1. Showboat Atlantic City Pitches $100M Water Park, Democratic Committee Pleads with Gov. Murphy to Reopen Casinos. Posted on: May 28, 2020, 10:40h.
2. Showboat Casino: Sold in 2000, changed name to Castaways, sold several times and in 2005 closed and demolished. Silver City Casino: Closed in 1999, is now the Silver City Shopping Center. Silver Nugget Casino: Name change in 1990 to Mahoney's Silver Nugget.
3. ATLANTIC CITY, N.J. (AP) — The show is over for the Showboat Casino Hotel. The Mardi Gras-themed casino shut down Sunday after 27 years on the Atlantic City Boardwalk. It was one of three casinos.
4. The Showboat Casino Hotel in Atlantic City, N.J., closed its doors on Sunday. (Wayne Parry/AP) Showboat bartender Chris Ireland says casino workers never thought this could happen.

This is the final installment of the four-part series highlighting some of the key investigation issues and findings of the Examiner’s report. In this article, the author explores the claim that CEC inappropriately elected to close the Showboat Atlantic City casino and diverted its customers to Harrah’s Atlantic City casino.

In 1954, a casino and resort by the name of Showboat opened up at 2800 Fremont Street. It would become the first resort reportedly to be within Las Vegas city limits. Kell Houssels who was part of the Las Vegas Club and William Moore of the Last Frontier.

This article is the final installment of the four-part series highlighting some of the key investigation issues and findings of the Examiner’s report.^[1] In this article, the author explores the claim that CEC inappropriately elected to close the Showboat Atlantic City casino and diverted its customers to Harrah’s Atlantic City casino.

Background

Caesars Entertainment Operating Company (CEOC or the Debtor), which owned and managed a number of Caesars’ casino properties, filed for bankruptcy protection in January 2015. CEOC was a subsidiary of Caesars Entertainment Corp. (Holdco or CEC) which also owned casino properties through two other subsidiaries: Caesars Entertainment Resort Properties (CERP) and Caesars Growth Partners (CGP). In total, the Caesars gaming empire consisted of 43 casino properties, of which 28 were owned by CEOC.

The Debtor engaged in a series of complex sales of casinos and intellectual property as well as financings and related party transactions in the years prior to the bankruptcy. After the bankruptcy filing, an Examiner[2] was appointed to investigate and report on various CEOC pre-petition transactions. Alvarez & Marsal (A&M) was retained as financial advisor to the Examiner. The Examiner concluded that the value of claims related to fraudulent transfers, breaches of fiduciary duty, aiding and abetting breaches of Caesars management and its sponsors, and other actions ranged between $3.6 billion to $5.1 billion.^[3],[4]

Location, Location, Location[5]

As shown below, there are two distinct casino areas in Atlantic City: the Boardwalk and the Marina District. The traditional tourist area—the Boardwalk—is on the beach and includes: Caesars Atlantic City, Bally’s Atlantic City, and the Showboat (CEOC-owned properties and Debtors). While the beach, Boardwalk, and casinos remain popular draws, much of the area surrounding the Boardwalk properties is depressed and crime-ridden. The newer Marina District is more upscale and includes: Harrah’s Atlantic City (a CERP-owned property and non-Debtor), the Borgata, and the Golden Nugget, as well as the boutique Water Club hotel.

Figure 1: Map of Atlantic City and Location of CEC’s Properties[6]

The Steep and Protracted Decline in Atlantic City Gaming Revenue^[7]

Between 2006 and 2014, total gaming revenue in the Atlantic City market fell more than 47 percent and showed no sign of recovering. The supply of casinos far exceeded the demand, and many properties, not just Caesars’ properties, were experiencing financial difficulty. CEC and the Sponsors were aware of Atlantic City market trends, and strategies to cope with the decline in revenue, oversupply, and increased competition from neighboring states was a topic of nearly constant analysis and discussion.

