Author: Casino Connection Staff

Will the mayor of Atlantic City—make that the former mayor—soon trade his designer suits for prison stripes?

Last Thursday, Frank Gilliam pleaded guilty in a Camden, New Jersey federal court to committing wire fraud after stealing some $87,000 from a youth basketball team he co-founded in 2011. In addition to paying back the money, Gilliam faces up to 20 years in prison and a fine of “$250,000 or twice the gross gain or loss from the offense.”

The day he made his plea, New Jersey Governor Phil Murphy called on Gilliam to resign, calling his actions “despicable.” Before the day ended, Gilliam complied, saying he left office with “a heavy heart.” Atlantic City Council President Marty Small was sworn in as mayor the next day.

Gilliam stole the money from the AC Starz Basketball Club, a youth athletic program for boys. According to the FBI, he undertook major fundraising for the feel-good cause under “the false pretense that the contributions were for a youth basketball team and/or school supplies for underprivileged children.” He stole a total of $87,215 from the program and spent it “on luxury designer clothing, expensive meals, and personal trips to various locations.”

Gilliam posted a $100,000 bond and surrendered his passport before walking out of the courtroom into a swarm of news reporters and photographers. He was closemouthed as he left, but his mouthpiece, attorney Harry Rimm, issued a statement pointing out that his client did not steal from taxpayers, just disadvantaged schoolchildren.

“Mr. Gilliam, who is a lifelong resident of Atlantic City, has admitted his wrongful conduct, is accepting responsibility for his actions and is genuinely remorseful,” Rimm said. “Moreover, Mr. Gilliam has started paying restitution, making a voluntary payment today in connection with his plea. To date, and in advance of sentencing, Mr. Gilliam has paid back almost half of the restitution amount that the parties have agreed is owed.”

FBI Special Agent in Charge Gregory W. Ehrie fired back, saying, “When a scheme depletes charity for children, it’s unconscionable, but when the fraud is perpetrated by someone the public trusts, it damages the community’s confidence in their public servants. This defendant betrayed the trust of his community and of people who wanted to improve the lives of children.”

Murphy said Gilliam “squandered the trust and confidence of his community and of this administration to lead that community.”

U.S. Attorney Craig Carpenito said Gilliam “took advantage of his victims’ desire to assist underprivileged children by falsely representing that the money contributed to the AC Starz Basketball Club would go to pay for school supplies or to support youth basketball. Instead, he spent the money on himself.

“When a public official like Gilliam abuses either a public or a private trust to commit a fraud, this office and our agency partners will investigate and prosecute that official. The people of New Jersey are entitled to better.”

Gilliam made plenty of headlines last year. In November, he was involved in a brawl at the Golden Nugget Casino in Atlantic City but was not charged in that incident, which was captured on surveillance tape. In December, FBI and IRS agents raided his home, seizing computers and files; according to the Philadelphia Inquirer, the raid was presumably related to a dispute over a $10,000 campaign-finance check that came from the Atlantic County Democratic Committee, which Gilliam had deposited in his personal account.

The former mayor is the latest in a string of Atlantic City mayors found to have been involved in criminal activities. The Inquirer listed four out of the last eight office-holders:

• Michael J. Matthews, arrested by the FBI in 1983 for accepting a $10,000 bribe from an undercover federal agent and for accepting money from Philadelphia mob boss Nicodemo “Little Nicky” Scarfo.
• James L. Usry, arrested in 1989 for taking a $6,500 bribe from a state police informant as part of an alleged influence-selling conspiracy.
• Bob Levy, a former lifeguard and Vietnam veteran, who embellished his military service to collect more benefits.
• Two former Atlantic City mayors, Lorenzo Langford and William “Speedy” Marsh were required to repay the city for an $850,000 overturned settlement that they were fired due to political retribution. The funds were disbursed before an ethical review and when it was overturned, the two were forced to repay the money.

Now a member of that hall of shame, Gilliam will be sentenced on January 7.

What a long, strange trip this it’s been—and still is. At one time early in its life, the former Golden Nugget on the Atlantic City Boardwalk showcased Frank Sinatra performing on the stage of the Opera House and was featured in TV commercials with Steve Wynn.

This week, the building—vacant for five years—has found a new owner. Again. Florida real estate company TJM Properties said Tuesday it sold the former Golden Nugget hotel casino to Colosseo Atlantic City Inc., a New York investment and construction firm. The purchase price was not revealed.

Colosseo president Rocco Sebastiani said he plans to run the building as a non-gambling hotel.

“We’re going to renovate the property and reopen it as an 800-room hotel with new retail and new food and beverage offerings,” he told the Associated Press. Sebastiani said he was drawn to “the challenge” of turning around the historic property.

