From anthony curtis' las vegas advisor
Q:
I have read that the Tropicana is bankrupt and in trouble with regulators in Atlantic City, but I do not know the whole story. Can you give us a summary of the "troubles at the Trop"?
A:
An entire book, or at least a series of articles, could be written on the short and very stormy tenure of Columbia Sussex in Atlantic City and Las Vegas. This company had an unusual talent for setting off antagonism -- and nowhere more so than along the Boardwalk.
Tropicana Casino & Resort Atlantic City, along with its sister property on the Las Vegas Strip, was the flagship of Aztar Corp., which Columbia Sussex purchased in a spirited 2006 bidding war. Although attention focused on the Las Vegas Trop, which was viewed as overdue for redevelopment, the Atlantic City Trop was far and away Aztar’s greatest revenue driver. It brought in as much money by itself as all of Aztar’s other casinos combined.
Columbia Sussex’s first mistake (of many) was to overpay for Aztar when the market was already at its peak. CEO William J. Yung III wanted Aztar at any cost, so he later said, and was induced into bidding against himself in order to close the deal. With Pinnacle Entertainment standing pat on a $51-per-share offer, Aztar coaxed Yung into tacking a dollar per share onto his $53 bid, for a winning offer of $2.75 billion. That extra dollar-per-share premium alone cost Yung $110 million. "I thought I got a bargain," Yung told the Las Vegas Business Press.
The Aztar purchase marked the culmination of a Columbia Sussex growth spurt. In 2005-06 it acquired Caesars Tahoe, two riverboat casinos spun off by Penn National Gaming, and 14 Wyndham hotels. It was leveraged to the hilt and it didn't take long for the question of how buying the Tropicanas would pay off to arise.
If Yung was worried, he gave no indication, saying he had five financiers vying to underwrite a partial tear-down and redevelopment of the Las Vegas Tropicana. He promised to expand his newly acquired Casino Aztar riverboat operation and, of Columbia Sussex’s casino division, he said, "We’re going to have to staff up."
Perhaps the first sign of trouble came when Yung pooh-poohed the threat to Atlantic City posed by casinos and racinos in Pennsylvania. Contrary to his promise to staff up, he told Casino Enterprise Management magazine that the Trops would be run by existing Columbia Sussex hotel staff, except for the casino proper, and that hotel cleaning staff would pull double duty in the casino. "We’ve done it everywhere," he said, revealing a one-size-fits-all mentality that would lead to his downfall in New Jersey.
According to Evansville Business magazine, Yung expected to make money "by squeezing operating efficiencies out of Aztar’s existing properties … a technique he learned while improving factory efficiencies at the Andrew Jergens soap plant in Cincinnati, where he was employed as an industrial engineer before he broke into the hospitality business in the 1980s."
It was later revealed that, in the course of meeting with potential financiers, Yung promised them a sizable return on investment, predicated on massive staffing cuts that would save as much as $40 million. (Yung did not share this tidbit with regulators, which also caused him trouble down the road.)
Mass sackings quickly became the order of the day at the A.C. Trop, where between 690 and 1,060 workers (accounts vary) were pink-slipped following Columbia Sussex’s Jan. 3, 2007, takeover, starting with president Pam Popielarski. Once attrition was factored in, the workforce reduction topped 1,300. (Columbia Sussex later claimed that the Aztar casinos were overstaffed by as much as 50%.) Management services were outsourced to Columbia Sussex’s central office in Fort Mitchell, Ky., which then billed the Trops for the privilege.
Yung rationalized all this to Wall Street by saying the Trop "had many more personnel than its competitors in the market," apparently ignoring the fact that it also had more hotel rooms than any of them and the third-largest slot floor. Yung contended that, since the Trop’s revenues were commensurate with those of the (smaller) Showboat, it should staff accordingly.