Caesars’ Atlantic City Assessment and Decision to Close Showboat[8]

The performance of CEC’s Atlantic City properties was putting financial pressure on the company. An assessment of the Atlantic City market undertaken in January 2014 clearly showed that CEC needed to consolidate its Atlantic City properties to improve the performance of all the Caesars casinos. Management actively evaluated, analyzed, and discussed a variety of options and scenarios without regard to whether a property was a CERP or a CEOC property, including:

• Selling versus closing the Showboat;
• A timeshare hotel deal with Wyndham for the Showboat;
• Closing all or a portion of Bally’s Atlantic City;
• Acquiring Revel and retaining the Showboat; and
• Acquiring Trump Plaza with the Showboat sale versus closure.

Showboat’s Undesirable Location and Poor Performance Was Apparent

The Showboat was located a significant distance from the center of the Boardwalk area, and center Boardwalk was a more desirable location, with the highway flowing directly into it. There was also significant existing and proposed non-gaming development in the heart of the Boardwalk (where Caesars Atlantic City and Bally’s Atlantic City were located), including the Pier, a possible park, the Bass Pro Shops retail development, and the Marketplace, all of which would have the potential to benefit those two casinos, but not the Showboat. Lastly, at the time, two properties near the Showboat—Trump Taj Mahal and the Revel—were distressed and likely to close. Their closing would have left the Showboat alone at the far end of the Boardwalk.

In addition, Showboat’s performance was worse than the other CEOC properties; its earnings had declined precipitously since 2007 and were projected to continue to decline, as shown in Figure 2 and Figure 3:

Figure 2: Revenue by Property for Atlantic City Properties

Figure 3: EBITDA by Property for Atlantic City Properties

Other Options Were Considered

Closing Caesars Atlantic City, the “flagship,” was not a feasible option, because, among other reasons, Caesars Atlantic City had a “draw because of its brand.” Approximately 25 percent of Caesars Atlantic City’s gross gaming revenue was from lodgers at Bally’s Atlantic City, a property physically connected to Caesars, thus closing Bally’s Atlantic City would have removed this source of Caesars Atlantic City casino customers and left a shuttered casino attached to the “flagship.” Closing Harrah’s Atlantic City was not an option because, among other reasons, extensive investments had already been made in that property, it was the best Caesars hotel property in Atlantic City, and it was in the Marina District that attracted more upscale customers.

Caesars’ Strategy to Address Market Decline and Poor Performance

As a result, a strategy was formulated that included rationalizing supply through property closures and inducing mixed-use (non-gaming) real estate investment to improve the performance of the remaining assets in the market.^[9] Ultimately, CEC determined that the Showboat was the most logical property to close because of its location, declining earnings, and other practical considerations, including potential impact on other CEC Atlantic City properties.

Creditors’ Concerns about the Showboat Closure

Various creditors raised concerns about the wisdom and fairness to CEOC of closing Showboat.[10] The Examiner investigated the decision to close the Showboat as opposed to another CEC property in Atlantic City.[11] In connection with the closure of the Showboat, Caesars developed and implemented a detailed marketing plan in order to retain the Showboat’s customers within the Caesars network.[12] Various creditor groups criticized Caesars for failing to ensure that CEOC (the owner of the Showboat and a Debtor entity) was compensated for any of its customers who ended up at Harrah’s Atlantic City (a non-Debtor property)—or, put another way, for including Harrah’s Atlantic City in the Showboat’s customer retention marketing effort.[13]

The CEC Board of Directors approved the Showboat closure in February 2014, announced its decision on June 27, 2014 and closed the property on August 31, 2014.[14] Caesars subsequently sold the Showboat to Stockton College for $18 million on December 12, 2014.[15] Following the closure, the financial performance improved for Caesars Atlantic City properties overall, and the ones owned by CEOC.^[16]

