News for the Hospitality Executive
|By Jeff Simpson, Las Vegas Review-Journal
Knight Ridder/Tribune Business News
Jan. 30, 2004 - The Castaways closed its casino and hotel Thursday, putting about 800 employees out of work at the 49-year-old property formerly called the Showboat.
The closure of a second historic Las Vegas casino this month came after creditor Vestin Mortgage, acting under authority of a U.S. Bankruptcy Court order, notified Castaways owner VSS Enterprises it would enter the casino and collect its collateral backing a mortgage loan.
Industry insiders expect the bankrupt property to remain closed, forcing its workers to seek new jobs.
When Vestin officials showed up around 3:10 p.m., the casino's table game pit was immediately closed, and workers began a slow trek around the property, turning off banks of slot machines.
Hotel guests were told to vacate the premises, but at least one man toting a suitcase through the lobby Thursday evening said he'd had his Thursday room rate refunded when he checked out.
"We saw these men from Vestin walking around in suits, and then they closed it down," said Carol May, a 32-year Castaways and Showboat cocktail waitress.
"It's absolutely devastating. This was a wonderful place to work. We knew there were (financial) problems, but we never expected it to happen so quickly, like this."
Nevada Gaming Control Board officials were notified Thursday morning by Castaways executives that a closure was imminent, control board Chairman Dennis Neilander said.
A team of control board agents accompanied VSS and Vestin representatives to ensure an orderly closure, Neilander said.
"The creditors proceeded under what was, in effect, a bankruptcy court order that allowed them to (enter the casino and collect its cash)," he said.
"We've instructed them to pay their gaming obligations (slot jackpots, winning sports tickets, casino chips) and they've submitted closure plans that detail how they'll do it, but I haven't had a chance to look at the plans yet."
Castaways executives were unavailable Thursday evening for comment, as was Vestin Group Chairman Mike Shustek, but Vestin spokesman Steve Stern said Thursday's action was an unfortunate last resort for the lender.
"Vestin didn't want to do this," Stern said. "It's not a pleasant thing to do."
He said Vestin was protecting its investors and exercising its rights by choosing to collect on its collateral.
"The Castaways was using the cash (in the casino cage) under certain stipulations, and those stipulations were violated," entitling Vestin to collect its collateral, Stern said.
"They didn't maintain the required amount of collateral, they wrote checks to vendors in excess of their money in the bank, and they improperly allowed post-(bankruptcy) filing debt to accumulate."
The 445-room property was severely affected by the tourism slowdown that followed the Sept. 11, 2001, terrorist attacks as well as the country's economic recession, but many experts believe the loss of its Showboat name was the beginning of the property's end.
Neilander said the closure is a sad day for the casino industry, especially coming on the heels of the Jan. 9 closure of the landmark downtown Binion's Horseshoe hotel-casino.
"It's unfortunate not just for the operators but for the employees and for the city," he said.
Another Castaways cocktail waitress, Diana Leone, who worked at the Fremont Street property for 27 years, said losing her paycheck wasn't the toughest part of the closure.
"It's saying goodbye to your co-workers that's so hard," Leone said. "This is our home."
Culinary Local 226 department head Heidi Hughes, who represents downtown hotel workers, arrived at the property shortly after the casino was closed and told workers the union planned an effort similar to one made on behalf of workers at the Horseshoe.
"We're trying to get organized as fast as we can, but we'll certainly try and help them with looking for new jobs and collecting their paychecks," Hughes said.
Vestin is owed about $8.8 million of $22 million in mortgage-backed debt owed by VSS, with the rest owed to a California-based lender.
Castaways owners filed for bankruptcy protection from its creditors on June 26, citing $50 million in debt.
Industry insiders expect Vestin and its California partner in the property-backed loan to sell the property at a foreclosure sale, perhaps as early as Monday.
Locals casino operators question the viability of the site, once a favored locals gambling spot and home to many visiting bowling tournaments.
VSS bought the former Showboat Hotel, Casino and Bowling Center from past owner Harrah's Entertainment in March 2000 for $23.5 million.
It renamed the property and introduced its Spanish ocean theme.
Castaways bosses said in 2002 that they were close to deals that would put a Holiday Inn brand on the hotel-casino and trigger a $57 million renovation and expansion of the property, but the necessary improvements were never made and the brand never changed.
"These guys went through all the formalities," Rob Spagy said Thursday afternoon. "They really did try very hard."
Spagy's wife, Bonnie, was entertainment director at the Castaways for about a year.
He added that Mitch Graham, a general director at the property, was crying as he handed out dismissal papers to employees.
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(c) 2004, Las Vegas Review-Journal. Distributed by Knight Ridder/Tribune Business News. HET,