Harrah’s Entertainment appears to be inching toward an agreement that will put it in charge of hotel operations at the very troubled Planet Hollywood resort.
Negotiators for both sides have been working their way through the myriad details of an agreement that will – if it is completed – have Harrah’s replacing Starwood as the operator of the hotel and food and beverage operations.
This would be an obvious major step toward an eventual outright transfer of ownership of the hotel and casino that has experienced a painful history of financial and regulatory difficulties going back more than 30 years.
There was widespread speculation in mid-September that Harrah’s and the two deep-pocketed private equity groups that own Harrah’s might be hoping to buy PH on the cheap when they paid about $30 million for a chunk of the resort’s debt with a face value of $140 million.
Harrah’s had hoped to make the debt purchase quietly but the deal was leaked by insiders at Planet Hollywood.
No one was talking until recently about whether the debt purchase would be a passive investment or a first step toward much more. It’s now clear that Harrah’s has "much more" in mind although no one familiar with the state of the deal-making wants to talk on the record.
The two sides were close to an announcement more than a week ago about the stepped up presence of Harrah’s at Planet Hollywood. They still appear to be close; it’s just a matter of time – a few days, a few weeks.
Harrah’s continues to carry a mountain of debt – about $19 billion at the end of the second quarter, but thanks in part to the resources of its owners, TPG Capital and Apollo Management, it still has access to capital. The conditional $79 million purchase of an Ohio racetrack near Cleveland underscores that point. If expanded Ohio gambling is not approved in November, Harrah’s will be able to get out of that deal.
The 35 acres associated with Planet Hollywood would give Harrah’s total control of the Las Vegas Strip from Flamingo to Harmon. It already controls the east side of the Strip north of Flamingo almost to the Venetian.
The Harrah’s owners have also been looking closely at the Fontainebleau, another Strip project with big time financial problems.
The unfinished Fontainebleau is in a bankruptcy court and headed toward an apparent auction. Planet Hollywood is merely in default on some $860 million in debt.
In either case, Harrah’s has an asset that few other potential buyers can bring to either property – the company’s highly regarded Total Rewards marketing program, a very useful tool for filling hotel rooms with visitors who have a demonstrated willingness to spend money in casinos.
The hotel and casino that is now Planet Hollywood arose from the ashes of the countless problems that dogged the former Aladdin.
The Aladdin was ordered closed by the Nevada Gaming Commission in the spring of 1980 after its then-owners failed to follow the NGC’s instructions that the resort be sold to a legitimate buyer. The former operators of the Aladdin had been convicted in a Detroit federal court more than a year earlier of allowing unlicensed influence at the casino. U.S. Sen. Harry Reid, the Nevada Democrat who is the current Senate Majority Leader, was chairman of the Nevada Gaming Commission that took action against the Aladdin.
It was re-opened in October 1980 after its purchase for $85 million by Wayne Newton and veteran casino executive Ed Torres. The two couldn’t agree on much of anything for several years and eventually went their separate ways. Under another owner the Aladdin was imploded in 1998 and rebuilt by owners who opened it in August 2000.
This version of the Aladdin was no more successful than those that had preceded it and a joint venture that included Starwood and Robert Earl and Bay Harbour Management turned it into Planet Hollywood in 2004.
Question? Comment? E-mail me at: Phil Hevener