For the second time this year, financially strapped Caesars Entertainment Corp. has announced it will close an under-performing hotel-casino.
The Las Vegas-based casino giant said Friday it was shutting down operations at the Showboat in Atlantic City on Aug. 31, the smallest and least profitable of the four casinos Caesars operates in New Jersey.
Earlier this month, the company closed Harrah’s Tunica in northern Mississippi.
The closings are being done as Caesars battles to get out from underneath its gaming industry-high $23 billion in long term debt. Caesars has undertaken several reorganization efforts, including selling more than a half-dozen hotel-casinos and its interactive gaming business to an affiliated company, Caesars Growth Partners.
The move, however, is expected to exacerbate the already strained relations between Caesars Entertainment and factions of the company’s debt holders, who are worried they could be left holding the bag as Caesars attempts to restructure its damaged balance sheet.
“We believe the closure of Showboat will be more contentious among Caesars creditors than the closure of Harrah’s Tunica,” Fitch Ratings Service gaming analyst Alex Bumazhny said. “Showboat is generating positive (cash flow) and the move has the potential to move business away from Caesars Entertainment to Caesars Growth Partners.”
According to the New Jersey Division of Gaming Enforcement, the 1,331-room Showboat has collected $66.2 million in gaming revenue through May, which ranks the casino seventh out of Atlantic City’s 11 properties. Showboat’s revenue has declined 16 compared to 2013.
Analysts said the closing wasn’t a surprise. Caesars had reportedly been trying to sell the casino but couldn’t find any possible buyers.
Shares of Caesars, traded on the Nasdaq, closed at $17.67, down 5 cents or 0.28 percent.
The Showboat generated $187 million in revenue and $28 million in cash flow for the 12 months that ended March 31.
“The closure makes financial sense for Caesars and is a positive for the oversupplied Atlantic City market,” Bumazhny said. Showboat has about $50 million in labor costs and pays about $15 million in property tax. Caesars will likely recapture most of the Showboat customers at its three other resorts in Atlantic City.”
Caesars will continue to operate Caesars Atlantic City, Bally’s Atlantic City and Harrah’s Atlantic City.
New Jersey union leaders leaked news of the closing Thursday — which had been rumored for several months. Caesars Entertainment Chairman Gary Loveman said Atlantic City needed to reduce the number of its casinos because there wasn’t enough business for the market to succeed.
The closing will cost some 2,100 Showboat workers their jobs but the company said in a statement it would offer assistance to laid off employees, including offering preference for available positions at the company’s other three Atlantic City properties as well as other Caesars properties in the Eastern region.
In a statement, Loveman said the Atlantic City market has lost $3 billion in revenue since 2006 because of competition from neighboring states.
“The dynamic in Atlantic City has led us to the difficult but necessary decision to close Showboat in an effort to help stabilize our business there and support the viability of our remaining operations in the vicinity,” Loveman said.
The company said it hasn’t determined future use for the property and land. The company said it would collaborate with city and state officials to determine other uses.
The Showboat opened in 1987 by the Las Vegas company that operated the Showboat on the Boulder Highway, which was demolished in 2006. The original ownership included Las Vegas gaming pioneers Jackie Gaughan, Frank Modica, J.K. Houssels Jr., Bill Richardson, Kell Houssels III and Joe Kelley.
Caesars predecessor company Harrah’s Entertainment bought the Showboat in 1998.
Showboat will be the second casino to close this year in Atlantic City, considered the nation’s third-largest gambling market.
The Atlantic Club closed in January.
Revel has warned it might shut down if a buyer can’t be found in bankruptcy court.
Contact reporter Howard Stutz at firstname.lastname@example.org or 702-477-3871. Follow @howardstutz on Twitter.