The Examiner concluded that the decision to close the Showboat was a reasonable business decision based upon a detailed analysis which considered the three CEOC properties and the one CERP property. If the decision had been made solely considering the three CEOC properties (i.e., Showboat, Bally’s Atlantic City, and Caesars Atlantic City) and excluding CERP’s property (Harrah’s Atlantic City), it is hard to imagine a different result as the Showboat remained the logical choice. As a result, the decision to close the Showboat did not give rise to any viable claim.[17]

Creditors’ Even More Concerned with the Diversion of Customers^[18]

Certain creditors asserted that Caesars implemented a marketing plan and manipulated room rates to direct Showboats customers to Harrah’s Atlantic City following Showboat’s closure.[19]

Not surprisingly, Caesars designed and implemented a marketing plan to retain Showboat’s customers. Following an initial phase focused on preserving revenues at Showboat prior to closure, Caesars moved towards a more targeted approach that leveraged the vast amount of customer data collected via the Total Rewards program. As discussed in Part 3 of this series, Caesars utilized a loyalty programed called Total Rewards and maintained a sophisticated database containing a huge amount of customer information. Using this customer information, Caesars constructed a marketing plan focused primarily on customers dominant to Showboat, as those were the customers most at risk of leaving the Caesars network.

Generally, the marketing strategy was to identify the secondary property preference for each Showboat-dominant customer and provide marketing offers for that property. To the extent that a Showboat-dominant customer did not have a secondary preference, the customer was provided offers to all three remaining properties. Caesars analyzed historical customer data for Showboat-dominant customers to evaluate gaming preferences and developed a marketing strategy based on that data. The customer data was segmented by the percentage of market Theo^[20] in the Atlantic City market:

• Customers with greater than 75 percent of their market theoretical revenue at the Showboat were identified as not having a secondary property preference in the Atlantic City market. These customers received offers to all three remaining properties in Atlantic City.
• For customers with less than 75 percent of their theoretical revenue at the Showboat, Caesars identified the customer’s secondary property preferences. To the extent a customer had only one secondary preference, this secondary property became the customer’s dominant property and he or she received offers to that property.
• For customers with more than one historical secondary preference, Caesars assigned the new dominant property and provided offers based on the customer’s highest average daily win (ADW) among the secondary properties.
• For customers whose historical secondary preference was the Showboat, the marketing plan was to direct these customers to the “opposite” location in Atlantic City, i.e., the Marina District versus the Boardwalk.

The marketing plan was prepared without regard to the corporate ownership of any of the properties involved. Caesars employees viewed marketing efforts for Atlantic City as a means to benefit the entire Caesars network, irrespective of the corporate ownership of any property.

In addition, many of the casino “hosts” who had relationships with the Showboat VIP customers were transferred to other properties based on how the data suggested those customers would migrate. By moving hosts in this way, Caesars management attempted to maximize the chance of retaining those customers. The end result was that most of the casino “hosts” were transferred to Harrah’s Atlantic City.

However, Caesars Transferred Value Away from the Creditors by Diverting Showboat’s Customers to a Non-Debtor Property^[21]

Despite the fact the marketing plan was agnostic as to the corporate ownership of each property, CEOC was clearly insolvent^[22] at the time of the Showboat closure and implementation of the marketing plan thus should be entitled to compensation to the extent the CEOC customers were diverted to a non-Debtor property. Think of it this way: would a business close shop and give its customer list away for no value?