Eventually, this mentality resulted in the A.C. Trop having only 23 slot technicians, total, to service at least 3,800 machines on a round-the-clock basis. The limo department was scrapped, as were casino hosts. (Yung later claimed he didn’t realize Atlantic City was a "player relationship business.") Thus, the casino with the third-highest number of table games and slots and the most rooms ended up with the fifth-largest workforce in town.
Yung’s policies quickly made enemies throughout New Jersey. The Press of Atlantic City editorialized against his "slash-and-burn business model." A spate of union elections were coming up and other casino owners allegedly pleaded with Yung to go easy, lest he drive workers into the unions’ arms. The Columbia Sussex CEO is said to have turned a deaf ear to those pleas. Not surprisingly, these same owners either covertly supported a subsequent anti-Yung drive by the UNITE-HERE union or stayed on the sidelines.
Robert McDevitt, president of Local 54 of UNITE-HERE, in a letter to The Press, contended that 75% of the Trop’s housekeeping staff had been given the axe, adding, "On any day, the restrooms at the Tropicana might remind you of something found in a major city bus terminal." (An LVA secret-shopper report discovered similar conditions at the Vegas Trop.)
McDevitt elaborated subsequently to the Philadelphia Inquirer, saying "Columbia-Sussex doesn't operate casino properties," he said. "They strip-mine them -- taking everything out and bringing nothing back, and that's a recipe for disaster, not success." That blast was prompted by Yung’s firing of Popielarski’s replacement, Fred Buro, who later testified he lost his job because he balked at even deeper cuts.
Some of the Trop’s proposed job eliminations brought it into conflict with the New Jersey Casino Control Commission. The Garden State mandates basic staffing levels for certain casino positions (no fewer than one pit boss per every 20 table games, for example). Columbia Sussex sought to reduce the number of Trop security guards by 40% and to cut slot technicians and locksmiths below state minimums. It was, not surprisingly, rebuffed.
But cutback after cutback appeared to be Yung’s default response to increasing competition and sliding Trop revenues (partly due to the Pennsylvania casinos Yung had mistakenly belittled), which declined $19 million in the first six months of Columbia Sussex’s ownership. By the end of Yung’s lone year at the helm of the Tropicana, its casino win had fallen $56 million, or 12%, the steepest drop experienced by any Atlantic City casino that year.
In a move that betrayed the shakiness of his financial situation, Yung attempted to unload the Trop’s $285 million new retail mall, the Quarter, but pulled back after prospective buyers, evidently sensing his desperation, offered no more than $70 million.
"In order to compete in the Atlantic City market, Tropicana cannot solely focus on cost-reduction measures," warned Deutsche Bank gaming analyst Andrew Zarnett, citing a need for increasing comping and better customer service. Or, as former Trop executive Dennis Gomes later observed, the casino business is one in which "you can’t save your way to prosperity." Added the editorial page of the Cherry Hill, N.J., Courier Post: "Under the awful stewardship of Columbia Sussex owner William Yung III, the Tropicana quickly went from one of Atlantic City's hottest casinos to one of the most tarnished and poorly run."
As far as public perception was concerned, the final nail in Columbia Sussex’s coffin was a 15-page letter to the company, dated Sept. 24, 2007, from the National Environmental Health Association. NEHA Executive Director Nelson Fabian informed Columbia Sussex his association would be making only a partial payment of $75,000 on its bill for a convention at the Trop. "In twenty-five years of conference planning and management, this hotel experience was by the worst I have every gone through," Fabian explained. "I have never come away from any conference so thoroughly exasperated with a host hotel."
The NEHA’s litany of complaints including "indifferent and uncaring staff," uncooperative management, Internet service that was likened to a Third World country’s, food that either went missing or was incorrectly supplied (for instance, a buffet stocked with frozen pretzels and melted ice cream bars), dirtiness, theft, vermin, racial discrimination, etc. Referring to Yung’s layoffs, he added, "Little wonder that the hotel had such a difficult time keeping up with the demands that we placed on it …
"The hotel certainly succeeded in sending a message that it didn’t care about our convention," Fabian concluded, while one of his board members added that the Trop "was a step or two below a Super 8." Comments like these, plus the release of other customer complaints, cemented the public image of a Sussex-ized Trop that was filthy and run on the cheap.
