Asleep at the Wheel

Can regulators really understand the nuances of multi-billion-dollar transactions when even the most educated financial whiz has trouble? They missed the boat—along with a $150 payment to Jeffery Epstein—in the Caesars/Apollo transaction, so can we count on them to wake up for the Las Vegas Sands/Apollo transaction?

Asleep at the Wheel

“This is not ‘Nam. This is bowling. There are rules.” Walter Sobchak, The Big Lebowski

A hallmark of the Nevada gaming regulation model is a strong emphasis on the suitability of the financial and operational participants. This is done for two primary reasons. The first of these reasons has to do with the reality that if bad people or behaviors are allowed to become associated with the industry, it damages the overall branding of the industry. A second motivation for the emphasis on exploring the backgrounds and past behaviors of the people and institutions becoming involved in the industry is based on the simple notion that if people are lacking in character, honesty and integrity in the past, they are likely to follow that path in the future, and vice versa.

One then sees that a suitability check based on a thorough background investigation serves both a branding function for the industry as well as a predictive modeling tool for the behaviors of the people wanting to enter the industry.

For both reasons, I would guess Apollo Global Management, presently under scrutiny for the Nevada gaming license it needs to be able to acquire the casino assets of the Las Vegas Sands Corp, wishes the book The Caesars Palace Coup, by Max Frumes and Sujeet Indap, had never seen the light of day. Moreover, the added attention the book has brought to the Final Report of Examiner prepared for the bankruptcy court overseeing the Caesars restructuring, authored by the highly respected Richard J. Davis, is probably a document Apollo would prefer the NGCB not appreciate or understand.

There have been several podcasts and interviews recently surrounding the launch of the book featuring many of the different parties to the Caesars fiasco who have placed a less than impressive light on the folks from Apollo. And as an added coup de grâce, the law firm of Paul, Weiss, known to have received many, many millions from its close association with Apollo over the years, appears to have made a very concerted effort to adversely impact the lives of the authors by providing a variety of challenges to encourage them to not bring this book to market.

In an article written by William D. Cohan and published in the April 21, 2021, edition of Vanity Fair, entitled ‘“The Truth Turns Out to be Ugly’: How Paul, Weiss Tried to Thwart Reporting on the Caesars Palace Collapse,” Caesars Palace Coup author Sujeet Indap remarks: “It was unsettling to be threatened by a highly prestigious New York law firm and then to be told to hand over our manuscript and a list of our confidential sources, things no journalist could or would or should ever do.”

His writing partner, Max Frumes, also commented: “Intimidation and bullying can be effective tools by powerful and wealthy interests to silence underfunded news outlets and journalists, but I believe such interests—and all of us—would be served better if they spent less effort at preventing journalists from discovering and understanding the truth, and more effort at owning mistakes and vying to be better if, in the light of day, the truth turns out to be ugly.”

Fortunately, both authors of The Caesars Palace Coup, and its publisher, opted to ignore these challenges from Paul, Weiss and continued to press forward with a well-research book that documents an unflattering portrayal of the entity that now wants to be found suitable by the Nevada Gaming Control Board.

Besides the authors, there is a third individual who provides a most impressive presentation as to the events that surrounded the behavior of the private equity entities that came to control Caesars. He is Mr. Davis.

Mr. Davis was appointed as examiner by the bankruptcy judge in the Caesars bankruptcy case, and one would have to look long and hard to find anyone who questions his competency and work product resulting from that assignment. In a podcast the authors of the book jokingly identify him as the third author, and his credentials include a lifetime of impressive projects and accomplishments in both the private and public sectors.

Generally, when an entity applies for a gaming license in Nevada, it submits an application and that initiates an investigation by the NGCB. In the case of Apollo, I would suggest, there are numerous documents that are quite handy for the NGCB to use in its investigation. This would certainly include the book by Mr. Indap and Mr. Frumes, as well as the report by Mr. Davis, and the article by Mr. Cohan. I believe these documents would be quite beneficial in helping to organize and guide the investigation.