To assess this claim, the Examiner (and A&M, serving as financial advisor) evaluated the historical Cross-Play^[23] of the Caesars Atlantic City properties relative to the Showboat (SAC) dominant customers gaming activity after the property’s closure. Figure 4 details the Theo Cross-Play behavior of the SAC dominant customers as of June 2014 and segments the data to capture the Theo Cross-Play activity of those same customers for the period of September 2013 through August 2014 (12 months prior to closure) compared to September 2014 through August 2015 (12 months after closure):

Figure 4: Cross-Play Summary for SAC Dominant Guest

After the Showboat closure, the remaining Caesars properties in the Atlantic City market captured approximately $88.2 million of the Theo revenue associated with the Showboat dominant customers. Of this amount, approximately 50.8 percent of the Theo revenue went to Harrah’s Atlantic City after the closure, as compared to 37.9 percent prior to the closure. As such, Harrah’s Atlantic City received what appears to be a disproportionate share of Showboat’s customers after the closure, very likely because of the marketing plan employed.

Conclusion^[24]

Because CEOC was insolvent at the time of the Showboat closure, the Examiner concluded that CEOC was not adequately compensated related to the transition of Showboat customers to Harrah’s Atlantic City (a CERP property) and a viable claim existed. The Examiner believed that CEOC should have been compensated to the extent CERP realized an incremental benefit relative to customers’ historical preferences (in part because of the movement of VIP hosts). While a certain creditor group estimated the value of this claim between $331 million to $384 million, the Examiner estimated the claim between $3.0 million and $7.0 million based the present value of the net cash flows associated with the incremental Theo revenue.

This article was previously published in Insights: Alvarez and Marsal, May 21, 2018, and is reprinted here with permissions.

[1] https://cases.primeclerk.com/ceoc/Home-DownloadPDF?id1=MzM3Mzgx&id2=0

[2] The bankruptcy code allows for the appointment of an examiner who shall perform an investigation of the acts, conduct, assets and financial condition of the debtor, and other duties as ordered by the court.

[3] Examiner’s Report at pp. 78–80.

[4] The Financial Times’s blog, FT Alphaville, describes the Examiner’s report: “For anyone who has followed the machinations at Caesars, the blow-by-blow accounts behind all the deals makes for an incredible read—the first 100 or so pages of executive summary has plenty of dirt. And even if you have not, just reading the lengths private equity firms will go to salvage bad investments is mind-blowing.” (https://ftalphaville.ft.com/2016/04/11/2158973/liquidity-v-solvency-caesars-edition/)

[5] Examiner’s Report at pp. 728–729.

[6] Stars identify the locations of the CEC properties.

[7] Examiner’s Report at pp. 712–716.

[8] Examiner’s Report at pp. 726–733.

[9] Examiner’s Report at p. 716.

[10] Examiner’s Report at p. 712.

[11]Ibid.

[12] Examiner’s Report at p. 740.

[13]Ibid.

[14] Examiner’s Report at p. 724.

[15]Ibid.

[16] Examiner’s Report at p. 733.

[17] Examiner’s Report at pp. 733–734.

[18] Examiner’s Report at pp. 740–745.

[19] Examiner’s Report at p. 748.

[20] “Theo” or “Theoretical Win” is a “[m]athematical equation used to estimate how much [Caesars] theoretically believe[s] the casino will win from a customer based on probability.” Theo represents the expected house advantage from gaming activity.

[21] Examiner’s Report at pp. 45–748.

[22] See Part 1: Caesars’ “Liquidity and Solvency”. https://www.alvarezandmarsal.com/insights/part-1-caesars-liquidity-and-solvency

[23] “Cross-Play” is the amount of play generated from customers crossing over from one Caesars property to another.

[24] Examiner’s Report at pp. 752–756.

The authors are Laureen Ryan and Michael Shanahan.

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The Showboat Atlantic City is a hotel and former casino in Atlantic City, New Jersey. The Showboat opened as a casino hotel in 1987 and closed in 2014; the hotel reopened in 2016. It is owned by developer Bart Blatstein.^[3]

History[edit]

On March 30, 1987, the Showboat Hotel, Casino and Bowling Center opened with a 60,000-square-foot (5,600 m²) casino and a 60-lane bowling alley,^[4] The complex was built on land leased from Resorts International,^[5] just north of the under-construction Resorts Taj Mahal (which became the Trump Taj Mahal upon opening in 1990, now reopening as the Hard Rock Hotel & Casino Atlantic City). The grand opening ceremony featured Bob Hope and Al Hirt.^[4]

The Showboat opened the city's first racebook in 1993, following the legalization in 1990 of casino simulcast wagering.^[6]

Showboat Casino Closed Tomorrow

Steelman Partners completed a major renovation in 1995, creating a Mardi Gras theme.

