Making the News

Wilmington Morning Star, NC

Originally Published:Wednesday, April 11, 2007

"Trump really stuck it out in the 1980s, when no one else seemed to want to invest here," said Joseph Weinert, an analyst with the Spectrum Gaming Group here.

Can Trump Casinos Keep Up With the Neighbors?
Saddled with a huge debt, the three Atlantic City casinos need to reinvent themselves for a new Atlantic City.

ATLANTIC CITY - Two of the three casinos here that bear his name rank dead last in terms of gambling revenues among the 11 casinos in town. And in an industry that sometimes seems like a legal means of printing money, his casino holding company lost $19 million last year . in no small part because it is freighted with a staggering $1.4 billion in debt.

And yet Donald Trump, being Donald Trump, cannot help exclaiming how astonishingly well his three casinos are faring.

"I'm happy to say we're doing very, very well," Mr. Trump said by telephone after finishing a round of golf at the Augusta National Golf Club in Georgia, home of the Masters tournament. "I couldn't be happier with how things are going."

Is it any wonder, then, that it has fallen upon rivals to express sympathy on behalf of Mr. Trump and the management team that has been running Trump Entertainment Resorts since the company emerged from bankruptcy proceedings in 2005?

While the Trump Taj Mahal is a solid performer, casino operators here forlornly shake their collective heads when talking about the general plight of Mr. Trump.s casinos at a time when overall gambling revenues in Atlantic City are sliding because of competition from the slot parlors that have recently opened in New York and Philadelphia.

To retain its status as a major gambling hub, most officials say, Atlantic City must offer something more closely resembling a Las Vegas experience, where free-spending tourists looking for several nights of fun and fine food are kings rather than day-tripping coupon-carrying retirees watching their quarters.

But more than one casino executive questioned privately whether the three properties owned by Trump Entertainment Resorts, which have suffered years of neglect due to drawn-out financial woes, have the cash necessary to compete in the new Atlantic City.

And the gambling professionals responsible for running the Trump properties do not entirely disagree.

"Most casino companies tend to be awash in cash, but we are not," said Mark Juliano, the company's chief operating officer. As a result, reinvestment was not done until fairly recently, causing the hotels to become somewhat less competitive from a facilities point of view. But we.re starting to turn that around.

"Most casino companies tend to be awash in cash, but we are not," said Mark Juliano, the company's chief operating officer. As a result, reinvestment was not done until fairly recently, causing the hotels to become somewhat less competitive from a facilities point of view. But we.re starting to turn that around.

"In some ways," he added, "we're 10 years behind"

Speculation over the fate of the Trump casinos has heightened since mid-March, when the company disclosed that it had hired Merrill Lynch to .explore all our options,. as Mr. Trump put it. That includes the possibility that the company might sell all three properties . or perhaps dispose of a single hotel to raise the capital to improve the other two. Mr. Trump owns just more than 30 percent of Trump Entertainment, a publicly traded company.

"You've got casinos here spending like mad to remake themselves and go up-market,. said the general manager at one rival property, who spoke only if his name was not disclosed because he was critiquing competitors. .And you.ve got casinos with their heads in the sand who aren.t doing much of anything..

And then there's the Trump Plaza, Trump Marina and Trump Taj Mahal, which he said occupy a third category by themselves. .You almost have to feel sorry for them,. this executive said. .They.re trying, but you have to wonder if they can pull it off..

Trump Entertainment has spent roughly $140 million over the last 18 months sprucing up its three properties . and plans to spend another $110 million in the coming year and a half. But that falls short in the new Atlantic City, where the Borgata, the town.s newest and most successful casino-hotel, recently spent $200 million alone on an expansion of its gambling floor. And the Showboat spent nearly $100 million just to add a House of Blues nightclub.

For all his current troubles, Mr. Trump holds a storied spot in the brief history of gambling in Atlantic City. Four new casinos opened here from 1980 to 2002; three were Mr. Trump.s.

"Trump really stuck it out in the 1980s, when no one else seemed to want to invest here," said Joseph Weinert, an analyst with the Spectrum Gaming Group here.

Yet Mr. Trump's Atlantic City ambitions came at a heavy price. Opening three casinos in 10 years saddled him with enormous debts, which have greatly hampered the Trump properties in recent years.