Now there are those who will suggest the report by Mr. Davis was available to the regulators who approved the Caesars bankruptcy and as such it is old news. I have several thoughts here as to why this report should get a fresh look by regulators:

  • The book by Indap and Frumes adds a narrative to the report by Mr. Davis which helps bring it to life. It gives context and meaning to many of Mr. Davis’ findings. The two authors are skilled journalists, and provide a wonderful narrative of how the Caesars situation unfolded, greatly assisting the reader in understanding what happened.
  • The authors use the word “coup” in the title. I believe this is no mistake. Coups happen when people are not paying attention—and I believe the press and the regulators were not paying much attention back at the time the Caesars restructuring plan was being approved. It just might be worth giving it another look.
  • Reading through a document such as that produced by Mr. Davis for the bankruptcy court is a bit of a heavy lift. It has been my experience that many regulators are unable or unwilling to do the necessary lifting. I was hired by the state of Kansas to look at Caesars (nee Harrahs) financials in 2010, understanding I spent four years in an undergraduate program, two years in a master’s program and over 5 years in a Ph.D. program—all in economics. It was a terribly difficult and complicated task looking into those financials and I found the experience overwhelming at times—and most regulators do not have my background. A great many of the regulators I have known and worked with, would absolutely glaze over when confronted with those documents.
  • There is an asymmetric imbalance between the regulators and the folks who represent the Apollos of the world in terms of understanding the world of high finance. It all starts with the reality that regulators are paid very little money. I mentioned above that I had made a great effort to understand Caesars (nee Harrah’s) financial statements while under contract as a consultant with the state of Kansas. Several years later, while giving a talk in Philadelphia at a gaming conference, I suggested that from working through Caesars financials that I was convinced there were not five people in the world who understood those documents. I added to this the suggestion that probably none of them worked for Caesars. While this was intended as a joke, it was a joke that was, in some sense, couched in reality. I would argue there are very few regulatory agencies in the U.S. that can stay up with the financial machinations that were involved in the Caesars story—unless they had a very good roadmap such as the one provided by Mr. Indap and Mr. Frumes—and at the time they did not, especially when it comes to understanding the work of Mr. Davis.

Aside from the above listed items, there are other potential regulatory concerns. Apollo founder Leon Black attracted a bit of attention of late for his past payments totaling more than $150 million to Jeffrey Epstein, a man convicted of crimes involving underage girls. Moreover, it seems this amount had been previously understated by Mr. Black. One would guess this will not age well, so to speak, with the regulators. Moreover, while a law firm appears to have suggested this expenditure made sense, one wonders if Ghislaine Maxwell might have a different interpretation of this relationship. I am confident that law enforcement authorities are working closely with Ms. Maxwell, encouraging her to explain the many curious things about Mr. Epstein’s life. Just possibly the last word in the Epstein/Black relationship has not been spoken, and regulators hate surprises that make them look bad. I would also guess I am not the first to think that this whole story about the relationship between Mr. Epstein and Mr. Black has a very weird vibe.

Then too, there is Ms. Guzel Ganieva, with whom Black suggests he had a “foolish consensual affair,” although she seems more comfortable with the term “rape.” The reality that we do know seems to be that there has been a lot of money that flowed from Mr. Black to Ms. Ganieva.

Then, of course, there is Apollo’s Mr. Sambur, of whom the book dedicates a section describing him where he addresses a group of approximately 50 people where it seems he wants to understand if the group wanted to get a deal done or: “Are we just going to stand here masturbating all over each other…”

Call it a hunch, but my sense is the Nevada Gaming Control Board, as conditioned by some ongoing litigation involving another key casino operator who may have been inappropriate with his sexual activities, might be a bit skittish about the involvement of Mr. Black and Mr. Sambur in a gaming acquisition until it can have some assurance that these men do not have some inappropriate sexual histories or fixations.

