Tropicana's Chapter 11 reflects changing South Shore economy

It's a question that many Lake Tahoe locals, especially those in the workforce, are asking.

What does the Chapter 11 filing earlier this month by Tropicana Entertainment - the parent company of Horizon Casino Resort and MontBleu Resort Casino & Spa - mean in the future?

It's like asking what the price of gasoline will be next week, and the answer is nobody's certain.

But for now and through the summer, it will be business as usual with some added property upgrades, company officials said. And there will be no layoffs, benefit changes or retirement changes for employees, said Horizon marketing director Tom Davis.

"Approvals have come through for capital improvements such as remodeling the Elvis Suite, and we're moving forward with all of our marketing plans for the rest of the year. We're pushing the pedal to the metal on marketing," Davis said.

More uncertainty

Park Cattle Co. - which owns the land on which Horizon sits - will take control of the hotel-casino in three years. The agreement is based on the settlement of a lawsuit against the owners of Horizon. Park Cattle claimed the Tahoe properties were not properly maintained.

Park Cattle's chairman, Craig Sullivan, told The Sacramento Bee in an April 17 article that the company plans to wait three years and may indeed change the landscape altogether, perhaps turning the hotel-casino into a residential and commercial complex.

The Horizon's days as a casino will end "in all likelihood," he told the Bee.

The Tribune could not reach Park Cattle executives for comment.

The May 5 bankruptcy by Tropicana, however, has further clouded the looking glass into the property's future.

In a handful of interviews last week, Horizon employees expressed some concern about their future employment and the potential for promotions and advancements. They said company officials told them no layoffs are planned.

The unknown is nothing new for South Shore casinos.

Transition and changes of ownership have been a part of the gaming culture here for nearly 50 years. But the potentially higher stakes these days are reflected in the emergence of Indian gambling in California, the absence of major airline service to Tahoe, the continued growth of Las Vegas casinos as a worldwide destination and a fickleness among gamers themselves.

Improvements on tap at the Horizon Casino Resort <b>Remodel of the Elvis Suite.</b> A major renovation to the hotel's Elvis Suite will model what one may see at Graceland, said Tom Davis, marketing director. There will be new wall coverings, lights, a pool table and round bed. The color scheme will be royal blue with gold stars. "We want to make it retro," Davis said. <b>Elvis tribute artist contest.</b> This takes place in 24 venues across the country, with the Horizon the only one in Northern Nevada, Davis said. The winner of the Horizon contest will be flown, expenses paid, to Memphis, Tenn., to compete in a national Elvis impersonator contest. The Horizon contest starts June 21, the opening day of Lake Tahoe's summer season, and 10 parachutists will fly in and land at the Horizon. <b>Walk the Block campaign.</b> This is a marketing campaign to encourage people to stay, visit or dine at the Horizon. It will feature a value coupon book featuring in-house specials at the Horizon that will be distributed at hotels, timeshares and vacation rentals. <b>Entertainment.</b> Scheduled nightly through the summer is the "Yesterday" show, a Beatles tribute band, which has been enormously popular, Davis said. On Aug. 16, the Horizon will feature Peter Noone of Herman's Hermits. <b>Hybrid car giveaway or a big gas giveaway.</b> The Horizon is working on doing either or both.

Gaming growth not reflected at Tahoe

The result has been a long-term decline in the entire industry at the South Shore, said Bill Eadington, a University of Nevada, Reno, economics professor.

"Overall, there's been a tremendous growth in gaming. It just hasn't been here," said Eadington, who has tracked casino gambling at Tahoe for 30 years. "Reno hasn't done as well, either, but not as badly as South Tahoe."

Hoping things will return to the way they used to be isn't an option, Eadington said. Too many hands are being played in other gaming venues.

He pointed to Lake Tahoe's North Shore condominium and timeshare projects planned for Cal-Neva and the Tahoe Biltmore. The idea is to focus less on gaming and more on high-end retail and destination visitors.

"The old model is the hotel feeds the casino," Eadington explained. "The new model is the casino can't do that, and so you generate business and condominiums. Right now, it might be a tough sell because of housing and the national markets, but in the long term, Tahoe is still a very attractive setting. A lot of people want to be here, have a timeshare and access to the Tahoe market."

With the Shingle Springs casino on Highway 50 outside of Placerville set to open this fall, it will throw another ratchet in the changing regional casino climate. Shingle Springs may directly affect South Shore casinos, Eadington and others say.

"What we have is a perfect storm - a confluence of unrelated events" that has created the uncertainty, said Mike Bradford, CEO and owner of Lakeside Inn and Casino.

"Will Tahoe weather the storm? Yes, we will. But it is a matter of repositioning to a destination resort concept from a drive-up gaming market. There will be a quality of things we will wrestle with during this metamorphosis."

Landscape predicted in study from 2004

In fact, the changes were projected in a sobering 2004 study by the South Shore-based Strategic Marketing Group, a consulting firm that specializes in tourism marketing development for travel, recreation and hospitality industries.

In what was dubbed in the study as South Shore's "Mega Issues," it notes that the "dramatic increase in Indian gaming" coincides with decreases in gaming at South Shore. The result has been cost-cutting and consolidation of operations among Harrah's, Harveys and Columbia Sussex, with its purchase of Caesars Tahoe and its ownership of the Horizon since 1992.

