Tuesday, March 18, 2003 | 11:11 a.m.
Former Aladdin Chief Executive Richard Goeglein knew the $1.2 billion hotel was in trouble even before it opened. He knew that when he saw the casino floor being built 9 feet above the Las Vegas Strip sidewalk level -- a design oddity that discouraged tourists from walking in to gamble.
"I said to one of the senior guys of the Aladdin team who was our director of facilities, 'What's that floor that I can see?' and I pointed to the floor that was like 9 feet higher than where we're standing," Goeglein recalled last week.
"And he said, 'Oh, that's the casino.' And I said, 'No, no, no, that can't be the casino.' And he said, 'I swear to you it's the casino.' And I said 'Oh my God,' and I went back to try to do something, but it didn't make any difference, I couldn't have fixed it at that point. I just tried to figure out where and how it could have happened."
In an interview with the Las Vegas Sun, Goeglein spoke publicly about such issues at the Aladdin for the first time since his September 2001 firing. Goeglein said he wanted to speak out as he prepares to meet the Aladdin in court over his termination.
Goeglein filed a lawsuit in Clark County District Court in October 2001, accusing the Aladdin holding company of wrongful termination, breach of contract and defamation.
Besides discussing his termination, Goeglein discussed the mistakes that were made by the Aladdin developers.
For example, Goeglein explained that the casino floor was built 9 feet higher than street level because in the excavation of the below-ground area, construction workers had struck a water table. But rather than engineer and design a drainage system to take care of the problem, the building owner -- a partnership between the Sommer Family Trust, Las Vegas, and London Club International, London -- took a short cut, built the floor higher and didn't explain it to other key managers until it was too late.
Goeglein said the surprising change was an example of how the complex ownership structure of the Aladdin fostered poor internal communication and that it exemplified how cash-strapped the company was when it worked toward opening in the summer of 2000.
Goeglein confirmed what many experts have speculated all along -- that the Aladdin's failings had its roots in being undercapitalized from the beginning and that the company couldn't afford to market the resort properly.
The Wall Street Journal published a story in July 2000, before the Aladdin opened, saying how challenging the management of the property would be with its complicated ownership scheme. With different corporate entities running the hotel-casino (Aladdin Gaming and London Clubs International), the Desert Passage mall (Trizec Properties) along with undercapitalized owners (Sommer Family Trust and London Clubs International), there was little coordination and cost overruns led to rifts between the partners.
When the Aladdin construction project ran out of money, the Sommer trust didn't come up with the cash to get it going again. Instead, London Clubs was forced to increase its initial investment to get the project finished.
London Clubs executives said they wished they had known more about the Sommer Family Trust before going into the deal. They said they suspected that developer Jack Sommer's mother, Viola, controlled the trust and didn't want to invest more in her son's project.
At one point, operators of the Desert Passage mall dropped the Aladdin's name because the different managers couldn't agree on marketing strategies.
"Everyone knew 'the Forum Shops at Caesars,' the most successful retail center in history, was at Caesars Palace," Goeglein said, "but we couldn't get an agreement on calling ours 'Desert Passage at the Aladdin.' "
But Goeglein said that while design flaws were problematic, they weren't the primary reason for the property's failures.
"The surprise of the marketplace was that, one, they said we could never get the money (to build the Aladdin). We did," Goeglein said. "Two, they said we would never get it built. We did. Three, after we got it built, they said we'd never get it open. We did. The fourth thing, they said we'd never be able to operate it. We did operate it.
"The property wasn't operated badly," he said. "It actually functioned pretty efficiently. The issue was that it was significantly undercapitalized so that we weren't able to do the aggressive pre-marketing promotion six months before the opening. We didn't have the funding to do that.
"The second component that caused it to be crippled was that the Aladdin opened with no customer database at all. We did not have access to the old Aladdin hotel-casino gaming list. We had nobody. We did not have one soul in the database," he said.
Goeglein said he wasn't sure how good the old Aladdin customer list would have been, but because the property was opening during a wobbly economy in mid-2000, anything would have been helpful.
"Would it have been a great list?" he asked. "It probably wasn't. But on the other hand, it was the core list that The Venetian used from the Sands to get that property started. I'm sure it wasn't the greatest list for them, but it was a lot better than nothing."
Goeglein said initially, the Aladdin's occupancy rates and average daily room rate levels met expectations -- the company was hoping to position itself between levels reached by The Mirage and Treasure Island. The Aladdin had an edge, he said, because it had a great location and its employees and supervisory middle management performed well.
"But it was like sending out a really great team and making sure that you tied their hands behind their backs and covered one eye because it just didn't have the capital resources to do what we had to do," Goeglein said.
Goeglein noted many experts criticized the Aladdin's design, but those perceived problems weren't insurmountable. He praised Jack Sommer for designing a resort with so many attractions and dining areas around the Aladdin's Theatre for the Performing Arts, which continues to be a key draw to the property because of the entertainment it houses.