A bigger issue with Mr. Sambur, however, may be his credibility with an official carrying out his duties for the bankruptcy court. My sense from the book, the bankruptcy examiner’s report, and statements from podcasts is that Mr. Davis did not find Mr. Sambur to be the most overly forthcoming and credible of the witnesses sorting out the reality of what was going on at Caesars. My instincts suggest the NGCB better get comfortable here because, as I mentioned above, part of the role of the background investigation is to determine if there are behaviors present in people who the regulators do not believe are healthy for the industry, such as not being overly open and clear in communicating with a court appointed examiner.

A fascinating aspect of the book addresses the apparent inability of the supposedly savvy financial titans at Apollo to understand that Caesars Entertainment Operating Company was insolvent. This is a critical point for it establishes what appear to be fraudulent transfers of assets and material breaches of board governance—and that is a very big deal. Nevada is absolutely going to want to clearly understand what happened here, for the optics are not good. It is how they handle this situation which will determine if the NGCB is looked upon with respect—or something less.

I found the treatment of the insolvency issue to be a most impressive presentation by Mr. Davis and it will be interesting to see if the NGCB agrees, for it really did help me understand the rest of the story, so to speak. And the rest of the story is not one screaming that Apollo is clearly of good character, honesty, and integrity. And it was The Caesars Coup authors who helped me, and others I have visited with, put this puzzle together.

I have long been a student of gaming regulation. I have been regulated extensively during my career as an operator, including having applied for licensing in more than 100 jurisdictions around the world. I spent over two years working on a Ph.D. dissertation on gaming regulation in Nevada, and I have also served in key positions on two different regulatory bodies. I have taught casino management and regulation in several universities around the world and lectured on the topic numerous times in the U.S. I also seem to write about it often. This background has taught me to thoroughly appreciate the work of the two authors who produced The Caesars Palace Coup. What this book does is it allows the reader to look behind the curtain of a style of deal making. It also pulls this curtain back for the regulators, and the regulators absolutely need to not only look behind this curtain, but understand what they see.

Gaming regulation is not a particularly deep subject. In its simplest form, the goal of gaming regulation is to work to ensure the people involved in the industry demonstrate good character, honesty, and integrity. As such, one can acquire a copy of the Caesars book, and some of the other noted items above, read through them – and then decide if they believe Apollo and its leadership are people of good character, honesty and integrity.

What can make this all a bit challenging for the NGCB is this investigation is basically the last stop in a $6.5 billion event and $6.5 billion is a hard number to ignore. I would think it would be an easier decision if this were for a new slot-route operator who wanted to install a few machines at a local bar. And because of the huge amount of money involved, I would guess that the NGCB wants to get to yes on this transaction. The trick is, however, given the amount of public information surrounding Apollo, the NGCB wants to do everything possible to ensure that the world sees this decision as being more about character, honesty, and integrity and not about the money. This leaves them several options.

The first, of course, is to deny the application. I do not see this happening. The second is to condition the license, stipulating that Apollo works to ensure that its leadership is not sending massive amounts of money to people convicted of sex crimes, to not use masturbation analogies in big groups, to work to recognize when a business is insolvent, and to behave accordingly if that is the case. This all seems a bit weird, however.

I believe that the best option would be for Apollo to give the NGCB a bit of a break. The people at Apollo might want to lay off the testosterone patches for a bit and try and tone down the macho silliness. This would entail a discussion with the NGCB demonstrating that they have turned the past Caesars experience into a learning process and are determined to come out on the other side of this with a greater commitment to being a strong ethical player as well as a better corporate citizen in the state of Nevada. Moreover, they would submit an action plan to achieve this goal that elevates Apollo to a higher level of operating excellence and governance. If this were to happen, the NGCB would have a place to hang its hat. This would provide a justification for the NGCB to get to yes, without looking as if it were beyond capture.

The point is, Walter was right that this is not ‘Nam—this is like bowling—and there are rules.

Articles by Author: Richard Schuetz

Richard Schuetz started dealing blackjack for Bill Harrah 47 years ago, and has traveled the world as a casino executive, educator and regulator. He is sincerely appreciative of the help he received from his friends and colleagues throughout the gaming world in developing this article, understanding that any and all errors are his own.