Harrah's Jazz Co. files Chapter 11 The gambling crowd didn't go marchin' in those Big Easy casinos

November 23, 1995|By BLOOMBERG BUSINESS NEWS

NEW ORLEANS -- Harrah's Jazz Co. filed for Chapter 11 bankruptcy yesterday as tourists avoided casinos and stuck to the restaurants and jazz joints of the city's French Quarter.

Harrah's Jazz, which was developing the country's biggest casino, filed for protection from creditors because a temporary gaming hall that it owned brought in just half the business expected.

After the company said it would close the hall, its bank lenders cut off lines of credit used to finance the $800 million project.

Harrah's Jazz is the third New Orleans casino this year to declare bankruptcy, a sign that the industry has overestimated demand for places to gamble.

"Gaming in New Orleans has been a failure," said Tom Ryan, a BT Securities analyst.

Harrah's Jazz's temporary casino opened May 1 in the New Orleans municipal auditorium while the company built the city's lone land-based gaming hall. The results were dismal. Revenue in October was $14.4 million, far less than the $30 million &L expected in a city that gets 12 million tourists a year.

"It had gotten to a point where you cut your losses," Andrew Kaneb, a Deutsche Morgan Grenfell analyst said of the banks' move. "There were no improving signs."

New Orleans' gambling halls are producing combined annual revenue of just $348 million, 28 percent below Bear Stearns & Co. analyst Jason Ader's forecast of about $480 million.

"There's a lot of competition for the tourist dollar," Mr. Ader said.

Harrah's Jazz is a partnership of Memphis, Tenn.-based Harrah's Entertainment Inc., which has a 53 percent stake, and Denver real estate developer Christopher Hemmeter, with 33 percent. Some local businessmen own the remaining 14 percent.

Harrah's Entertainment said it will write off its investment in Harrah's Jazz, which will result in a charge to earnings of perhaps 60 cents a share. The company did not say when it will take the charge. Harrah's Entertainment is not liable for the debts of Harrah's Jazz.

The project's costs have risen from original projections of $425 million in April 1993 to about $600 million last fall. Now, the project has an estimated price tag of $855 million, because of regulatory delays and added payments to the city and state, said Philip Satre, president and chief executive officer of Harrah's Entertainment.

"The fixed costs of the project have increased while the anticipated market demand has yet to materialize," he said.

Harrah's Entertainment shares closed up $1.375 at $25 on trading of 2.72 million shares, more than five times the daily average in the past three months.

Two New Orleans riverboat casinos declared bankruptcy in early June after just two months of operation, and now are in liquidation.

Hilton Hotels Corp. is cold on New Orleans and wants to sell its gambling hall. Others already have fled the city. Showboat Inc. left last year and Circus Circus Enterprises Inc. abandoned a casino development that never opened in a New Orleans suburb.

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