Author: Casino Connection Staff

When Borgata executives showed up on the payroll of the new Ocean Casino Resort, Atlantic City’s gaming leader cried foul. Borgata also filed a federal lawsuit last August accusing Ocean of poaching proprietary data about the casino’s big-time gamblers.

Last month, Borgata said Ocean continued to raid its executive pool and amended the complaint to reflect that, according to NJ Online Gambling.

Lawyers for Borgata allege that in the last year, Ocean’s hiring activities represented an illegal act to increase their competitiveness by targeting those with trade secrets. The hires included William Callahan, Borgata’s former vice president of relationship marketing and Kelly Burke, former executive director of marketing.

“Many of these executives have since done precisely what Ocean hired them to do: employ their intimate knowledge of Borgata’s confidential information…in an attempt to lure Borgata’s most important customers to Ocean,” the complaint said.

The case, filed in Nevada, home to MGM Resorts, Borgata’s parent, was reassigned to New Jersey.

“Ocean hired three other marketing and customer service employees who had previously reported to one of the first hires. A little while later, Ocean hired five butlers and five other marketing and customer service professionals away from Borgata,” the complaint said.

According to the lawsuit, high-level guests—known as whales—spend as much as $4 million a visit.

“In the current environment, government-mandated occupancy restrictions have combined with low visitation, low room rates, and low per capita spending to put pressure on Borgata and every other hotel casino in the Atlantic City market. Competition for high-level patrons is fierce, and Borgata’s ability to leverage hard-earned historical information about each of these most valuable customers is critical to its ability to maintain these valuable relationships.”

The suit also said executives like Callahan develop close personal relationships with patrons, from attending weddings and sporting events to offering luxury visits.

“They possessed detailed knowledge of these players’ particular wants and needs, permissions sought, accommodation preferences, schedules, gaming habits, credit requirements, comp requirements, staffing preferences, and other information about the players and their tendencies that Borgata relied upon,” the complaint said.

In its suit, Borgata alleged that the hiring practices began last May when a part-owner of Ocean met with Callahan and Burke.

“The purpose of targeting Callahan and Burke was clear: Both individuals had access to and intrinsic knowledge of Borgata’s trade secrets, and if Ocean were successful in luring Callahan and Burke to breach their employment agreements, Ocean could take advantage of Borgata’s trade secrets for its own benefit.”

Callahan and Burke left Borgata last summer.

“Neither Callahan nor Burke informed Borgata that they had accepted positions at Ocean. To the contrary, they both concealed the identity of their new employer.”

Other former Borgata staff heading to Ocean included Borgata’s director of communications, a social media manager, a public relations manager, a digital manager, and a digital specialist.

Borgata wants “the immediate return of all trade secrets and all devices and documents containing trade secrets and other information” as well as an award of damages “as the court may deem just and proper.”

The Las Vegas Strip exists today largely in the mold that Las Vegas Sands fashioned for it, and certainly, there’s been plenty to say over the last week about the company’s $6.25 billion decision to leave. There’s been no shortage of questions. The most compelling: Why did the company sell?

The deal didn’t come from out of the blue. Bloomberg News had an inside track on it back in the fall, even down to the sale price and the likelihood of a split owner/operator transaction involving a real estate investment trust (REIT)𑁋two of which, VICI Properties and MGM Growth Properties, already own most of the Strip’s resort casinos.

As it turned out, it was VICI, a REIT spun off from the Caesars bankruptcy. It owns more than a dozen Caesars resorts and nearly 30 others around the U.S. in lease agreement with five separate operators.

VICI is paying $4 billion in cash for the Venetian, its sister resort, the Palazzo, and the Sands Expo and Convention Center, in partnership with Apollo Global Management. Apollo is the private equity giant whose 2008 leveraged buyout of Harrah’s Entertainment in partnership with TPG Capital also figured prominently in the Caesars bankruptcy.

On top of the $4 billion, Apollo is paying $2.25 billion for the companies that operate the three properties, with a little help from LVS, which is kicking in $1.2 billion of the purchase price in the form of a term loan. LVS also is guaranteeing the $250 million in annual rent Apollo will pay VICI for the operating rights through 2023, subject to certain EBITDAR benchmarks.

