Published: Friday, November 10, 1995
Column: JAMES GILL
Byline: BY JAMES GILL
We can't say we weren't warned.
Back in June of 1993, experts argued that overspending on a humongous new casino and relying on unrealistic revenue projections was a recipe for disaster.
Banks, bondholders and government could be left holding the can if we proceeded with this madness; far better not to demolish and replace the Rivergate, but to refurbish it in stages and take time to assess the New Orleans gambling market, the experts advised.
Those experts were from Harrah's, which is up the creek these days, not having been able to benefit from its own sage counsel.
Harrah's executives made their prescient remarks when, in partnership with a group of local investors, they were competing with Christopher Hemmeter for the state license to operate Louisiana's one-and-only land casino.
Hemmeter claimed he could take in $876 million a year. The hell you can; $594 million would be more like it, said Harrah's, which duly got the nod for the license, but then had to team up with Hemmeter because he already held the lease on the Rivergate thanks to his pal, then-New Orleans Mayor Sidney Barthelemy.
It now appears that, if Hemmeter was living in cloud cuckoo land, Harrah's initial projections were wildly optimistic too. The new partnership, Harrah's Jazz, nevertheless decided to inflate the numbers, announcing it expected an annual take of $658 million and buckling under to Barthelemy and others who demanded that the Rivergate come down.
Harrah's Jazz also agreed to gussy up the Municipal Auditorium for use as a temporary casino while the Rivergate was replaced with a slightly toned-down version of the tacky monstrosity conceived by Hemmeter.
Harrah's original plan had been to use part of the Rivergate as a temporary casino, but spending $40 million to refurbish the auditorium seemed a modest expense, given a total investment of $820 million and the prospect of those huge profits. Even before the real games got started, the temporary casino would bring in $33 million a month, Harrah's Jazz officials predicted.
For some unfathomable reason, members of the state casino board at this week's meeting were still saying that the Harrah's boys are real smart businessmen, even in face of pathetic returns from the temporary casino and indications of severe financial difficulties in the longer term.
In August, Salomon Brothers analysts concluded that the permanent casino would take in only about $398 million a year, and now Merrill Lynch has advised holders of Harrah's junk bonds to sell. Merrill Lynch projects revenues of $472 million at the permanent casino and warns of a "liquidity crisis."
The permanent casino will nevertheless be completed and opened for business, since it is inconceivable that so big a player in the gambling business as Harrah's Entertainment would take a knock on its reputation by reneging on its guarantees.
Indeed, Harrah's Entertainment vice president Colin Reed flew in for this week's casino board meeting to claim that there were "no problems" save a decline in stock and bond prices precipitated by "malacious and irresponsible rumors."
He had a point, for board member Fred Cassibry had told reporters the day before that Harrah's Jazz was consulting a New York law firm specializing in bankruptcy. Cassibry, a former federal judge, no less, had no evidence for the allegation, which appears to be baseless.
Cassibry, who clearly relishes his role as the conscience of a board that otherwise seems dominated by Harrah's lapdogs, was in more than usually mercurial form.
Having impugned Reed's veracity by trying to put him under oath, Cassibry went on to praise his business acumen and allow that Harrah's deserved "a fair shake," his own role in the bankruptcy rumors notwithstanding.
Reed, meanwhile, whined about his reception in New Orleans, and claims that in every other city people do not question the integrity of Harrah's officials or doubt that casinos are one of the greatest blessings known to mankind. But then he wasn't under oath.
James Gill is a staff writer.
Copyright © The Times-Picayune Publishing Corp.