“It’s got a lot of renovating that needs to be done; that’s what we do,” he said. “We buy assets that need a lot of work and bring them up to market.”

The company does not have, nor does it plan to seek, a gaming license. A deed restriction prevents it from being used as a casino.

Three previous sales have fallen through. In December 2014, Pennsylvania firm Endeavor Property Group inked a deal to convert the property into senior citizen and multiunit housing. In April 2017, a local investment group led by investor Ronald Young signed an agreement, announcing plans for a family-friendly hotel, anchored by an indoor water park. But when financing dried up, so too did the water park plan, and the Atlantic Club went back on the market.

In September 2018, a proposed purchase with Stockton University as part of its new Atlantic City campus also died.

It closed in January 2014 and purchased by Tropicana Entertainment and Caesars Entertainment, with Caesars maintaining control of the buildings and property. Caesars then sold it to TJM for $13.5 million—with a deed restriction.

Prior to its operation as Atlantic Club—and after the Golden Nugget—the property was known as Bally’s Grand and simply the Grand.

Only two days after the second anniversary of the deadly Route 91 music festive shootings in 2017, MGM Resorts announced it was ready to pay up to $800 million to settle lawsuits filed by the victims.

On October 1, 2017, Stephen Paddock began shooting from his 32^nd floor hotel room in Mandalay Bay at the Route 91 country music festival being held on land owned by MGM across the Strip from the hotel. By the time he took his own life, 58 people had been killed and hundreds wounded.

With the number of lawsuits mounting, MGM sued to consolidate all the actions in one court that was designed to streamline the process and limit liability for the company. The strategy backfired, however, when MGM came under searing criticism from victims and social media activists alike.

In last week’s settlement, a lawyer for several of the victims said MGM had agreed to pay between $735 million and $800 million.

“While nothing will be able to bring back the lives lost or undo the horrors so many suffered on that day, this settlement will provide fair compensation for thousands of victims and their families,” attorney Robert Eglet said in a statement. He commented that the deal “represents good corporate citizenship” on the part of MGM.

With an estimated 4,500 victims, it’s unclear how the settlement would be divided. A court-appointed administrator will determine how much each victim will receive. But with the passing of the two-year statute of limitations for filing a claim, a settlement was logical. MGM insurers will contribute $751 million of the entire payout, with the company responsible for the remainder.

MGM Resorts Chairman and CEO Jim Murren said that the company wanted to put the tragedy behind it for the good of all involved.

“Prolonged litigation around these matters is in no one’s best interest. It is our sincere hope that this agreement means that scenario will be avoided,” said Murren.

John McManus, MGM’s general counsel, told the New York Times that it was time.

“MGM, and also the victims and their lawyers, recognized that years of litigation did not make sense, and there was risk in taking a case forward, and that it would take a tremendous emotional toll on the victims, the community and our company,” said McManus. “We wanted a consensual resolution to this case. We did not want to be fighting with the victims and their families.”

Former New Jersey State Senator Ray Lesniak, a man instrumental in the push to overthrow PAPSA in the U.S. Supreme Court, tapped the Freedom of Information Act to seek documentation on the Department of Justice efforts to scuttle a 2011 interpretation of the 1961 Wire Act which permitted online gaming.

According to USBets, Lesniak got more than he bargained for, but not evidence that Sands owner Sheldon Adelson directed the effort to get rid of online gaming.

The 76 pages of documents point out the various efforts attempted to convince the feds reverse the 2011 position, and even more to retain that new status quo. The most notable backers for the amended DOJ posture are U.S. Senators Lindsay Graham (R-SC) and Dianne Feinstein (D-CA).

In a May 2017 letter to then-Attorney General Jeff Sessions, the senators remind him that during his confirmation, Graham expressed shock that the Obama administration approved of gambling outside of sports betting. Sessions added that he would “revisit” the issue as attorney general.

“It is our hope that your careful study of the opinion has exposed its flaws and that you restore the department’s longstanding practice of enforcing the Wire Act against online gambling by revoking the opinion,” the senators wrote.

Sessions also received a letter that month from three Democratic members of the House of Representatives—Henry Cuellar of Texas, Dan Lipinski of Illinois, and Emanuel Cleaver of Missouri—asking Sessions to “consider withdrawing” the DOJ opinion that led to several states legalizing online casino gaming.

The congressmen wrote, “Internet gambling is not a partisan issue. It’s one we believe should be more closely examined by policy makers in Congress before being allowed to expand any further.”

Republican Jon Bruning—counsel for the Coalition to Stop Internet Gambling, which has ties to Adelson—made his case in a July 2017 letter to then-Deputy Attorney General Rod Rosenstein.