Far and away it’s a great deal for VICI, which is adding two more marquee Strip resorts to an already glittering portfolio, encompassing more than 7,000 top-end rooms and suites, 225,000 square feet of gaming space, some of the best dining and shopping in Las Vegas and 2.3 million square feet of prime meetings and exhibitions space, not to mention the MGS Sphere, an 18,000-seat entertainment showplace slated to open in 2023 at a cost of $1.7 billion.

Apollo, for its part, is back on the Strip for relatively small money, considering the quality of the LVS assets, the capstone of an aggressive acquisitions strategy that currently includes Toronto-listed Great Canadian Gaming, Italian sports betting group Gamenet, a stake in IGT’s Lottomatica and a pending investment in Sazka, Europe’s largest lottery operator.

Of course, Apollo is not an operator. But as Alex van Hoek, an Apollo partner, astutely observed, “The Venetian has one of the best teams in the industry, focused on delivering world-class customer service and experiences.”

Then again, they’re buying into a destination that’s been devastated by the pandemic like no other in the country. But here, too, van Hoek was duly optimistic. The deal “underscores our conviction in a strong recovery for Las Vegas as vaccines usher in a reopening of leisure and travel in the United States and across the world,” he said.

A conviction, or so it appears, that LVS and its late founder, Sheldon Adelson, may not have entirely shared, at least not as operators who generated 87 percent of their $13.74 billion in 2019 revenues from Macau and Singapore, and which even in pandemic-battered 2020 were good for 79.5 percent.

“Anyone who thinks Sheldon Adelson wasn’t a brilliant businessman didn’t know him,” said Brendan Bussmann, director of government affairs for industry consultants Global Market Advisors. “He was one of the most brilliant people I ever met. Maybe he saw something.”

What we know is that the reinvention of Las Vegas as a fabulously successful convention destination where far more money gets made outside its casinos than in them𑁋that was the product of a singular vision, embodied in the Venetian, the convention-focused resort that came along on the cusp of the new century to rewrite the book on what you could charge for hotel rooms in the desert.

In Bussmann’s words, “It changed the landscape of Las Vegas.”

But in 2020, as the pandemic raged and business travel ground to a halt, and Adelson slowly succumbed to the cancer that claimed him earlier this year at the age of 87, the vision was in tatters.

Was it the second quarter’s $985 million operating loss? The third-quarter loss of $610 million announced just days before the Bloomberg story broke?

Clearly something had changed. It may have come from the board of directors, perhaps from longtime President and COO Rob Goldstein, Adelson’s hand-picked No. 2 and ultimately his successor as chairman and CEO.

More likely, it was Adelson.

“There is a belief that Sheldon was behind this,” a Wall Street analyst close to the deal told GGB News.

He had to be thinking at that point about the impending transfer of his controlling 57 percent of the stock to his wife, 75-year-old Miriam Adelson, a physician and noted philanthropist with priorities that no doubt have little in common with the business of running gambling halls.

“It was one of those where an opportunity to get a check like that doesn’t come around too often,” said Bussmann. “And when most of your money is coming from Asia anyway, it makes sense.”

The company will now be known simply as “Sands.”

“Clearly, it’s a positive,” said the analyst quoted above. “You’re seeing cap rates on a par with where they were pre-pandemic, looking back at the sale of the Bellagio and MGM and deals like that. But lower interest rates clearly affected this. And it was seller financing, REIT financing. And you have to wonder about the reluctance of the banks right now to finance these deals. There are some folks who are just hesitant. It’s unclear, was this unique in nature? I mean, how many players out there want to pay these multiples? And it’s unclear in what it says about the timing of (a Strip) recovery and what the recovery will look like.”

Obviously, there’s a lot LVS can do with $6.25 billion, like pay down some of its $3.97 billion in debt, restart the payment of dividends, a cause near and dear to Adelson’s heart, recycle capital back into its higher ROI holdings in Macau and Singapore, where some $5.5 billion worth of redevelopment and expansion work is under way and where the company’s invaluable Macau concession is set to expire in 18 months.

