Trump casinos win for losing
Business is down, but the Donald's Atlantic City resorts hit the jackpot.
By Aaron Elstein @InTheMkts
January 6, 2013 5:59 a.m.
Business at Atlantic City was lousy even before Sandy. Profits among the town's 12 casinos were down 18% through last Sept. 30. Then the superstorm hit and things got a whole lot worse. Resorts closed. Employees were laid off.
But through it all, one casino operator is coming out smelling if not like a rose, then something better than what the sea dragged in: Trump Entertainment Resorts Inc., the company that bears the name of the famous Donald.
On the day after Christmas, Trump Entertainment disclosed that it hit the jackpot by collecting a $35.5 million check courtesy of the Atlantic City government. What's more, the city borrowed money to pay Trump. Now the municipality, which is facing mounting costs as it rebuilds, could be hit with further tax appeals from other struggling casinos.
We'll explain how all this happened in a moment. But first let's make clear that Mr. Trump, whose real estate organization is the city's second-largest privately held business, according to Crain's, doesn't control Trump Entertainment or even serve on its board. He holds 9.5% of the company's stock, which doesn't trade publicly, and makes money from licensing his name and other services. (For example, in 2011 the casino company paid $390,000 to lease his helicopter and bought $197,000 worth of Trump Ice bottled water.)
In many ways, Trump casinos, like others in Atlantic City, have suffered for years. In 2009, the company filed for bankruptcy—its third trip to bankruptcy court in two decades. Since then, it and other casino operators have been hurt as gamblers shunned Atlantic City for more attractive places to part with their money. Between 2007 and 2011, Trump Entertainment's revenue shriveled by about 40%. (Some of the decline reflects the sale of a casino, the Trump Marina, in 2011.)
Last year was shaping into another difficult one before Sandy struck. Heading into October, profits at the Trump Plaza were down 34%, according to New Jersey regulatory data, more than any other Atlantic City casino.
Oddly enough, it's the casinos' financial weakness that made the $35.5 million windfall possible. With revenue and real estate values declining, Trump Entertainment argued in the Tax Court of New Jersey that its property tax bills should be lower, too. Last summer, the casino operator disclosed that the assessed value of Trump Taj Mahal was slashed by 40%, to $1 billion, and the value of Trump Plaza was cut by 66%, to $250 million.
In the settlement with Atlantic City, the company was awarded $54 million in refunds on previously paid taxes and credits for future payments. The cash portion of the rebate is more than three times the size of Trump Entertainment's profits as of last Sept. 30.
The package was the largest ever granted an Atlantic City casino operator, according to the Atlantic City Press. Now other rivals are lining up for their own refunds.
A version of this article appeared in the January 7, 2013, print issue of Crain's New York Business as "Trump casinos win for losing".
Read more: http://www.crainsnewyork.com/article/20130106/FINANCE/301069982#ixzz2HLJEriBH