Caesars’ public perception takes one step forward, two steps back

Perception is everything.

Someone needs to explain this concept to Caesars Entertainment Corp.

Last week the casino operator, which made tremendous strides toward completing the complicated restructuring of its bankrupt operating unit, committed public relations suicide.

In a filing with the Securities and Exchange Commission, Caesars awarded its already highly compensated general counsel a $200,000 "special one-time retention bonus."

"Perplexing," remarked one gaming insider, when asked why Caesars would announce the bonus while it deals with a myriad of complex financial matters.

I'm not saying Caesars General Counsel Tim Donovan doesn't deserve the bonus, which will be payable in two $100,000 installments at the end of this year and 2016.

He's intimately involved in the attempts to fix the financial matters that have plagued the operator of nine resorts on or near the Strip since its 2008 leveraged buyout.

Donovan is in the middle of restructuring talks concerning Caesars Entertainment Operating Co. He is overseeing the bankruptcy process that will trim $10 billion of debt from the division and create a real estate investment trust. The number of lawyers with a piece of the CEOC bankruptcy can fill two courtrooms. Donovan has to manage this morasses.

Meanwhile, Donovan is also involved in the negotiations with the Justice Department, U.S. Treasury's Financial Crimes Enforcement Network, and the Nevada Gaming Control Board to resolve charges of anti-money laundering lapses at Caesars Palace.

Being Caesars' top in-house lawyer isn't the cushiest of assignments.

The company carries a gaming industry-high debt of $22.8 billion and has been a question mark within the investment community. Equity analysts have all but stopped covering Caesars. Any financial movement causes heartburn.

Donovan put himself front and center in March. Nevada gaming regulators publicly questioned Caesars over halted payments to some 63 former employees whose supplemental retirement plans were part of the CEOC bankruptcy. The retired employees became unsecured creditors in the bankruptcy when they received notices from the company in January that the payments would stop.

"Caesars is not the villain here," Donovan told Nevada Gaming Commission members, who earlier heard from one of the retirees who lost his payments.

He said the company was "sympathetic with this issues," which were "a terrible consequence of the bankruptcy." Donovan said the federal bankruptcy judge overseeing the case "would not look favorably" on Caesars if it filed a motion to pay one set of unsecured creditors and not others.

Donovan carries the titles of executive vice president and chief regulatory and compliance officer for Caesars and has been with the casino company since 2009. He's practiced corporate law since 1999.

According to Caesars proxy statement from April 2015, he was paid $700,000 in salary and more than $1 million stock awards for 2014 — far below the $1.9 million in salary and more than $20 million in stock awards earned by Caesars Chairman and former CEO Gary Loveman.

Donovan is also well-regarded by the gaming law community.

That's not the issue. Perception in the public arena is what counts nowadays.

Caesars could have waited until after the bankruptcy's conclusion to award a bonuses. Easily, there could have been a handshake agreement.

It's commendable the company went public with the filing, but it puts Donovan and the company in an awkward light given the current circumstances.

Caesars declined comment beyond the SEC filing. A company source didn't believe the filing was anything sinister and said my column on the bonus wasn't warranted.

Believe it or not, there are positive signs at Caesars Entertainment.

Last week, the company reached agreement with its largest lender group over the CEOC restructuring, giving Caesars support from both first lien bank lenders and first lien bondholders, representing $12 billion of debt. Talks are ongoing with junior creditors to build additional support for the previously announced second lien restructuring agreement.

In the second quarter, Caesars grew net revenue 17.4 percent and reversed a net loss. CEOC's properties, which includes Caesars Palace and Caesars Atlantic City, have been profitable according to filings with the bankruptcy court detailing monthly operating results.

But awarding a bonus — even it was justified — takes away any goodwill that had been built up.

One step forward, two steps back.

Howard Stutz's Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Find on Twitter: @howardstutz