These disclosures were an inauspicious prelude to the New Jersey Casino Control Commission’s license-renewal hearings, which convened in November. (Columbia Sussex was operating under a provisional one-year license.) The Division of Gaming Enforcement had already probed the situation at the Trop and recommended against issuing the standard five-year license in favor of a probationary one-year renewal, with any further renewal to be contingent on the satisfaction of no fewer than 26 conditions.
The DGE revealed that the Trop had racked up 21 warning letters (and $90,000 in penalties) in nine months, almost a fourth of the warning letters sent to all Atlantic City casinos during that period. Some dealt with customer complaints, but most involved procedural mishaps.
The Casino Control Commission was even less forgiving than the DGE. On Dec. 12, it voted 4-1 to revoke Columbia Sussex’s license, prompting Trop workers in attendance to burst into cheers.
Many were the sins of Columbia Sussex in the NJCCC’s view, particularly a persistent and willful flouting of New Jersey laws. For instance, casinos in Atlantic City are required to have independent audit committees. At first, Columbia Sussex tried to staff this with company insiders. Then its "independent" committee of one turned out to be an attorney already on retainer to the Trop. The management fees paid by the Trop to Columbia Sussex HQ also proved to be a New Jersey no-no. Nor did it sit well when Yung tried to circumvent scrutiny by disguising an equity infusion from Columbia Sussex as a loan.
The crudity of Yung’s staffing formulas caused problems. He told the DGE he "was pretty confident that he was able to keep other casinos that he owns clean with the same number of staff that he was targeting the Tropicana AC for." Unfortunately for Yung (and Trop patrons), all his other pre-Aztar casinos were properties of considerably smaller size and in smaller markets than the Trop. As the NJCCC put it, "His reliance on his experience with his other casinos in much smaller markets simply did not translate into an ability to understand and run a property the magnitude of the Tropicana."
Constant executive turnover was another source of dismay, particularly when Columbia Sussex went through four chief financial officers in 2007 alone. In sworn testimony, Trop executives frequently pleaded ignorance of company business dealings or said they were out of the loop with one another.
The NJCCC even branded Ssome testimony as perjury. Perhaps the final straw was a report on the Trop’s security needs. To determine these, Yung brought in his man from Lake Tahoe (where Columbia Sussex leased two casinos). In conversations with Trop executives, the Tahoe gumshoe recommended staffing increases. By the time his report had gone through Yung’s office, however, the proposed increases had morphed into further decreases. The NJCCC had one word for Columbia Sussex’s official version of events: "unbelievable."
Citing various criteria set forth in New Jersey law, and particularly Columbia Sussex’s "lack of good character, honesty and integrity and contumacious defiance of the regulatory defiance of the regulatory process," the NJCCC voted to strip Columbia Sussex of its license forthwith. ("Contumacious" is basically a nice word for a "screw-you" attitude.) Furthermore, it was fined $750,000 –- still unpaid -– primarily for the hanky-panky surrounding the audit committee. Even the lone dissenter, Vice Chairman Michael Fedorko, conceded that Yung & Co. "were ill-prepared upon assuming control of the Tropicana to operate a casino hotel of this magnitude."
With Columbia Sussex tottering under debt from both the Aztar and Wyndham acquisitions, Yung was ill-prepared to withstand the loss of the Trop. It represented more than a third of the cash flow for his entire casino portfolio. Once the Trop was confiscated, a cat’s cradle of interlocking loans quickly began to unravel. By the end of January, a debtor lawsuit accused Columbia Sussex of being "deeply insolvent" and by May, subsidiary Tropicana Entertainment had filed for bankruptcy.
But that’s another (long)
