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
— 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.
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