"Is it physically perfect? No. On the other hand, is it the physical disaster described in news accounts? No, it is not," Goeglein said.
He added that other casinos with the same design "flaws" perform well despite what the critics say. Among the criticisms leveled at the Aladdin have been the use of high-vaulted ceilings and having restaurants that aren't off the main casino floor.
"I think the criticism of high ceilings is very interesting because it's clearly been a very negative impact at New York-New York," he said sarcastically. "Theirs is almost exactly the same height as the Aladdin. And the big Olympic casino off the Forum Shops at Caesars Palace? You've noticed it has a high ceiling. You know that that has been a dismal failure. Give me a break! That's not an issue."
Goeglein said restaurants away from the main casino floor are no problem for Treasure Island or Bellagio.
"One of the best restaurants in this town happens to be at Treasure Island," he said. "It's up a little elevator and sits up on the second level and looks out at the pirate ship going around in their little moat. I love that restaurant. It doesn't seem to have a problem getting people to go to it."
Although he disagrees with many of the critics who say design flaws are the root of the Aladdin's problems, he concurs that the property's undercapitalization at the time of its opening was a key problem. And he admitted to making the mistake of falling in love with the property and losing perspective.
"A wise guy once told me, 'Richard, let me tell you one thing never ever, ever to forget: Don't fall in love with your own deals.' And I fell in love with the Aladdin.
"Actually, I still love the Aladdin," he said. "I wish it nothing but the best because the people who created it from an operating point of view and the people in middle management and down the line, they deserve to succeed. They are really good folks and they deserve to succeed.
"But I fell in love with it. And there were a lot of times that I said, 'What are you doing this for, you must be crazy.' When it became imminently clear it was going to file (for Chapter 11 protection), it was just a tough place to be. If the company had taken the action to just terminate me (by terminating his contract without cause), which they had the right to do, I probably would have thanked them and told them they blessed my life because I promise you, the following Monday (after he was fired), I hadn't felt so good in many, many months. I really did not understand how much negative energy had been spent."
Goeglein ended up having to lay off 1,400 employees following the Sept. 11 terrorist attacks, a day he said was the worst in his career at the Aladdin. The company then fired Goeglein, then filed for Chapter 11 bankruptcy protection the same month.
Goeglein says he has no inside information about who will end up buying the 2,567-room Aladdin out of bankruptcy. He felt the most credible deal for the resort was being developed by Colony Capital LLC, Los Angeles, Pinnacle Entertainment Inc., Las Vegas, and Marriott International Inc., Bethesda, Md.
Only Pinnacle has acknowledged that it was considering a deal for the Aladdin, but the company recently announced it was no longer interested.
Aladdin Gaming's exclusive period for filing a sales plan with Bankruptcy Court Judge Robert C. Jones has been extended to June 2. It was the sixth time the court has extended the exclusivity deadline.
Last month, the company said in its monthly operating report that it was profitable in January and that it continued to have positive cash flow. Aladdin officials cited a 97 percent occupancy rate in January and an average room rate of $113, which was above the city average.
"The company has always operated with positive cash flow," Goeglein said. "It just wasn't enough to pay the interest on the debt."
So what has Goeglein been doing since his termination?
In early 2002, he formed Evening Star Hospitality LLC, a company focused on the acquisition, development and operation of limited-service, extended-stay and niche resort properties.
"Our strategy basically is to find locations where we're an hour and a half to three hours max from a big population center so we're not dependent upon airlines and we're not dependent upon international traffic," he said.
Among his current projects are an unbranded property in Windsor, Calif., known as "Casa de la Vina," and an unbranded and as yet unnamed project in Cottonwood, Ariz., near tourism mecca Sedona.
At issue in his lawsuit is whether Goeglein was fired for cause. If he was, the Aladdin would have had to pay him salary accrued through the day of his firing. If he wasn't fired for cause, Goeglein would have been eligible for a severance package.
By definition, a for-cause firing, Goeglein's lawsuit says, includes gross negligence that isn't corrected after a written warning from the board, the revocation of Goeglein's gaming license, a material breach of Goeglein's employment agreement, embezzlement or conviction of a felony.
Goeglein said none of those things occurred.
Officials with the Aladdin would not comment on Goeglein's suit.
As for speaking out now, Goeglien said he decided to come out publicly now because enough time had passed since the termination to tell his story.
"I really wanted to talk about it immediately," Goeglein said. "I'm not interested in picking anybody apart. I think had I done it immediately, people would have looked at it and said, 'That's just sour grapes. That's just a guy who got his ass kicked and is on the street and he's trying to get even.' And I'm not trying to get even.
"But I do believe that what was done with me under my contract was legally, ethically, morally absolutely wrong. And my personal core values, of integrity and other things of that nature, I couldn't let that stand regardless. It's time to let people know what I think and why I believe all of this happened."
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