Because cost savings are a primary rationale for consolidation, subsequent job cuts often cause people to leave the community, the study stated.

SMG Director Carl Ribaudo, who wrote the 2004 paper, says the report remains pretty much on target four years later.

Any significant loss of employees - whether from Horizon, MontBleu or both - will bring about the same trajectory as the report anticipated: an economy forced to consolidate because there will be less demand. The changing visitor demographic will reflect the change. The South Shore may see a drawdown in businesses with an emphasis on a higher-end market, Ribaudo said.

Two blips on Ribaudo's radar screen are looming larger these days: the continuing loss of the South Shore middle class and a critical balance between local business and corporate business.

"I think we would be remiss to not retain some kind of destination authenticity," he said.

While the South Shore is separated by a state line, the effects of a Horizon closure would put further financial constraints on the city of South Lake Tahoe, said City Councilman Bill Crawford.

"We have to make the adjustment to the reality, and the reality is Tropicana is in serious trouble," Crawford said. "It looks like within three years, the Horizon will not be a gambling house. The handwriting is on the wall there."

Add to this a real-estate downturn and a convention center redevelopment project - considered among some as an economic silver bullet that has run into financing problems - and South Lake Tahoe could be in for a wild ride, Crawford said.

"My position is we adjust to the reality," he said. "The reality here is we are in decline."

The decline will result in fewer jobs and more people moving off the hill, Crawford added.

Ribaudo's study and conclusions might become reality sooner than later.

"We are a market in transition, there's no question about it," Ribaudo said. "We are transitioning from what we were to what we will be."

And what will the South Shore be?

"The final script has yet to be written," he said.

Chapter 11: What does it mean?

When a business is in financial trouble and cannot service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11.

A Chapter 11 filing is an attempt to stay in business while a bankruptcy court supervises the "reorganization" of the company's contractual and debt obligations. The court can grant complete or partial relief from most of the company's debts and its contracts so the company can make a fresh start.

If the company's debts exceed its assets, the company's owners (stockholders) often end up with nothing at the completion of bankruptcy proceedings; their rights and interests are terminated and the company's creditors end up owning the newly reorganized company.

<i>- Sources: Wikipedia, www.uscourts.gov<;/i>

Tahoe timeline <b>1990:</b> Columbia Sussex acquires Horizon Casino Resort. <b>June 2005:</b> Caesars Tahoe is sold for $45 million by Caesars Entertainment in Las Vegas to Columbia Sussex. Columbia Sussex executives and property management pledge to turn the casino into a fun place with a young, hip urban appeal; the property was turned into MontBleu. <b>Dec. 12, 2007:</b> The New Jersey Gaming Commission refuses to renew Tropicana Entertainment's gaming license. Citing a litany of problems, the commission denies the Tropicana's owners a new license in December, a ruling that will force the property to be sold. The Tropicana, which includes New Jersey's largest hotel, continues to operate under a state-appointed conservator, retired state Supreme Court Justice Gary Stein. He is seeking a buyer for the property; money from the sale will go to former owners. <b>April 2, 2008:</b> A settlement agreement is reached in Douglas County District Court after the owners of the property on which the Horizon Casino Resort is situated, Park Cattle Co., sue casino subsidiaries of Columbia Sussex. The suit goes to trial in February. The settlement agreement is for $165 million. Park Cattle claims the Tahoe properties were not properly maintained. <b>May 5, 2008:</b> The fallout from losing its New Jersey casino license forces Tropicana Casino and Resort casinos to seek Chapter 11 bankruptcy protection. Tropicana Entertainment LLC said it plans to continue operating and will keep current staffing levels. The bankruptcy filing covers nine properties, including Horizon and MontBleu on Lake Tahoe's South Shore.

What happened

In December, Tropicana Entertainment lost its New Jersey-based Tropicana Casino and Resort casino license after state regulators judged that the business was unable to properly operate a first-class casino because of severe layoffs and poor performance. That triggered a series of financing crises and defaults that culminated May 5 in a Chapter 11 filing in U.S. Bankruptcy Court in Delaware.

Tropicana Entertainment claims its assets are $2.8 billion and its liabilities are $3.3 billion.

<i>- Sources: The Associated Press, Tahoe Daily Tribune</i>

What's next

The company plans to continue operating all properties and keep current staffing levels, including those at Lake Tahoe. It plans to ask a judge for permission to keep paying employees, honor customer loyalty programs and pay vendors. Tropicana in Atlantic City is being offered to potential buyers as required by state law; a new owner could be selected within a few weeks. Tropicana Entertainment is appealing the denial of its casino license.

<i>- Sources: Tahoe Daily Tribune, The AP</i>

History

Columbia Sussex Corp., founded in 1972, is a private hospitality company based in Fort Mitchell, Ky., a suburb of Cincinnati, Ohio. The company owns and operates hotels and casinos in various parts of the United States, including Horizon Casino Resort and MontBleu Resort Casino & Spa. The company operates 67 hotels under 13 different brands and 14 casinos. Its current president is Bill Yung III.

Tropicana Entertainment is a gaming subsidiary of Columbia Sussex Corp.

<i>- Source: ColumbiaSussex.com</i>