Drugs, Booze and Vegas

Former high roller Terry Watanabe is accusing Harrah’s of some serious funny business in Las Vegas.

Photo by: Conor Ogle

In what may be the nastiest spat since the days when Vegas handled disputes outside of court—if you get my meaning—Watanabe has filed a lawsuit accusing the casino giant of plying him with alcohol and prescription drugs in an attempt to keep him gambling. In the end, he says he lost more than $100 million.

Watanabe made his money with his father in the import/export business, running Oriental Trading Co. in Omaha, Nebraska. He sold the company in 2000 and became known as a philanthropist, with a taste for gambling.

By 2006, Watanabe says he was actually living at the Wynn in Vegas, but moved to Harrah’s properties, including Caesars Palace, after being offered better comps. Those comps included a three bedroom palazzo, 15 percent cash back on monthly table losses of $500,000 or greater, and $12,500 transportation reimbursement, a $3 million line of credit, and even tickets to a Rolling Stones concert. Perhaps most importantly, evidence submitted in court shows the casino company promised to wait 60 days before cashing in markers.

During much of 2007, Watanabe spent “nearly all of his time either on the casino floor or in his hotel room at Caesars Palace,” the lawsuit says. He had access to private slot machines and gaming tables.

Then things went bad.

“Watanabe’s losses escalated astronomically in the fall of 2007, just as his level of intoxication was reaching its most extreme,” the lawsuit states. “Harrah’s responded not only by increasing his credit limit and providing him with a non-stop supply of alcohol and prescription pain killers, but also by increasing his table limits beyond those available to other patrons.”

Watanabe claims the pain killers were Lortab, which Harrah’s staff allegedly gave to him after he hurt his back slipping at one of its properties.

It is against Nevada law for a casino to knowingly let a gambling addict play, especially one who appears incapacitated. Watanabe claims he would gamble for several days in a row “with little interruption of sleep…Harrah’s executives and employees knew or should have known…that Watanabe was rapidly running out of money.” The suit says he would be so drunk and sleep deprived “that at times he became unconscious at his private gaming tables or slot machines.”

Why is Watanabe filing the lawsuit now? This week he was scheduled to go on trial for writing $14.75 million in bad checks at Harrah’s properties. The company had him arrested earlier this year in what prosecutors call Sin City’s largest bad check case. Watanabe could face 16 years in prison if convicted, but he alleges Harrah’s lied on police reports, claiming it had the right to call in markers earlier than 60 days. The trial has been postponed until next year.

In a letter to the Nevada Gaming Control Board, Watanabe claims he suffered a net loss of $112 million at Caesars and the Rio, accounting for six percent of all of Harrah’s revenues in Vegas, and 20 percent of volume at the two casinos.

“Senior management was highly incentivized to keep milking Mr. Watanabe—literally for all he was worth,” his attorneys say in a letter to the board, “because they were negotiating the sale of Harrah’s to a major investment firm.

The higher the earnings, the more they would receive for the sale, and the more they would garner for their stock options.” They’re asking the board to initiate a formal proceeding against the company which could put its gaming license in jeopardy.

Harrah's tells CNBC that it cannot comment on pending litigation, and a spokesman says he had yet to see the lawsuit. In a letter last August, the company's attorneys warned that Watanabe and his attorneys “will face an action for abuse of process” if they sue.

The lawsuit comes as Harrah’s reported a $1.6 billion loss in the third quarter, mostly due to a writedown after the company was taken private by Apollo and TPG at the height of the market, with the help of CalPERS.

How much is Watanabe still worth? His team is keeping that information confidential. That team is led by Los Angeles based attorney Pierce O’Donnell, who this week won a federal case which blamed the Army Corps of Engineers for the damage caused to New Orleans by Hurricane Katrina.

O’Donnell may have his work cut out for him, convincing a jury that Watanabe should not be held responsible for his own losses. But his argument is that Harrah’s management had one motive: “to harvest the wealth from a mega-whale whom the casino ruthlessly allowed/encouraged to continue playing while incompetent and incoherent.”

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