“I served as Nebraska’s top law enforcement officer for 12 years,” Bruning wrote. “During that time I observed firsthand the threats to our children and most vulnerable citizens lurking on the internet and was a strong advocate for protecting my citizens from illegal activity prevalent online. This is why I was extremely troubled when President Obama’s Department of Justice reversed a longstanding interpretation of the Wire Act to permit online gambling.”

Other documents show that Sessions and Rosenstein received a request from the NFL and NCAA in May 2018 seeking a meeting in the wake of the U.S. Supreme Court ruling in favor of New Jersey that allows any state to offer sports betting. It said, “While we respect the court’s ruling, the absence of a clear and enforceable legal standard for sports betting threatens the integrity of our nation’s professional and amateur sports contests—something both Congress and the U.S. Department of Justice have sought to protect for the last 50 years. To protect the integrity of our games in a post-PASPA environment, we urge the U.S. Department of Justice to immediately act, in concert with Congress, to create statutory and regulatory standards for sports betting in the United States.”

Sessions’ successor, acting Attorney General, Matthew Whitaker, then directed top aides to set up a meeting with the NFL and NCAA.

There also is a February 2017 legal analysis from the law firm to the Coalition to Stop Internet Gambling that does a deep dive into Congressional political sentiment in the 1950s that leads to the Wire Act of 1961. The details appear to suggest that members of Congress were indeed concerned about interstate gambling issues beyond just sports betting.

Former Congressman and presidential candidate Ron Paul wrote a letter on behalf of his Campaign for Liberty organization in June 2017 seeking a lesser role for government after Sessions opposed the 2011 opinion.

“The claim that the Wire Act authorizes a federal ban on online gambling does not survive serious scrutiny for a number of reasons,” Paul wrote. “First, the law was passed more than three decades before the internet was widely used. In fact, when the Wire Act was debated, the idea that average Americans would someday carry devices more powerful than the era’s supercomputers was too fanciful even for science fiction.

Another objection to the January 2019 DOJ policy change that threatens to limit online gambling came two months later from attorneys for IGT, which bills itself as “the largest lottery service provider in the United States, and the largest end-to-end gaming company in the world” provided a white paper that stressed the confusion in the lottery the DOJ ruling had.

“Without further clarity, IGT and its state partners could soon face the Hobson’s Choice of shutting down their lottery businesses, fundamentally restructuring that business with upfront and ongoing costs, or risking criminal prosecution. We believe that none of this should be necessary, because the Wire Act does not apply to state lotteries.”

If you owned Caesars Entertainment, you could make a ton of money selling it piece by piece.

This seems fairly obvious in today’s investment climate, awash as it is in cheap capital and teeming with private equity funds and real estate investment trusts hungry for assets. We’ve seen this amply played out in the last couple of weeks when Caesars pocketed $516 million unloading the Rio Hotel and Casino just west of the Las Vegas Strip to a private real estate investor from New York.

Consider that in the U.S. alone, not counting overseas holdings and tribal gaming, at the start of 2019 Caesars owned or operated 33 casino hotels and racinos and related assets, and if you want to include it, a racetrack in Kentucky. Eight of these are smack-dab at the center of the Las Vegas Strip.

Arguably, this is what corporate raider Carl Icahn saw when he moved quickly from roughly January through March to buy his way into effective control of this massive portfolio.

In Eldorado Resorts, which just a few months later sealed a $17.3 billion deal for cash, stock and debt to take it off his hands at a tidy profit, it appears he found a savvy strategist that shared his vision.

Caesars is the capstone to a five-year buying spree that has seen Eldorado transform itself from a small, privately owned Reno operator into a publicly traded regional gaming powerhouse with 26 casinos in 12 states. Of course, it hasn’t coming cheap. El Dorado will be balancing roughly a $15 billion debt load when the Caesars transaction closes sometime in the first half of next year.

We don’t have to go back that far to see how something like this could go very wrong.

The last guys to tuck into a meal of this size—private equity giants Apollo Global Management and TPG Capital—were the ones who engineered a leveraged buyout of Harrah’s Entertainment that saddled what would shortly become Caesars Entertainment with some $21 billion of debt.

Then came the global financial crisis and the Great Recession. Nobody was gambling, nobody was vacationing, and it was all the Las Vegas-based large caps could do to remain solvent. MGM Resorts and Las Vegas Sands had Macau and Singapore to dig them out. Caesars didn’t. A lot of financial legerdemain ensued. Everything, it seems, but a badly needed sell-off. Ultimately, Caesars’ largest operating subsidiary had to be sheltered in U.S. Bankruptcy Court and the entire company went into a reorganization that took more than two years to complete. The share price would never fully recover; but when it was over, Apollo and TPG were gone; and the company finally had hit upon a way to begin stripping the latent value out of its sprawling holdings: a gaming/hospitality REIT, VICI Properties.

