EDITOR'S LETTER: Rest ye, merry gentlemen
December 1, 2010
Those who live in the midst
of democratic fluctuations have always before their eyes the image of chance;
and they end by liking all undertakings in which chance plays a
part.
— Alexis de Tocqueville (“Democracy in
America”)
Watching an outraged Gary
Loveman paw the big stage at G2E last month, fuming about how casinos are no
different than fast-food restaurants and should be permitted to do business
anywhere, you had to think something was up.
Sure enough, it was the day before Harrah’s was
scheduled to price its abortive IPO, and brilliant guy that Loveman is, his
60-minute barrage against the social and regulatory strictures that force
people to get on a plane or endure a couple hours’ drive to try their luck at
the slots and tables (replete with visuals) couldn’t break free of a certain
self-serving subtext. After all, none of this would be necessary if online
gambling were legal in the United States, and Harrah’s, as we know, is betting
heavily on the come that this will happen sooner rather than later. If only the
prospects for it looked better than they do it might have swayed more
institutional investors to reconsider their reservations about the company’s
current risk-reward profile. But there is this ridiculous image problem the
industry must contend with. And there was Loveman under the lights at the Las
Vegas Convention Center with a $500 million stock offering going up in smoke
and …
Well, so much for Apollo and TPG’s liquidity position
and their exit strategy. Ditto for Paulson & Co. Led by hedge-fund maestro
John Paulson, who made $15 billion betting against subprime mortgages, they
were stuck too. Back in June they’d acquired 10 percent of the casino giant’s
mystery equity in exchange for a boatload of its discounted paper. They’d been
looking to sell their stake since August.
It’s estimated that debt-laden Harrah’s needs to boost
cash flow 40 percent just to get to eight times net leverage to EBITDA. The preferred
ratio is three times. Cash flow was down 13 percent for the company through the
first nine months of the year. At that point, it was down about one-third since
2007.
Where has all the
money gone? For starters, look at the conservative revolution of the last 30 years and the massive redistribution
of wealth it’s sanctioned away from the middle classes and working families and into the pockets of people like John
Paulson. Then look to the folks who
took on all those subprime mortgages. You’ll find part of your answer among them. Las Vegas’ Republican powerbrokers backed
Harry Reid over Sharron Angle in implicit acknowledgement of this — that unless gaping income disparities are
redressed, more jobs created and more
discretionary wherewithal routed the way of the masses, an economy that is 70-percent dependent on consumer spending
will continue to be challenged, and what that means for this industry of ours
is more of the slog of the last two years.
At the same time, however, their compatriots on Capitol
Hill were playing it fast and loose on the ideological front, taking a partisan
gamble that voters won’t remember how they held hostage extended benefits of
$310 a week for millions of unemployed for the sake of permanent tax cuts for people
making more than $200,000 a year, a position that will cost us $700 billion
over the next decade, even Warren Buffett thinks it’s crazy, and it benefits
businesses like Harrah’s not one iota.
What does are things like the $4.3 million in bonuses
the Oneida Indian Nation recently paid out to most of the 4,500 employees of
the tribe’s Turning Stone Resort Casino in central New York. It worked out to
about $1,000 a head. Last year at this time, in the depths of the recession,
the tribe distributed more, $5.1 million.
They call them “incentive checks”.
“These bonuses are a part of the Oneida culture, which
is really about giving back to the community,” a spokesman for the tribe
said.
So take heart. Not everyone in a position to run up the
score is doing so.
Happy holidays.
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