Resorts International, Inc.

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Resorts International, Inc.

1133 Boardwalk
Atlantic City, New Jersey 08401
U.S.A.
(609) 344–6000
Fax: (609) 340–6284

Public Company
Incorporated: 1958 as Mary Carter Paint Company
Employees: 7,200
Sales: $436.9 million
SICs: 7011 Hotels & Motels; 6719 Holding Companies, Not Elsewhere Classified

Resorts International, Inc., operates a hotel and casino in Atlantic City, New Jersey, and a vacation destination on Paradise Island in the Bahamas. The company opened the first casino allowed on the East Coast in the late 1970s and watched its profits soar. However, in an effort to capitalize on the potential of the Atlantic City market, Resorts amassed large debts, which eventually jeopardized its financial stability. In the mid–1980s, the company changed hands twice, in a series of controversial deals, and eventually wound up in bankruptcy. Less ambitious in the 1990s, Resorts has sought to consolidate its financial standing.

The company that evolved into Resorts started in 1958 as the Mary Carter Paint Company, which was itself the successor of a company founded in 1908. Initially, Mary Carter Paint grew by acquiring other paint companies, such as the Victor Paint Company, purchased in 1962, and the Atlantic Paint Company, purchased in 1963.

That year, Mary Carter Paint made another acquisition that would have a more significant impact on its future: Bahamas Developers Ltd. To this new interest in properties the company soon added property on the resort of Paradise Island. In December 1967, Mary Carter Paint completed construction of the Paradise Island Hotel and Villas, which would be operated by the Loews Corporation until 1981, and also opened the Paradise Island Casino. Clearly, this property development sideline soon became the company’s main focus, and, accordingly, in May 1968, Mary Carter Paint sold its paint division to Delafield Industries for just over $10 million. As part of the purchase price, Delafield gained the right to the Mary Carter name. Thus, on June 24, 1968, what had been the Mary Carter Paint Company became resorts international, inc., a corporation engaged in developing property, as well as owning and operating casinos and resorts.

Six months after the completion of this corporate transformation, Resorts finished a second hotel on Paradise Island, the Britannia Beach Hotel. The following year, the company expanded its geographic scope, establishing Resorts International N.V., based in the Netherlands. At the same time, Resorts also founded International Intelligence, Inc., known as Intertel, as part of its efforts to ensure security in its gaming operations.

In the early 1970s, Resorts further expanded its holdings in the vacation destination industry when it purchased Marine World and Africa U.S.A., two theme parks, for $3.4 million. Two years later, the company also bought Tennis United, Inc., a new facility where tennis was taught in New York City. To consolidate its vacation operations on Paradise Island, Resorts bought Chalk’s International Airline, Inc., in April 1974. This carrier brought patrons for the company’s casino and hotel to the island from the mainland United States.

Resorts next made its first move into what would become its major arena of business, when the company acquired Leeds & Lippincott Company, which owned Chalfont–Haddon Hall, an ocean–front hotel in Atlantic City, New Jersey, with 1,000 rooms, built in 1917. Resorts purchased 67 percent of Leeds & Lippincott in August 1976, and completed the acquisition the following month, paying a total of $2.489 million. In doing so, Resorts, the casino owner, was engaging in a little gambling of its own. The rundown Haddon Hall Hotel would only become a valuable property if casino gambling was legalized in Atlantic City. Although a previous state–wide referendum to legalize gambling in New Jersey had failed in 1974, on November 2, 1976, after heavy lobbying by casino operators like Resorts, a second referendum, which permitted casinos but restricted them to Atlantic City, passed by a large margin.

Thus, Resorts possessed a potential gold mine, since it would have the right to operate a casino in the only area in the United States, outside Las Vegas, Nevada, where gambling was legal. The company announced plans for a $50 million renovation of the Haddon Hall Hotel, as well as the construction of a new casino. Resorts planned to import 150 pit bosses and other casino workers from its operations in the Caribbean to train New Jersey workers for jobs in its new casino. In addition, the company announced that it would name the new gaming complex “The Palace.” After local objection, however, the company decided simply to name it Resorts International.

By April 1978, Resorts had officially applied for a permit to open its new casino in Atlantic City. The company vowed, publicly, that it would open the doors to the gaming hall by Memorial Day. On May 17, 1978, Resorts was granted a six–month permit to operate a gambling casino in Atlantic City by the New Jersey gaming control board, and on May 26, 1978, Resorts opened the doors of the first casino on the East Coast. Customers who had travelled from around the country waited in line for hours on the Atlantic City boardwalk to try their hands at the slots and the gaming tables after the governor of New Jersey cut a ribbon to commemorate the opening of this facility.

With a temporary monopoly on gambling on the East Coast, Resorts’ revenues soared in the second half of 1978. After just one month of operation, the casino reported that it had taken in $16 million. To enhance its holdings in the gaming industry, Resorts used some of the money earned in its new casino to buy a one–half stake in the slot machine manufacturing operations of Williams Electronics in June 1978.

In the following months, Resorts also increased its holdings of Atlantic City real estate. In July, the company bought the Steel Pier, a long–time site of amusements on the beach, and in August, it purchased the Ramada Inn Hotel in Atlantic City for $7.5 million. This property was eventually converted to the Resorts International Hotel–North.

At the end of August 1978, Resorts reported a profit of $10.2 million for the first half of the year. As gamblers continued to flock to the only casino open, the company’s profits soared. At the end of September, 1978, Resorts reported third quarter profits of $23.9 million, a level higher than the company’s net income for the whole first six months of the year, and more than twice the earnings from that period, which had lasted twice as long. Resorts had, indeed, struck gold in Atlantic City. The company reported overall profits for 1978 of $51 million.

The company entered 1979 with its monopoly intact, although other casinos were under construction up and down the Boardwalk. The company’s take for January 1979 dropped eight percent from its level of the previous month, but the casino operation still reported profits far higher than those of Las Vegas properties. In February, Resorts won a permanent permit to operate casinos in Atlantic City. At that time, the company also banned card counters from its casinos, despite objections that the practice was legal.

In May 1979, Resorts added 32 gaming tables and increased the size of the minimum bets in its Atlantic City casino, and two months later, the company announced the construction of its second New Jersey hotel and casino, a project slated to cost $120 million. During this time, the company shed its amusement park operations, the Marine World/Africa U.S.A. theme park, for $3.6 million. Resorts also bought more Atlantic City real estate, purchasing the 300 room Seaside Hotel and the adjoining 150 room Terrace Motel.

By the end of 1979, Resorts’ monopoly in New Jersey had come to an end, as first Caesar’s World, and then Bally’s Park Place Casino Hotel opened on the Boardwalk. Nevertheless, the company reported profits for the year of $91.1 million, nearly twice the level of the previous year. By the start of the following year, however, Resorts had started to feel the pinch of competition, as first quarter earnings dropped 25 percent, to $14.2 million. In addition, the company faced dissent among its shareholders, for its failure to pay dividends, despite the vast increase in its earnings. In its efforts to capitalize on the booming casino market in New Jersey, Resorts had spent heavily, running up large debts, a circumstance which left the company in perilous financial shape, despite the runaway success of its casino on the boardwalk.

Late in the spring of 1980, Resorts took several steps to manipulate its financial situation. First, it tried to pay off some debts with stock, and also tried to buy back some of its own shares, an effort which was abandoned in June. Also at that time, Resorts faced charges by the New Jersey Gaming Enforcement Division that it had been lax in its operation of its casino, and had extended credit to gamblers too freely. In July, the company paid a $225,000 fine for 7,500 credit law violations.

Resorts’ financial difficulties continued in 1981, as the company laid off 400 employees at its Atlantic City casino and reported a $27 million loss in the third quarter of the year, due to a drop in investment markets, in which the company was heavily exposed. Nevertheless, the company went ahead with plans to construct a second $100 million 1,500 room hotel and convention center in Atlantic City.

Resorts continued its aggressive activity in the financial markets in 1982, despite a shareholder suit aimed at preventing it from doing so, and in August the company reported that a risky investment in interest rate futures contracts had paid off handsomely. However, the company remained burdened by debts, as it pushed ahead with development of its second casino project, dubbed the Taj Mahal. A year later, Resorts increased its holding of Atlantic City real estate yet again when it bought yet another parcel of land for development, this one located at the entrance to the city.

In the mid–1980s, Resorts’ identity and fate as a casino operator was thrown into question, as it earnings steadily sank. By 1984, the company’s debts had grown so great that its diminishing earnings were insufficient to cover interest payments on the money it owed. Over the course of 1985, Resorts acquired a large stake in Pan American World Airways, and rumors began to circulate that it would sell its New Jersey casino and hotel operations.

Late in 1985, word came that Resorts would sell its Atlantic City properties to U.S. Capital, a group of private investors, for $325 million. This offer was rejected, however, and a long series of moves and countermoves between Resorts and another suitor, Pratt Hotel, took place over the course of 1986. Throughout this time, the company’s financial condition worsened steadily. At the end of 1985, Resorts reported earnings of $6.1 million, down from $22 million two years earlier. Worse, Resorts closed out 1986 with a loss of $30.64 million.

After Pratt Hotel’s final offer for Resorts collapsed in December 1986, New York real estate investor Donald J. Trump stepped into the fray, offering $101 million for 78 percent of the company held by the estate of the recently deceased Resorts chairman. Although this offer was contested by a group of private investors led by a top Resorts executive, Trump had taken control of the company by July 1987. Immediately following the change–over in ownership, the company sold off its interest in Pan Am for $61 million.

In winning Resorts, Trump had taken over the company’s troubled Taj Mahal casino project, which was still under construction and suffering from heavy cost overruns, which had pushed its cost to three times initial estimates, causing Resorts to run up $700 million in debt. Shortly after taking control of the company, Trump appointed himself chairman of Resorts and told its board of directors that he wanted to be paid fees equivalent to all of the company’s income for the foreseeable future. Stockholders in Resorts were reportedly not informed of this deal until after it had taken place, at which point the price of their stock dropped from $62 to $12, in December 1987.

Trump then announced, in February 1988, that he would take Resorts private by buying the company’s now nearly worthless outstanding stock. Then, in March 1988, entertainer and hotel owner Merv Griffin made a bid for Resorts. When the deal finally closed in November 1988, Trump earned $68 million for his shares from Griffin, and took full possession of the Taj Mahal, still under construction. Griffin took control of Resorts, which consisted of the aging Resorts International casino and hotel in Atlantic City and vacation properties on Paradise Island in the Bahamas. With these assets, Griffin also assumed all of the financial obligations Resorts had amassed in trying to build the Taj Mahal, while giving away the pay–off for those expenditures, the casino itself, which was located next door to the worn Resorts operations. According to Richard L. Stern, writing for Forbes “Griffin didn’t realize it at the time, but he was doing Donald trump a tremendous favor. In over his head, Trump was bailed out when Griffin made an offer Trump couldn’t refuse.”

In August 1989, Griffin stopped paying interest on Resorts’ $925 million worth of debts, amassed through his purchase of the company from Trump, as Resorts neared a point of total insolvency. In November, Resorts was forced into Chapter 11 bankruptcy by its bondholders, as shareholders filed suit in the wake of the deal between Griffin and Trump. Reports charging impropriety and even Mafia ties in the deal concerning Griffin and Trump surfaced in business magazines, as Griffin maintained that he had been unaware of any irregularities in the deal.

In the wake of Resorts’ bankruptcy, the company reorganized its finances, with Griffin turning over 78 percent of Resorts to its bondholders. In addition, the company sold off its airline subsidiary, Chalk’s International Airlines, and began to seek a buyer for its properties in the Bahamas. In April 1990, the company suffered another blow when the Taj Mahal casino finally opened next door to Resorts. The newer gaming hall siphoned off bettors from Resorts’ casino and also offered employment to many of the best workers at the older hotel.

By the spring of 1991, Resorts had officially exited bankruptcy, and the company’s future appeared to be brightening somewhat, as losses at the Atlantic City casino and hotel started to slow. Griffin, who had initially become wealthy through his interests in television game shows, had discovered that holding contestant searches at his Atlantic City hotel was a good way to fill the casino. Resorts also invested $50 million in efforts to refurbish and brighten the New Jersey properties, using an Art Deco “Hollywood” theme to lend distinction to hotel rooms for high rollers. The company also inaugurated an employee retraining program to enhance hospitality at the hotel and casino.

In October 1993, after similar renovations at its property in the Bahamas, Resorts sold 60 percent of its Paradise Island properties to Sun International Hotels, Limited, for $75 million. With this move, the company came closer to the firm financial footing it had enjoyed in the late 1970s. Nevertheless, as Resorts moved into the mid–1990s, the company faced a daunting task, given its turbulent history and its shaky financial standing. Whether it would ultimately survive the monetary turmoil of the industry that it had helped to pioneer remained to be seen.