Aztar Corporation - Early 2000s and Beyond

Early 2000s and Beyond

Throughout the late 1990s and into the early 2000s, while its competitors built $1 billion properties and/or acquired smaller casino operators, Aztar concentrated on paying down and refinancing its debt and repurchasing stock. The former helped drive net interest expense down from $60.5 million in 1997 to $37.6 million in 2001. Not coincidentally, Aztar's net income figures in the early 2000s were much higher than those of the late 1990s—$58 million in 2001, for example, compared to $4.4 million in 1997.

Much stronger financially, Aztar in February 2002 exercised its option to buy out the Jaffe family from the Tropicana Las Vegas property and then began conducting feasibility studies on future developments at the site. By 2003 Aztar had developed tentative plans for the 34-acre site. They called for the property to be divided into two interconnected 17-acre sites. For the northern site, the company envisioned a new development encompassing 2,500 hotel rooms and suites; a 120,000-square-foot casino; 200,000 square feet of dining, entertainment, and retail facilities; a four-acre rooftop pool recreation deck overlooking the Strip; and a 3,800-car parking garage. The project was projected to cost at least $700 million, part of which would need to be raised through the capital markets. The company planned to hold onto the southern site for future solo or joint development or sale to another party. At least twice, Aztar delayed making a final decision on whether to go ahead with the redevelopment in Las Vegas. Part of the reason for these delays was a simultaneous major—and sometimes troubled—expansion of the Atlantic City Tropicana.

Construction began on the $285 million expansion in April 2002. One component of the expansion was a 2,400-space state-of-the-art parking garage. On October 30, 2003, a part of the ten-story garage collapsed while under construction, killing four workers and injuring 20 others. The tragedy forced the temporary closure of the casino's 600-room tower and of major entrances to the property. Gambling and lodging revenue was therefore lost, construction was set back, and Aztar now had to contend with numerous lawsuits arising from the collapse. These difficulties were compounded by a five-week strike by some of the Atlantic City Tropicana workers in the fall of 2004. The expansion was finally completed in November 2004, eight months later than originally planned.

The centerpiece of the addition was a 200,000-square-foot dining, entertainment, and retail center dubbed "The Quarter"—a Las Vegas-style resort destination for Atlantic City that followed the successful opening in July 2003 of the Borgata, a $1.1 billion Las Vegas-style casino resort. The Quarter was designed to capture the ambience of Old Havana in its pre-Castro heyday. (The original Tropicana casino was in fact located in Old Havana. Opened in 1939, it continued to operate under Fidel Castro right into the early 21st century as a nightclub only, famous for its risqué floor shows.) Upon opening, The Quarter included more than two dozen shops ranging from the traditional (Brooks Brothers) to the trendy (Chico's) to the whimsical (Houdini's Magic Shop); nine restaurants, including several imported from New York City (e.g., Carmine's) and Philadelphia (e.g., Cuba Libre Restaurant & Rum Bar); and lounges, clubs, a karaoke bar, and an IMAX theater. The expansion also included a new 502-room hotel tower geared to the convention trade. The entire top floor of the new tower was dedicated to boardrooms and hospitality suites with ocean views, providing the Tropicana with another 20,000 square feet of meeting and convention space.

This expansion ended up being the final large project in Rubeli's career at Aztar. After having led the company since just after the Ramada spinoff, Rubeli retired in March 2005. Taking over as chairman, president, and CEO was Haddock, who had served as president and CFO since May 2002. Haddock assumed the top position at a crucial time, when Aztar was evaluating the rollout of the Atlantic City expansion and also reviewing the market in Las Vegas to weigh the prospects for the proposed redevelopment of the Tropicana property located in that gambling mecca. While the decision on whether to go ahead with the huge Las Vegas project remained pending, rumors continued to circulate about a possible sale of the company, either to another casino operator or perhaps a private equity fund.