Last month’s approval of a massive Caesars-Eldorado merger by New Jersey regulators, the last of more than a dozen steps by various states to seal the deal, featured a curious veto by one regulatory body against another.
For two Boardwalk property owners of former casinos, the flip was enough for them to file an appeal last week.
The owners of the former Atlantic Club (pictured above) and Claridge casinos (the latter is now a hotel only) accused the Casino Control Commission of acting “arbitrarily, capriciously, and unreasonably” in reversing a Division of Gaming Enforcement recommendation, according to The Press of Atlantic City.
If that DGE recommendation had been accepted, restrictive covenants on both properties maintained by Caesars when they sold the sites would have been lifted. That would widen the number of possible suitors, potentially increasing any sale price.
As conditions of the $17 billion merger, the DGE made more than three dozen directives to the two companies — all of which they accepted. That suggested a potential rubber-stamp by the commission. If the casino operators themselves don’t object to recommendations by New Jersey regulators, after all …
A mysterious delay
But on the morning of July 17, it soon became apparent that something was afoot behind the scenes. The second day of a public hearing held remotely due to the COVID-19 pandemic was delayed for 90 minutes without explanation.
When the commission’s two members (one has retired and not yet been replaced, and previous Gov. Chris Christie reduced the commission seats from five to three) finally convened, Chairman James Plousis singled out the deed restriction lifting as the line item to be stricken.
Such a decision “greatly complicates this matter,” Plousis said, adding that the “perceived ills” from the deed restrictions are “not related to the merger plan that is before us today.” So “the benefit of more time to allow for study and deliberation” would be needed before deciding on the fate of the deed restrictions.
Late the previous afternoon, officials with Hard Rock and Ocean Casino — both of which had opened on the Boardwalk just 24 months earlier — had sought unsuccessfully to have their voices heard at the meeting before the vote. It’s not difficult to imagine that the casino operators may have had better luck getting the ear of Gov. Phil Murphy administration officials.
Why remove the legal barriers?
The rationale to remove the restrictions was part of a 123-page filing sent by the DGE to the commission, namely that “the Division’s position is that deed restrictions increase the barriers to entry for new entrants and reduce competition.”
Caesars sold both properties in 2014, with a permanent ban on reopening a casino at the Claridge property and with a 15-year moratorium for The Atlantic Club site — best known as the Atlantic City Hilton casino from 1996-2011, the third of its five names.
Back in February, Caesars executives informed the DGE that they would be willing to release the deed on the latter site but not on the Claridge, which operated as a casino in city from 1980-2012.
The DGE hardly went easy in its report on so-called “New Caesars,” which when the dust settles around the end of the year will bring Atlantic City hotels Caesars, Harrah’s, and Tropicana under one umbrella.
Even after agreeing to nearly 40 recommendations of the agency, an official for the regulatory body said that “we do not share Eldorado’s optimism that New Caesars’ operating performance will return to pre-shutdown levels by the end of 2021.”
There were other references to “failures” by the Caesars brand in recent years in the city.
Not even the acceptance of a requirement for $400 million in upgrades to the three casinos made the DGE swoon.
“The fund should be considered to result in a state of improvement to where [the casinos] already should have been,” was the DGE’s response.
The casino site that didn’t bark
Interestingly, the one former casino site — Showboat, 1987-2014 — that has generated talk of being revived is the one that has not yet filed an appeal of the commission’s ruling on the covenants.
The six-year-old Showboat provision is slightly different: a 10-year restriction but a waiver of an $80 million payment is made during that span.
Last year, property owner Bart Blatstein told regulators of his consideration of building a casino on an adjoining lot, but this summer he pivoted to building a $100 million water park at the site.
It’s not yet clear if Blatstein will join the owners of the Claridge and The Atlantic Club properties.
One of the challenges is that in New Jersey and other states, appeals against rulings by state agencies usually must be undertaken by … the same agencies that made the initial ruling.
Lawsuits can be undertaken after a failed appeal, but state courts tend to be loathe to substitute their expertise for the state agency granted that task. Several legal challenges to the Meadowlands Xanadu project — now known as American Dream — were foiled by just that scenario over the years.
Federal go-ahead for mega-merger
The hiccup last week came on the same day that the Federal Trade Commission had confirmed its approval of the merger. The FTC in June had filed a complaint of potential federal antitrust law violations due to a harmful restriction in competition in three regions: Kansas City, Shreveport, and South Lake Tahoe.
But after the casino partners sold off properties in all three areas, the FTC elected to drop its complaint. The vote was 3-1-1.
While Atlantic City was not listed by the FTC as a region of concern regarding consolidation from the merger, Caesars Entertainment proactively elected earlier this year to sell Bally’s — for decades a Caesars property — to Twin River Holdings.
Photo by John Arehart / Shutterstock.com