Mr. Trump may have made his name building luxurious outsize properties that permit people to live his version of the fantasy life, but without deep reserves of cash he has been unable to keep pace with the Atlantic City competitors who are out-Trumping Mr. Trump in the battle for those seeking a few days of pampered, prince-and-princess-like pleasures.

"New places came to Atlantic City like the Borgata and revolutionized the market," said Joel H. Simkins, a casino analyst with the Prudential Equity Group. .But Trump.s debt meant they weren.t able to keep up..

To contend with the company.s crushing debt, Mr. Trump sold shares in his casinos in a pair of public offerings during the mid-1990s. But that only forestalled the inevitable, analysts said. In 2004, Trump Hotels and Casino Resorts filed for bankruptcy protection in federal court.

The company exited bankruptcy the following year with both a new corporate name and new management team. Mr. Trump stepped aside as chief executive (he retains the chairman.s title) and was succeeded by James B. Perry.

Mr. Perry and Mr. Juliano, who started at around that same time, have nearly six decades in the casino business between them.

"These properties are not earning what they could or should be earning," said Adam Steinberg, a gambling analyst with Morgan Joseph, an investment banking firm. .But the good news here is that Trump finally has a strong management team in there that knows what it.s doing and can say to him, .No, you.re wrong. Here.s what we need to do.. .

Some of the early efforts by the new Trump team boil down to upgrades that resemble those begun by rival casinos a decade earlier. That includes technology that permits the company to shift pricing of its hotel rooms based on a constantly changing snapshot of supply and demand and an integrated .players card. that allows visitors to earn points on money they spend at any of the company.s three casino-hotels.

Trump Entertainment is also in the midst of an upgrade of a different sort as it tries to rely less on the bus traffic that has been its bread-and-butter since the 1980s and more on vacation travelers as well as businesses and conventions looking for entertaining locales for meetings.

"What we've been doing in the 18 months since I've been here," Mr. Perry said, "is repositioning our properties so they are more dedicated to people who are going to stay the night in one of our hotel rooms and rely less on the day-trippers market."

Trump Entertainment is cutting back on the "comps," or freebies, it offers low-end players to persuade them to visit its casinos.

"We're not talking about eliminating our bus traffic," Mr. Juliano said. "But we are deliberately not interested in that low-end customer solely driven by comps. We.ve decided he doesn.t add much value..

To make its properties more inviting to a higher-end customer, Trump Entertainment is in the midst of spending $250 million .refreshing our product,. Mr. Perry said. That includes the installation of hundreds of new slot machines at each of the three properties . an improvement Mr. Juliano described as .long overdue. . and a makeover of every room the company operates, including the kind of over-the-top suites for high rollers that have become standard fare in both Las Vegas and Atlantic City.

The bulk of that spending is taking place at the Trump Taj Mahal, the largest and most successful of the Trump holdings. The casino floor at the Taj Mahal, which ranked fifth among Atlantic City.s 11 properties in terms of gambling revenue generated through the first three months of 2007, is now in the midst of a floor-to-ceiling makeover that .will mean we have a property that rivals any other casino floor in Atlantic City,. Mr. Juliano said.

Trump Entertainment is spending another $250 million building a new 800-room tower at the Taj.

To help raise the cash for these projects, the company recently sold its one non-Atlantic City casino, the Trump Indiana Casino Hotel in Gary, Ind., for $228 million.

It is possible that Trump Entertainment might sell another of its casinos to buy down its debt and pay for further property improvements. But analysts do not think a sale is necessary . or likely. A more plausible course, analysts agreed, is that Merrill Lynch helps the company refinance its debt, which Mr. Trump said was costing it 8.5 percent in interest expenses. .For a junk bond casino,. he said, that .is very reasonable..

Still, all three Trump properties offer prime locales in a city where available casino land sells at a steep premium, so there is always a chance a rival might want to snap up part or all of a company with a market capitalization of only about $550 million.

The prospect, unlikely as it may be, of an Atlantic City with no Trump-branded casino prompted Mr. Trump to feel nostalgic. A day after his initial interview, he phoned back from the Beverly Hills Hotel.

"You got me thinking, he said. "Would Atlantic City be the same without me? I think the answer would be no."

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