Which brings us back to Eldorado. If there’s anything that separates Caesars under Icahn and Eldorado and what befell it under Apollo and TPG—aside from the possibility of a luckier break in the larger economy—it’s this.

“To sell properties for cash is smart. What Caesars is doing now is what it should have been doing for the past 10 years,” says Steve Gallaway, managing partner of Global Market Advisors, which specializes in uncovering growth opportunities in gaming markets worldwide.

“Why do they need so many mid-level properties? They don’t.”

Gaming-REIT partnerships are nothing new. Penn National Gaming led the way in exiting the real estate business in 2013 with the creation of separately traded Gaming and Leisure Properties. MGM followed with MGM Growth Properties, which now owns all of its gaming real estate with the exception of Bellagio, MGM Grand, Circus Circus and the new MGM Springfield in Massachusetts.

Springfield is under an option to MGM Growth, while recent news reports have it that separate deals are in the offing for Bellagio and the Grand (to Blackstone Group, which is already on the Strip with the Cosmopolitan) and Circus Circus (to Phil Ruffin, who also is on the Strip with the TI, which he bought from MGM during the recession). Bloomberg Intelligence gaming analyst Brian Egger believes Bellagio and the Grand could fetch upwards of $7 billion as a pair. Estimates surrounding Circus Circus price it in the neighborhood of $850 million. That’s a lot of money, even for MGM. Then again, MGM has its sights on a $10 billion super-resort in Osaka, Japan.

“It’s simply that they have the opportunity to monetize the real estate and to fund expansion,” Egger explained in a recent interview with GGB News. “It’s about balancing competing objectives: to keep leverage within manageable levels and pursue Japan.”

Gallaway loves the Circus Circus deal, for one, as much for its sizable land bank as the cash cow of a casino (though one in need of some TLC) that sits on a portion of it. “It’s just a win-win,” he told GGB News. “A great development play. I don’t know how Ruffin can go wrong with that.”

Divesting non-core assets is a strategy in which El Dorado is well-versed. In essence, last year’s $1.9 billion deal with Icahn for Tropicana Entertainment was a partnership with Gaming and Leisure Properties in which GLPI acquired all the real estate except for a resort in Aruba (which was sold separately) and casinos in St. Louis and Lake Tahoe. Separately, deals have been struck to transfer two casinos in Pennsylvania to Churchill Downs. Isle of Capri Kansas City and Lady Luck Vicksburg have been sold to Twin River Holdings. A casino in West Virginia and two in Missouri have been sold to VICI, a deal El Dorado then capped off by selling its equity interest in the three to Century Casinos, a kind of double-dipping, if you will, that could prove very lucrative in their approach as future tenants of VICI’s growing portfolio on the Las Vegas Strip.

VICI owns 21 of Caesars’ casino hotels and racinos and has put/call options on two recently purchased racinos in Indiana, which can be exercised in a few years. It was announced recently that, as previously agreed, VICI will acquire Harrah’s New Orleans, Harrah’s Atlantic City and Harrah’s Laughlin for a combined $1.8 billion. This deal gets finalized with the closing of the merger with Eldorado, which means the money goes to the new owners. VICI already owns Caesars Palace and Harrah’s Las Vegas and has an agreement to acquire the Octavius Tower at Caesars Palace. It also has right of first refusal on Bally’s, Paris, Flamingo, the Linq, Planet Hollywood, Caesars Forum Shops and Horseshoe Baltimore, all of them contingent on completion of the merger. So, if they happen, that money goes to El Dorado too. That leaves one casino hotel on the Las Vegas Strip, the Cromwell.

For the most part then, Eldorado has embarked on this epic transaction not as an owner but as an operator and management company. Which implies that whatever they decide to sell𑁋and management has indicated they will be sellers; indeed, the debt load would seem to demand it𑁋it will be lease holdings on a big chunk of the center Strip and a regional portfolio that is still one of the largest and most diverse in the country.

What Gallaway sees in this is an enormous opportunity for a slew of private companies, many possibly new to gaming, and a range of smaller regional operators to get into the business or expand what they have.

As he puts it, “If you’re Eldorado you’ve got to raise money. Got it. So, what are you going to look at? How do I make these operations more efficient? And what properties, strategically, do we no longer need? Like the Rio. That’s ultimately why you do a REIT.”

It’s what Apollo and TPG didn’t quite get.

“If you’re in for the long haul,” he maintains, “you don’t want to be too big. El Dorado is in for the long haul.”