The Las Vegas Hilton is definitely not for sale.
That was the message delivered by Park Place Entertainment boss Thomas Gallagher at the casino giant’s annual shareholder meeting Friday at Paris Las Vegas.
“The Hilton is not for sale. We’ve been to that movie,” Gallagher replied bluntly to questioning by an investor.
Amid persistent rumors of the hotel's eventual sale, Gallagher’s statement marks an official about-face in the controversy surrounding the resort. The Hilton, famous as the home of Elvis Presley’s Vegas reincarnation in the ’70s, is better-known these days as the bone of contention in some nasty litigation between Park Place and Los Angeles developer Ed Roski Jr.
Roski, who owns the Silverton Hotel and Casino in Las Vegas, was the developer of the Staples Center in Los Angeles. He’s also part-owner of the NBA champion L.A. Lakers and the L.A. Kings of the National Hockey League.
Roski had a deal with the late Arthur Goldberg to buy the 3,000-room Hilton for $365 million, but the sale foundered when he ran into financing difficulties and failed to meet a January 3 deadline to close on the purchase.
Now he’s suing Park Place and Hilton Hotels Corp., alleging the two colluded to impede the sale after Goldberg’s death in October. Goldberg was president and chief executive officer of Park Place, the positions now occupied by Gallagher. Gallagher formerly was an executive vice president at Hilton and the company’s chief administrative officer.
Observers say Goldberg considered the Las Vegas Hilton a drain on his company’s efforts to market to big-time gamblers and wanted to sell the off-Strip hotel to focus on the high-end business at Caesars Palace. Goldberg was so anxious to unload the hotel he was prepared to take a $32 million non-cash loss on the sale, according to reports published at the time.
But Vegas insiders say Hilton Chairman Barron Hilton is attached to the family’s flagship Las Vegas resort and disapproved of the sale. If that’s the case, then the relationship between the two companies was bound to complicate matters.
Bally Entertainment and Hilton Hotels merged in 1996, but the marriage was poison to Hilton investors, who battered the stock, and the companies later spun off their collective casino empires to form Park Place Entertainment. The companies remain closely intertwined, however. Hilton CEO Stephen Bollenbach is chairman of the board of Park Place. Barron Hilton and another Hilton family member are Park Place directors.
Roski’s suit claims that Hilton removed two Goldberg protégés from the Park Place board after the CEO’s death and trimmed the number of directors from 12 to 10, effectively bolstering Hilton’s influence over the gaming side of things. Thus, Roski charges, Hilton was able to prevail on Park Place to renege on an agreement to provide $30 million in debt financing to move the Hilton sale forward.
Park Place has denied the charges and has said it fully intended to complete the sale. The company, in turn, is suing Roski, claiming that his failure to close on the purchase entitles Park Place to keep his $20 million deposit on the property. Park Place is also seeking $20 million in damages.
Roski charges that Park Place gutted the resort of management and staff and redirected its “whales,” as the biggest of the world’s big gamblers are known, to Caesars Palace. This caused the Hilton’s cash flow to plummet from $12 million in the third quarter of 1999 to a negative $1 million a year later. The poor results made it impossible for Roski to obtain financing, he says.
The Hilton posted $31 million in pre-tax earnings last year, down from $59 million in 1999. In its annual report, Park Place blames the drop-off to bad luck at the tables and declining table game volume connected with the pending sale. Cash flow was $16 million in the first quarter of 2001, down $2 million from the same period last year.
Despite the numbers, or perhaps because of them, Gallagher appears anxious to squelch talk that the property will be sold. He was upbeat in his discussion of the Hilton at Friday’s shareholder meeting, which was staged in an ornate ballroom at the company’s newest Strip resort, the Paris. He said Park Place is successfully repositioning the Hilton as a convention and meeting destination. “We’re happy to have it,” he said. “We’re doing great results,” and he reiterated, “It’s not for sale.” The subject of the litigation was not raised at the meeting.
Later, in talking with reporters, he said the Hilton “doesn’t need reinvestment, it needs to up its game.”
The hotel will keep its super-luxury Sky Villa suites, he said, but these will be used to lure more convention and meeting trade ”” its “bread and butter business,” as he termed it.
“We’re not going to chase the high end at the Las Vegas Hilton,” he said.