And it was reported that Adelson and his yacht shared a marina with Crown Resorts majority owner James Packer on New Year’s Eve, although there is some question the two met at that time. Could Sands be a player in picking up the pieces when all the regulatory investigations of Crown’s corporate misdeeds are completed in Australia? After all Sands has a pipeline to Chinese gamblers that runs through Macau, and now has the financial wherewithal to perhaps pick up the Australian operator at fire-sale prices, including a brand new integrated resort in Sydney.

There are potentially greener pastures in the U.S. as well, New York City and Texas (the company has been lobbying heavily in both states) being at the top of the list.

“It’s hard to say. Clearly, they’re interested in Texas and New York,” the analyst who spoke with GGB News said. “But isn’t Las Vegas the key to any regional strategy? Their intentions in the online space are sketchy as well. And I don’t think the markets believe they needed to do this to fund expansion in Asia. There are just so many unknowns. More questions than answers.”

Perhaps all that’s certain, as Bussmann put it, is this:

“I know it’s a cliché, but it really is the end of an era.”

In November, New Jersey joined the small but growing fraternity of U.S. states whose voters have legalized recreational marijuana.

In the near term, don’t expect Atlantic City casinos to open pot dispensaries or allow joints to be smoked at blackjack tables. In fact, legal pot may have little direct influence on the state’s casino industry. But it could provide a competitive edge—as long as legal pot is unavailable in adjoining jurisdictions.

Casinos must comply with federal regulations that still prohibit recreational pot, observed Jane F. Bokunewicz of the Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism, based at New Jersey’s Stockton University. “So we can expect casinos to be extremely cautious with respect to the use of cannabis products on their property.”

And as for sales, well, they’re definitely out, said Bill Pascrell III, lobbyist with the Princeton Public Affairs Group. “There’s no chance in hell that there’ll be retail sales on casino properties,” he told GGB News. “At all.”

Yet legalization could have a tangential effect, attracting more tourists from states where pot isn’t readily available. That means you, Pennsylvania and New York.

“Atlantic City will see visitors from states where cannabis is still illegal, and that in itself remains a draw for some tourists,” said Morgan Fox, media relations director of the National Cannabis Industry Association.

And while casinos likely won’t host pot pubs and the like, Atlantic City could establish a “cannabis quarter” in town that would grow, cultivate and sell various forms of marijuana.

“This can be proximate to casinos,” Pascrell said, and may spark an economic mini-boom in itself.

The tax revenue, potential jobs and tourism opportunities of a cultivation center would benefit the city, Fox added, “It makes as much sense as any other retail establishment that benefits from foot traffic and tourism.”

Cultivation labs are both discreet and unobtrusive, added Rob Mejia, adjunct faculty in Cannabis Studies at Stockton University and president of Our Community Harvest: A Cannabis Education Company.

What the law will still prohibit is partaking of marijuana in public, whether in a park, on the beach or on a casino floor.

“There are so many prohibitions about where you can’t use marijuana, that the short answer for now is in a private home,” Pascrell said.

“You can’t do it on any state or federal-owned site, including housing. Things like consumption lounges are down the road,” Mejia said.

Over time, as recreational cannabis becomes more mainstream, it could be approved for use within a casino environment, just like smoking and alcohol use, in designated public spaces or private hotel rooms.

“It’s more a smoking issue than anything else—you can never smoke (pot) on a casino floor,” said Pascrell. “But you can smoke a joint outside a property and go into the casino. And with edibles, you can’t tell. There’s no way to monitor that unless you’re obnoxious.”

Another important wrinkle in all this: New Jersey might say cannabis is legal, but the feds still say otherwise—at least until Congress approves a federal law legalizing marijuana.

For a number of years, federal law enforcement hasn’t focused on cannabis providers in states where it’s legal, even after former Attorney General Jeff Sessions rescinded an Obama-era memo that said the feds wouldn’t enforce the federal law, Fox said. “But the fact that cannabis is still illegal federally continues to make some companies reticent to do business with regulated cannabis businesses, particularly large companies in regulated industries like gaming.”

