Harrah’s vs. the State of Louisiana
The nation’s third-largest operator of casinos and hotels, Harrah’s Entertainment (NYSE: HET), announced fourth-quarter and year-end results this morning. The Big Easy is hitting Harrah’s upside the head like a doubloon at a Mardi Gras parade. While there are things the company could do to help its flagging New Orleans operation, it’s not clear that the company should take such steps.
Revenues for the year were up 15% to $3.5 billion. EBITDA (earnings before interest, taxes, depreciation, and amortization) was up 12% to $887 million. For the fourth quarter, excluding costs associated with the New Orleans casino and the company’s investment in National Airlines, earnings per share were $0.20, ahead of estimates by a penny. Harrah’s earned $0.29 a share last year. Before a January earnings warning, Harrah’s was expected to earn $0.32 a share.
Also causing headaches was Harrah’s Las Vegas Rio property, which paid out too heavily to gamblers all year. (Woohoo! Head on down there and cash in before they correct the problems!) Meanwhile, bad weather kept folks in and away from those magical slot machines and blackjack tables in the last couple of months of the year, and that weighed on results.
Harrah’s bad Big Easy bet
Harrah’s is one of the most diverse casino companies in existence, and has a strong operating history. It has 21 casinos across the U.S., and 50% of the country’s population lives within three hours of a Harrah’s casino. This year for Harrah’s, though, demonstrates that even industry leaders can stumble and make poor decisions.
Let’s talk about Harrah’s New Orleans venture as an example, since carnival time down there is kicking off and I’m in a Mardi Gras state of mind. Harrah’s owns 43% of JCC Holding Company, which owns Harrah’s New Orleans. JCC Holding has filed for bankruptcy, and attempts are being made to reorganize the structure of the New Orleans casino so that it can remain viable. Right now, it’s dying fast.
What happened in New Orleans that was so nasty for Harrah’s? Essentially, the local government and tourism industry killed the casino, though admittedly the decision to stick a casino in downtown New Orleans seemed odd from the get-go. People don’t go to New Orleans to gamble; they go to walk up and down Bourbon Street, ride the streetcars down St. Charles Avenue into the Garden District, and — most importantly — to do all sorts of unspeakable things in the French Quarter.
In Las Vegas and Mississippi’s Gulf Coast, there’s not a whole lot to get into, aside from the casinos. The same just doesn’t extend to New Orleans.
I have something of a personal perspective on this, since I grew up two hours from New Orleans. My sister lives there now, and my mom is on the Mississippi Gulf Coast. Oh, and she worked for Harrah’s New Orleans over a year ago — but even her wondrous public relations skills weren’t enough to save that puppy. The regulators there didn’t take kindly to Harrah’s opening a casino right down by the river, and put such onerous restrictions on it, that it’s kind of amazing the company forged ahead.
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