It looks like a new hand's been dealt to Binion's Horseshoe in Las Vegas. Just two days after U.S. marshals raided and shut down the financially distressed casino, Harrah's Entertainment (NYSE:HET) snapped it up, giving a new lease on life for the last family-owned casino in America and home of the legendary World Series of Poker (WSOP).
The Las Vegas Sun, citing a source close to the agreement, quoted a price tag of roughly $50 million "with liabilities in a similar range." Though Harrah's is expected to re-sell the property, the acquisition will help save many of the 1,500 jobs endangered by its closure and ensure that the 2004 WSOP will go on as planned.
Nevertheless, the acquisition also marks the end of an era, effectively folding the famed Binion family's run in the casino business. Further, it may also be the last WSOP to use Binion's Horseshoe as a hosting venue. Binion's has hosted the "tournament of all tournaments" since it was first started by Benny Binion in 1970.
For its part in the deal, Harrah's gains what it has really been after for the past several months -- the rights to use the Horseshoe brand in the state of Nevada. And, in the process, Harrah's also picked up the rights to the WSOP.
Huntin' horseshoes
In September, Harrah's announced a $1.45 billion deal to purchase Jack Binion's Horseshoe Gaming -- Jack's collection of highly successful riverboat operations (a separate financial entity from the troubled Las Vegas casino). As a result, Harrah's will pick up Horseshoe's premium brand, while eliminating its top competitor, in the heartland markets.
Meanwhile, Harrah's also blocked Ameristar Casinos' (NASDAQ:ASCA) bid to double up and become the dominant competitor in riverboat gaming. Ameristar and Horseshoe Gaming's seven riverboats combine to hold the dominant position in five of the seven, and seven of the 10 largest new jurisdiction markets in the Midwest and South.
Sounds perfect for Harrah's. But after all that, card players would appear to be left on the short end of the stick. For one thing, the highly successful, brand-building Binion staples that attract big bettors -- the highest stakes, a fair game, and everybody eats free -- clash with Harrah's. (See Harrah's Gains, Gamers Lose.)
Poker's paupers
Whereas Benny Binion -- Jack's father -- started and promoted the first poker tournaments more than three decades ago with the World Series, Harrah's (among many other casino operators) has spent the past few years removing its low revenue, space wasting, labor intensive poker rooms from its casinos to make space for the more profitable slot machines. Plus, there's a nasty, "unspoken rumor" that Harrah's plans to close the poker room at Horseshoe Tunica upon acquisition later this year.
Even though Harrah's moves make some sense according to their competitive strategy, it's ironic that Harrah's is now running the "Biggest Game in Town."
The deal
In the weeks prior to the casino's shut down, Harrah's had been in active negotiations with Binion's majority owner Becky Binion Behnen -- Jack's sister -- for the rights to use the Horseshoe brand in Nevada. Under the September deal, Harrah's would obtain a $20 million promissory note held by Jack's riverboat operations against the assets of the distressed Las Vegas casino. In other words, it could have threatened to bankrupt Binion's Horseshoe if it so chose.
At the time, Harrah's most likely had little or no interest in acquiring either the casino or the WSOP throughout those discussions. However, the situation cleared up considerably after last weekend's raid.
What would have kept Becky from reopening the casino afterwards was a gaming regulation requiring a sufficient amount of cash to bankroll its play, which the casino lacked. In fact, the U.S. marshals were authorized to seize up to $1.9 million, but only came away with less than $1 million. Binion's heavy debts no doubt were a real lure to sell.
On Harrah's side of the ball, it made some sense to swallow Binion's whole. For about $80 million more, they picked up the brand they coveted, the prestige and cash value of owning the WSOP, and immediate use of the $20 million note.
Harrah's can still turn the casino over to an interested investor to run it profitably. Those investors do exist. Large operators such as Isle of Capri (NASDAQ:ISLE) and MGM Mirage (NYSE:MGG) have made their own exits from the downtown area with their respective sales of the Lady Luck and Golden Nugget to private investors. Boyd Gaming (NYSE:BYD), which owns California, Fremont, and Main Street Station downtown, could also possibly be interested in the Binion property.
What's in the cards?
This is a big deal. Last year, a record 839 people made the $10,000 buy-in to the Championship No Limit Hold'em event. That $8.4 million prize pool makes the World Series of Poker the largest sporting event of the year in those terms. The 2003 WSOP gets re-run virtually every week on Disney's (NYSE:DIS) ESPN2, and Lakes Entertainment's (NASDAQ:LACO) World Poker Tour also scores big in ratings. However, similar to Lakes' situation, Harrah's is big enough that the WSOP itself probably won't contribute much to the bottom line.
But there are further possibilities. Owning the WSOP may generate brand value, and perhaps Harrah's will use its marketing muscle creatively. Harrah's could more effectively use "Win a trip to WSOP" to promote play at its non-Las Vegas casinos. I believe Harrah's also has plans to reopen at least one poker room and perhaps others around the country, and thus could use them to offer WSOP satellite tournaments.
As for the future of the WSOP itself, that's still up in the air. Though Harrah's has said it would retain the World Series, it hasn't said where it would hold it. If Harrah's re-sells the casino as expected, that would certainly lessen the chance of it being held at Binion's in 2004. Maybe it was time to move from the old, rundown joint anyway, but at least it had character in those musty, smoke-filled rooms
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Jeff Hwang owns shares of Ameristar Casinos and Lakes Entertainment, and can be reached at [email protected].
