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All bets off in casino deal
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January 20, 1998: 6:38 p.m. ET
Mirage terminates Atlantic City deal, sees lower 4Q operating results
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NEW YORK (CNNfn) - A dispute between two of Atlantic City's biggest gambling concerns threatened to escalate into a full scale legal battle Tuesday when Circus Circus Enterprises said it may take legal action against Mirage Resorts for terminating a joint casino project.
Separately, Mirage, which operates casinos in Las Vegas and Atlantic City, N.J., said it expects fourth quarter operating profits to be below the year ago level due to increased competition in Las Vegas and a shorter New Years holiday season this year than last year.
Mirage, based in Las Vegas, posted operating income in the fourth quarter of 1996 of $79.3 million and net income of $52.1 million or 27 cents a share. According to First Call, analysts had expected the company to earn 26 cents a share in the fourth quarter of 1997.
The dispute with Circus Circus comes after Mirage, led by gaming mogul Steve Wynn, told Circus Circus in a letter the company was terminating its agreement to develop a joint venture hotel/casino complex in Atlantic City, due to "an unspecified material change" in the funding of a proposed highway by the State of New Jersey. The company did not offer further clarification about the highway, known as the Marina connector.
Boyd Gaming Corp., also a partner in the project, received a similar letter from Mirage.
Circus Circus claims the agreement with Mirage Resorts, signed in late May 1996, committed the parties to building a 2,000- room facility on a Marina site just off the Atlantic City boardwalk.
But in a filing with the Securities and Exchange Commission Tuesday, Mirage said it terminated the agreements with Boyd and Circus Circus but was still talking to the companies about other transactions.
Just hours after its unilateral action, Mirage announced plans to significantly expand the size and scope of its Atlantic City resort, from 2,000 to 4,000 rooms. The company said the beefed-up blueprint would incorporate added amenities, including convention, retail and entertainment facilities.
The company added it had hired two award-winning architects, Frank Gehry and Philip Johnson, to oversee the development, which is expected to include a link to a neighboring marina resort owned by Harrah's Entertainment.
Circus Circus, in a midday statement, said it "is aware of nothing that could justify a termination". Calling the agreement "binding and enforceable", the company restated its commitment to pursuing the deal, a stance that raises the specter of a showdown with Mirage, the owner of tropically-themed hotels and casinos in Las Vegas including the Treasure Island hotel and casino, the Golden Nugget, and the Monte Carlo.
"We believe the agreement is entirely enforceable and we intend to pursue it," said Sarah Ralston, a Circus Circus spokeswoman. Ralston added that the company had referred the matter to its legal counsel for further consideration.
Ralston speculated at the very least, the termination would result in the delay or deferral of the tract's development.
Alan Feldman, a Mirage spokesman, said the termination had nothing to do with Circus Circus. Rather he cited the project's spiralling costs, which have soared to well over $100 million from original estimates in the tens of millions.
For Circus Circus, the termination comes just a day after the company announced the resignation of its chairman and chief and executive officer, Clyde Turner, effective Sunday. Ralston described the timing of the events as purely coincidental. She stressed that Turner had announced his intention to resign well before the current developments came into play.
Mirage's maneuver marks just the latest wrinkle in Circus Circus's fortunes over the past year. Last June, Standard and Poor lowered the company's corporate credit rating to BBB from BBB+, and its subordinate debt to BBB- from BBB.
Analysts say the company's gaming performance at two of its flagship casinos - Circus Circus and Luxor, both in Las Vegas - had been hurt by the opening of rival theme casinos and the addition of at least 11,000 rooms in the Las Vegas market over the past year. This has limited Circus Circus's ability to raise rates on its own rooms.
Circus Circus's stock closed down Tuesday on the New York Stock Exchange at 25-7/16, a 1/16 slip from its previous close.
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