Showboat Casino Closed Christmas Day

In 1998, the property's parent company, Showboat, Inc., was purchased by Harrah's Entertainment, later known as Caesars Entertainment.

With the popularity of bowling on the decline, the bowling alley was closed in 2001, and the space was used for a new buffet and a coffee shop.^[7]

In May 2003, the Showboat added a 544-room, $90 million hotel tower called the Orleans Tower. In 2007, the hotel remodeled its original tower, the Bourbon Tower.

In the past decade, many improvements were made to the establishment, including a new hotel tower and a House of Blues on the boardwalk, along with a complete renovation of the boardwalk facade.

In June 2014, Caesars Entertainment announced the planned closure of the Showboat, even though the property was profitable. The move was made in an effort to stabilize Caesars's other Atlantic City casinos.^[8][9] After a buyer could not be found, the Showboat closed on August 31, 2014, at 4:00 p.m. It employed 2,100 people, but 470 of them were immediately hired at other Caesars casinos.^[10] The shutdown came amid a wave of closures of Atlantic City properties, with four of the city's casinos closing in 2014.

On December 13, 2014, Richard Stockton College (later Stockton University) purchased the Showboat for $18 million, with plans to develop a full-service residential campus awarding undergraduate and graduate degrees and other professional training programs.^[11][12] The plan was derailed by legal issues, and Stockton sold the property to Philadelphia developer Bart Blatstein for $23 million in January 2016.^{[3][13][14][15][16][17]}

Blatstein announced in June 2016 that the Showboat would reopen the following month as a non-gaming hotel.^[18] The 'new' Showboat Atlantic City Hotel opened July 8, accepting reservations and welcoming guests. The new hotel features only one restaurant, bar and coffee shop. The former casino space and House of Blues areas are currently closed indefinitely and decorated with images of Atlantic City.

In February 2018, Blatstein took a preliminary step toward applying for a casino license for the property. Blatstein said 'There is over a billion dollars worth of investment in that part of the town that should not be ignored,' referring to the reopening of two shuttered casinos next to the Showboat, the Ocean Resort Casino and Hard Rock Hotel & Casino. In early 2019, Bart Blatstein was approved to apply for a casino license. Blatstein has plans to build a new casino in the lot in between Showboat and Ocean Casino Resort. Due to a deed restriction placed on Showboat by Caesars Entertainment, the building may not be used as a casino, so building a new building is a way around it. The new casino is expected to break ground in 2020.^[19] Later that year, Blatstein announced plans to convert 264 of the Showboat's hotel rooms into apartments.^[20]

Dining[edit]

Current Restaurants

• Worship Surf Bar
• Canal Street Coffee Shop
• 12 Bar
• Bricker's Burgers & More ^[21]
• Atlantic City Eatery

Former Restaurants

• Atlantic City Eatery
• Casa di Napoli
• Crossroads
• Foundation Room Dining
• French Quarter Buffet
• Royal Noodle House
• Scarduzio's Steak - Sushi - Lounge
• Sundeck Coffee Shop
• Starbucks Coffee
• Worship Surf Bar

Amenities[edit]

Showboat has a 3,500 sq.ft. spa, a fitness center, a pool and two gift shops. Prior to the addition to the House of Blues, shows were performed in two venues, either the Mardi Gras Showroom or Mississippi Pavilion. Bob Hope was the first headliner at the resort. Other headliners included Phyllis Diller, Charo, The Judds, Ray Charles, The Spinners, Jack Jones, Alan King and Willie Nelson. Smaller Las Vegas-style revue shows were also sporadically booked in the Mardi Gras Showroom. The opening of The House of Blues in 2005 saw the entertainment bookings ranging from Cyndi LauperElvis Costello to the White Stripes to Erykah Badu. Boxing matches are held at the casino.^[22]

