The Tropicana’s sister resort at Lake Tahoe, facing eviction for subpar performance, has agreed to pay USD 165 million to the landowner for permission to stay put for another three years.
The resolution demonstrates how Tropicana Entertainment has been struggling to maintain properties in competitive markets while cutting costs — a controversial strategy that led to the company’s undoing in Atlantic City, where it was ordered by New Jersey gaming regulators to give up its license, and has angered the Culinary Union in Las Vegas, where the property is in the midst of protracted contract negotiations.
It also reflects the influence of Tropicana’s new president, Scott Butera, in reaching an amicable settlement with the Lake Tahoe landlord.
The landowner sued the casino company in 2005 for allegedly violating the terms of its lease — mainly, by failing to operate a high-end casino.
“There was the potential for a judgment significantly greater than what we settled for,” Butera said. “My view is to get as many of the issues and problems that are distracting for the company behind us.”
Tropicana Entertainment revealed details of a confidential court settlement in a Securities and Exchange Commission filing last week.
The disclosure was required because Tropicana already owes on USD 960 million in loans the company used to purchase Aztar Corp. and its Tropicana-branded casinos in Las Vegas and Atlantic City. Bondholders have sued, seeking immediate payment and threatening to force the company into bankruptcy.
The lawsuit centers on the Horizon, the company’s Lake Tahoe casino, which has fallen on hard times.
Tropicana Entertainment’s parent company, Columbia Sussex, entered the gaming business in 1990 when it purchased the Horizon, then called Sahara Tahoe, for USD 19 million. In a land lease with Park Cattle Co., the company agreed to run a “first-class” resort and compete for the high rollers who frequented other casinos in the region.
But as tribal casinos in California hurt the Horizon’s business and management scaled back, the resort began attracting budget-minded tourists rather than big spenders. Attorneys for Tropicana said USD 17 million was spent to upgrade and maintain the Horizon. Park Cattle said the property was going downhill, with mold in rooms, leaky roofs and crumbling walls. The Horizon also had been fined by the Environmental Protection Agency for mishandling of asbestos in the building and cited by OSHA for violations of the electrical code.
The settlement will terminate Tropicana’s lease March 31, 2011, 29 years prematurely, and allows Park Cattle to collect as much as USD 290 million if payments aren’t made on schedule. Park Cattle also has the option of taking over the property and running it with Tropicana’s gaming equipment and other company property for two years following termination of the lease.
Included in the Horizon settlement is a provision giving Park Cattle the right to terminate the Tropicana’s lease at nearby MontBleu Resort in January 2018 — 10 years earlier than it was due to expire.
Although the MontBleu was not the subject of the lawsuit, Park Cattle has a similar clause in the MontBleu lease requiring Tropicana to run the casino as a first-class operation.
Columbia Sussex purchased the MontBleu from Caesars Entertainment in 2005 for USD 45 million. The former Caesars Tahoe was known as the region’s premier property and has been rethemed under Columbia Sussex.
Butera said the company hoped to head off a similar situation at MontBleu by creating more specific bench marks and procedures for reinvestment. The company has committed to spending money at both properties to bring them into compliance with their leases.
“We didn’t want another liability sitting out there,” he said. “Now we are working hand in hand with Park Cattle to develop a plan so that each of these assets can prosper.”
The landlord is optimistic about the future of the MontBleu Resort and its management, now on a tighter leash.
“We look forward to working cooperatively with Tropicana’s new management team,” said Park Cattle representative Sallie Armstrong, managing partner of the Reno office of Downey Brand, the landlord’s law firm.