Morial was accorded many plaudits for hanging tough and making the casino pick up the tab for the burdens it was putting on the city's modest coffers.
The only proviso was that if revenues at the Rivergate casino fell below $400 million in any year, Harrah's would be off the hook and the taxpayer would have to put his hand in his pocket.
It was impossible to conceive that would ever happen, city officials assured us. You don't get to be a big shot in the Harrah's organization unless you're plenty smart and able, after deep study of the market, to come up with accurate financial projections.
And Harrah's, having hired number crunchers from Peat, Marwick, no less, to provide the real dope, filed papers with the Securities Exchange Commission predicting annual revenues of $658 million once the permanent casino opens.
Everyone makes mistakes, but only highly paid experts could be so spectacularly wrong.
Salomon Brothers analysts have now told investors to expect the casino to take in $398 million a year, a figure that Harrah's chief financial officer termed "a good starting point for discussion purposes."
It's certainly a good starting point for discussion purposes among New Orleans taxpayers.
These supposedly savvy businessmen who run Harrah's are looking more and more like the gang that couldn't shoot straight. They have a major flop on their hands with the temporary casino, which was supposed to take in $403 million in the year it will take to construct an eyesore where the Rivergate once stood.
So far, it cannot do even half the business the financial wizards at Harrah's forecast. Management was so chastened by its own ineptitude that 461 workers were fired last month, while the city, which gets 5 percent of temporary casino revenues, imposed a hiring freeze.
Anyone who invested in the junk bonds that were sold to finance casino construction also has reason to conclude that there are lies, damned lies and Harrah's numbers.
The bonds were supposed to have an effective yield of around 18 percent thanks to an "equity kicker" whereby investors, in addition to normal interest payments, receive a percentage of the casino's take.
When the bonds were sold and Harrah's was predicting revenue of $658 million, that seemed like some serious lagniappe. According to the SEC papers, operating income would be $181.3 million, so that, together with depreciation and amortization, bond holders would receive 7 1/4 percent of $218.5 million.
It was a pleasant prospect, but merely an illusion. The Salomon Brothers analysis puts operating income at around $21 million.
Still, the state is guaranteed at least $100 million a year from Harrah's, right? Well, not quite, for Harrah's, under its contract with the state, is obligated to pay only through next year.
Thereafter, it could be off the hook if the courts rule that dockside gambling on riverboats abrogates its terrestrial monopoly.
You knew Harrah's was in the sucker business, but you probably thought the suckers were the ones rolling the dice or holding the cards in its casino.
Good morning, sucker!
James Gill is a staff writer.
Illustration: HARRAH'S TEMPORARY CASINO - Not making bucks for city
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