Upon the reopening of the Showboat, the hotel rebranded the former House of Blues as the Bourbon Room^[23] which hosts concerts and other events. The hotel also introduced a video arcade called Starcade^[24] and a glow-in-the-dark miniature golf course sponsored by Glow Golf^[25] However, both the Starcade and Glow Golf establishments have closed.

See also[edit]

References[edit]

1. ^Property Record for 801 Boardwalk, Atlantic City, NJ
2. ^ ^abShowboat Atlantic City Review by Casino City
3. ^ ^abJonathan Lai (January 15, 2016). 'Stockton completes Showboat sale to Blatstein'. Philadelphia Inquirer. Archived from the original on January 17, 2016. Retrieved 2016-01-16.
4. ^ ^abDonald Janson (March 31, 1987). '12th casino hotel opens, with 60-lane attraction'. New York Times. Retrieved 2014-12-13.
5. ^George Anastasia (February 11, 1986). 'Hearing focuses on Resorts as a redeveloper'. Philadelphia Inquirer.
6. ^Mike Farrell (May 29, 1993). 'Casino welcomes horses'. The Record. Bergen County, NJ. Archived from the original on March 29, 2015. – via HighBeam (subscription required)
7. ^Joe Bob Briggs (January 9, 2002). 'The Vegas Guy: Showboat Atlantic City'. UPI. Retrieved 2014-12-13.
8. ^'Caesars closing Showboat Casino 'to stabilize our business in Atlantic City'' Breaking News pressofatlanticcity.com
9. ^Showboat closes after 27 years in Atlantic City - News - NorthJersey.com
10. ^https://web.archive.org/web/20140830182513/http://www.philly.com/philly/news/new_jersey/20140829_ap_3fe0a255bdfd4830ae3c3c79ef8c17a2.html
11. ^Forand, Rebecca (December 12, 2014). 'Stockton buys Showboat for $18 million, creating 'Island campus''. South Jersey Times. Retrieved 2014-12-12.
12. ^Trump Taj Mahal blocking Stockton University move to Showboat, says school president NJ.com
13. ^Opinion: Showboat good for Stockton and A.C. - Opinion: Guest Writers - NorthJersey.com
14. ^Stockton President Resigns Over Purchase of Bankrupt Showboat Casino - NJ Spotlight
15. ^[1]
16. ^New information indicates Stockton University broke N.J. law in purchasing Showboat casino - News - NorthJersey.com
17. ^Costs from Stockton University's casino purchase grow - News - NorthJersey.com
18. ^Wayne Parry (June 3, 2016). 'Atlantic City's Showboat is reopening — but without casino'. Seattle Times. AP. Retrieved 2016-06-03.
19. ^Nicholas Huba (February 20, 2018). 'Is casino gaming returning to the Showboat?'. Press of Atlantic City. Retrieved 2018-10-26.
20. ^David Danzis (October 24, 2018). 'Showboat may soon offer market-rate apartments'. Press of Atlantic City. Retrieved 2018-10-26.
21. ^https://www.showboathotelac.com/atlantic-city-hotel
22. ^'Boxing is making a comeback in Atlantic City'. pressofatlanticcity.com. Retrieved 2019-03-24.
23. ^https://www.bourbonroomac.com
24. ^https://starcade-ac.com/
25. ^https://www.opryglowgolf.com/locations/atlantic-city-new-jersey-showboat-hotel

Showboat Atlantic City Closed

External links[edit]

Coordinates: 39°21′42″N74°25′5″W / 39.36167°N 74.41806°W