On February 24, Stockton held a webinar, “Destination Cannabis,” on integrating recreational cannabis into the hospitality and tourism industry. Speakers said it would take time to evolve.

“I really got the message that education is critical to getting this off the ground safely and responsibly,” said Michael Chait, president of the Greater Atlantic City Chamber of Commerce, which co-sponsored the webinar with the Levenson Institute.

Survey Says… Edibles Preferred

A 2019 survey conducted by the California Cannabis Tourism Association found that 29 percent of the leisure travel audience wants the ability to access cannabis-related services, said the association’s Brian Applegarth, who was a panelist at the Stockton webinar. The survey also said that smoking weed was the least preferred way to ingest cannabis, after edibles, drinkables and topicals.

“Partnerships will be important for destination events,” Applegarth said. “Having some hospitality training and knowing what visitors want will be important. You have to know your audience.”

And while edibles are most popular, they bring their own challenges, as most of the people creating them have no food background.

“Trained chefs could do more,” according to David Yusefzadeh, a Massachusetts-based chef and food designer and CEO/founder of Cloud Creamery, a cannabis ice cream company. “But you have to have patience. You’ll be dealing with the government for permits, and they’re also learning,”

Whether in joint form, edible form or as a drink, marijuana can impair the senses, as does alcohol. And that means casino employees need to be able to single out those whose impairment reaches dangerous levels.

“Casino employees already know how to deal with erratic behavior associated with alcohol,” Fox said. “The association of cannabis with violent, aggressive or otherwise dangerous behavior is far, far less than that of alcohol. It will not be difficult to incorporate education to identify signs of cannabis overconsumption into existing employee training programs.”

Research and experience has led businesses that serve alcohol to gauge levels of impairment and the point at which a customer should be denied service. “Until mainstream knowledge and experience of cannabis products catches up, it will be incredibly difficult for operators to define impairment related to the use of cannabis products and educate employees in how to best serve and protect customers under the influence of these products,” Bokunewicz said.

Various cannabis products deliver different levels of the psychoactive compound THC, she added, from a very mild or negligible dose to quite a strong dose. “Until assessment and action tools are developed for operators, we can expect them to be wary of openly accepting the use of cannabis products, especially those high in THC, at their facilities,” she said.

At this point, only 11 states have legalized recreational pot. Thirty-five have medical marijuana programs. The remaining states adhere to the federal law, under which marijuana is still classified as a Schedule 1 drug.

Post-Covid, Will Smoking Return to NJ Casinos?

As a result of restrictions imposed to deal with the Covid-19 pandemic, New Jersey has prohibited smoking on casino floors. But as restrictions ease, will the practice be allowed to resume? Maybe not.

According to the advocacy group Americans for Nonsmokers Rights (AFNR), more and more casinos nationwide have chosen to be smoke-free. At least 160 sovereign tribal gaming venues have implemented 100 percent smoke-free policies during Covid-19. And 23 states require commercial casinos to be smoke-free indoors.

“Smoke-free casinos are becoming more inevitable every day,” Bronson Frick, director of advocacy for the group, told GGB News. “Casinos in New Jersey as well as in neighboring Pennsylvania have adapted to operating smoke-free properties during this pandemic. And for the first time ever, gaming workers have not been forced to breathe in secondhand smoke, which everyone knows leads to serious health repercussions such as cancer.”

Claims that smoke-free policies hurt revenues are no longer accurate, Frick said. “It’s well past time for casinos to operate like a modern industry and permanently adopt smoke-free indoor policies that protect workers and guests and attract new customers who prefer a smoke-free environment. Just consider that among young adults, 90 percent are nonsmokers.”

That figure may not include marijuana smokers, some of whom think smoking cannabis is not as damaging as smoking tobacco. But Frick said smoke-free policies should cover all forms of use: tobacco, vaping and marijuana.

“The policy approach we recommend is to take it outside—shift smoking to outdoor patios off the gaming floors and food and beverage areas.”