Gaming Loyalty Programs - Analyst predicts Harrah's will land in bankruptcy court this year

Not really much of a surprise (http://www.lvrj.com/business/40836367.html) for anyone following Harrah's operations over the past 6-12 months.

"We think this latest restructuring is an attempt to rearrange the deck chairs on the Titanic," Barbara Cappaert, a bond analyst with KDP Investment Advisors, said. "The company will very likely throw in the towel and reduce debt via a debt/equity restructuring (or bankruptcy) later this year to streamline its balance sheet."

baccarat_king, how will this affect (if at all) the experience of rated players who tend to visit this forum?
Will hosts need to be more generous or more picky with their players?

Will this lead to a CH11 situation or some more drastic moves, involving asset selloffs? In that case, which domestic or international operators will be at the head of the pack to acquire a cut-price property? [/speculation]

Will this lead to a CH11 situation or some more drastic moves, involving asset selloffs? In that case, which domestic or international operators will be at the head of the pack to acquire a cut-price property? [/speculation]Are there any domestic or international operators who aren't already in a similar, if not worse, situation?

I would think Harrahs is in a better position than companies like MGM/Mirage, Las Vegas Sands, and Wynn that have recently spent huge sums of money on additions they don't need now (City Center, Palazzo, and Encore, respectively, never mind huge Macau projects for the latter two also), whereas Harrah's has not done much of that I don't believe (except a bit at Ceasars maybe ...). I would also think Harrahs' is in a bit better shape because of their diversity through local casinos, for instance here in Missouri their two casinos are only down 3% (North Kansas City) and 5% (Maryland Heights) in gross revenue year-over-year (Source (http://www.mgc.dps.mo.gov/2009_fin/FY_09_FinReport/WEB0109.XLW)), which I think is a lot better than Vegas casinos are doing. A lot of folks like to gamble, and instead of heading to Vegas they may just head to their local Harrahs instead.

Harrah's is re-writing their marketing strategy on a continuous basis. Though, whether it has an effect on an individual player is a bit YMMV. They have most definitely reduced staff (especially in Vegas and Atlantic City), and initiated other cutbacks throughout the properties. Lots of little [and big] things here and there (elimination of foods in diamond lounges in Vegas, elimination of Grey Goose at diamond lounges in Atlantic City, the finishing of the exterior of the new tower @ Caesar's Las Vegas -- but not starting on the interior, leaving a shell for future completion, the downgrading of video poker in Atlantic City, the elimination and consolidation of many casino hosts.....)

I do believe the biggest problem for Harrah's is the over-expansion in Vegas, and a very large portfolio of lackluster (or neglected properties). There is just very little that is exciting anymore about Bally's, Flamingo, Harrah's, RIO, and Imperial Palace. I will give them credit that they put some money into updating rooms (much needed) in some of these properties, but not very much else. Hard to compete against, when Wynn/Encore and Venetian/Palazzo (among others) are giving away rooms. Not to mention places like Mirage which have been known to run $30-$50 specials for rooms.

Since the company is held by private investors, my instinct is that we have no idea of how bad things really are. I'm guessing they are actually worse than we perceive.

I would think that selling assets to generate cash might be the way to go [in Vegas], unfortunately, other than Caesar's there isn't very much that's particularly valuable. (Well, maybe RIO for a new hip operator; and potentially the Bally's/Paris properties... potentially)

Should be interesting to watch the next couple of months.

Unprecedented times. Harrah's has no one to sell distressed assets to, given the continued credit freeze.

I think one option that might be marginally less disastrous would be to mothball/shutter IP and maybe even Flamingo. Put them on ice; move employees to other Harrah's properties. It would lower some day to day expenses and might - might - be "less of a loss" than continuing to operate them in the current low occupancy, low gambling flow environment.

Then when conditions improve in 2010 or 2011 (!) they could put these assets up for sale or re-open them.

A prime example of a small reason why Harrah's might be in trouble: I'm going to the BBQ Do in KC in a couple of weeks. Thought to myself "self, maybe I should stay at Harrah's, so I can play some poker on Saturday night, or on Sunday before my flight back home." So I look at their web site: $209+tax. That's more expensive than staying at the Hyatt Crown Center and taking a taxi both ways, much less a whole bunch of good options at 1/2 the price.

I can't imagine the property is going to fill up on a random Saturday night, so what's the deal? Are people actually paying those prices, or is that just a mechanism for Harrah's to keep the hotel exclusive to plats and diamonds?

I would think that selling assets to generate cash might be the way to go [in Vegas], unfortunately, other than Caesar's there isn't very much that's particularly valuable. (Well, maybe RIO for a new hip operator; and potentially the Bally's/Paris properties... potentially)

While Paris may not hold much allure to hardcore vegas people like us, it still holds considerable allure for "casual Vegas" people that I know. Just look at the tripadvisor reviews of Bellagio that gush about the beautiful views of the eiffel tower from their room. Or, the yelp reviews that talk about people having their special dinner at the Eiffel Tower restaurant. My sister-in-law's parents stay in Paris when they are splurging, since it is a classy hotel in their opinion.
So while it may not be an Encore/Bellagio/Palazzo, I think it does have a following and would be a valuable asset to sell.

I won't defend the Flamingo because I have such an irrational love for that property my viewpoint is moot. :)

I bet that their strategy is to spend as little as possible on IP, Harrah's etc, and just hold them to sell if/when Strip property values pick up again. Paris, Mingo, and IP are all about as central-strip as you can get.

The sooner the better. Couldn't happen to a nicer company! :rolleyes: