Tropicana – fresh squeezed bankruptcy after bad roll of the dice

Tropicana the gaming giant, and not Tropicana the orange juice giant, has filed Chapter 11. Luck be a fickle, scorned and spurned lady.

New Jersey gaming regulators stripped Tropicana’s Atlantic City casino of its operating license in December, when the New Jersey Casino Control Commission determined that Tropicana was incapable of running a "first-class operation" required by state law and stripped it of its casino license after less than a year. prompting a cash flow problem that eventually forced the bankruptcy.

But the problems started before that, and reflect that even the gaming industry is starting to have recession-related problems:

When it bought Aztar Corp. for $2.1 billion after a heated bidding war, the company unwittingly violated a fundamental principle of business — buying high just before the market fell.

Using tactics it had successfully employed elsewhere, management began cost-cutting measures including nearly 1,000 layoffs in Atlantic City, prompting an uproar from unions.

A slowing national economy made gamblers more cautious about parting with their money, and real estate values plummeted as well. Then credit markets tightened, leaving Tropicana Entertainment “very little margin for error,” Tropicana President Scott Butera wrote in court filings. The company simply could not afford any significant setbacks, he added.

The company suffered a huge setback with the loss of the Atlantic City casino license. The company is appealing the license denial, but the bidding process is well under way and a new owner could be selected within a few weeks.

The company will receive the proceeds from the sale but is worried that a forced sale in a bad economy will result in a depressed price.

It is already selling its Evansville and Vicksburg casinos to help reduce its debt and could decide to sell other assets as the restructuring process unfolds, Butera said.

Any company dumb enough or arrogant enough to think it could stiff unions in New Jersey deserves the corporate butt-kicking. Unfortunately, employees, including those unionized ones in New Jersey, will suffer.

And, it makes me wonder if this isn’t part of why the casino commission yanked the license in the first place. Not that Joisey government folks would ever play hardball on something like this, would they?

The larger picture leads me to wonder if companies like Tropicana have much in the way of the equivalent to subprime mortgage debt on their books.

Ditto for strip malls that have been built in the last five years to add new outlets for places like the now-bankrupt Bombay and Linens ’n Things.