Two Black Eyes for Hilton’s Corporate Image
A labor dispute in Las Vegas and a controversial licensing decision in Atlantic City have taken a heavy toll on the corporate image of Hilton Hotels, a company that prides itself on its wholesome reputation.
The company was jolted a year ago when a jury in Las Vegas handed down a $38.8-million verdict on behalf of dozens of Hilton casino employees who claimed that they had been illegally fired. Hilton has contested the stunning judgment, which included $30 million in punitive damages.
According to public records, interviews and Barron Hilton’s own testimony during the trial, here’s how the firm got into so much hot water:
On Sept. 2, 1983, with no warning, Hilton Hotels fired 37 out of 200 blackjack dealers and floor supervisors in an unprecedented bloodletting at the Las Vegas Hilton. The employees worked in the so-called “21 Pit,” where blackjack, roulette and other games were played.
The firings were a shock because Hilton Hotels, unlike most casino operators in the gaming industry, was known among its employees for its generous fringe benefits and its reluctance to fire workers except for incompetence. The employee motto was: “You fire yourself at Hilton.”
The workers, all longtime employees, were dismissed by casino manager Robert Kelly, an old friend of Barron Hilton who was under pressure to improve the win percentage at the blackjack tables. The low gambling winnings meant the hotel was facing large losses.
The win percentage, known as the “PC,” is used to measure the amount won by the house compared to the total amount bet. The PC at the blackjack tables at the Las Vegas Hilton normally ranged between 15% and 20% but had fallen below 5% for no apparent reason in recent months, public documents indicate.
Kelly switched supervisory personnel and changed the way the cards were shuffled, but the problem defied change. Finally, with Barron Hilton breathing down his neck, Kelly arbitrarily discharged all the day-shift and swing-shift dealers and supervisors in the 21 Pit who had been hired before Jan. 1, 1972.
Most of the fired employers were over 40 and all were men--workers who Kelly felt were resistant to change and lacked enthusiasm. Their replacements were mainly young women.
Hilton Hotels said the win percentage eventually returned to normal after the firings, but management’s solution boomeranged after the workers filed an age-discrimination suit in 1984 that finally went to court in late 1988.
Following a four-month trial, the jury handed down the judgment, the size of which had never been seen before in Las Vegas. With attorney fees and accrued interest, it has since swelled to about $45 million.
Hilton Hotels has just appealed the case, and its spokesmen defend the firings as common at the time in the casino industry, where workers can easily find jobs at other gambling houses. “The casino industry is unique,” said Hilton attorney Joseph E. Herman, who works for Seyfarth, Shaw, Fairweather & Geraldson in Century City. “These kinds of mass firings were common. They still happen, but not as much as they used to.”
Barron Hilton maintained that the firings were vital to protecting the financial integrity of the casino, even though those workers were not accused of doing anything wrong or illegal.
“When you’re dealing with large amounts of cash, you have tremendous exposure,” he testified. “You have to go ahead and protect your operation . . . and that’s exactly what happened here.”
Though people who know Barron Hilton call him amiable and down-to-earth, his wisdom and perception were called into question by the trial. “I don’t think he takes advice well, and I don’t think his judgement is all that good,” John C. McCarthy, the Claremont attorney who represents the fired workers, said in an interview.
It was about 10 years ago that Barron Hilton claimed that Hilton Hotels was going to build a casino in Atlantic City for $100 million, according to Marvin B. Roffman, a former financial analyst at Janney Montgomery Scott in Philadelphia.
Though he admires Barron Hilton, Roffman remembers him saying: “Hilton Hotels has more experience building hotels than anyone. We say we’re going to do it for $100 million, and we will.”
The hotel eventually cost more than $300 million to build and, even more damaging, Hilton Hotels was eventually denied a casino license largely because of its ties to Sidney Korshak, an attorney described by law enforcement officials as having well-known ties to organized crime. The company had to sell the completed, but unopened, hotel to developer Donald J. Trump.
The brush with the New Jersey Casino Control Commission, which occurred in 1985, was a painful affair in which the commissioners questioned the wisdom and candor of the firm and its executives. The license was denied in a 2-2 vote, with three votes needed for approval.
Even the two commissioners who voted in favor of the license voiced serious doubts about the company’s behavior, their testimony shows. Commission Chairman Walter N. Read said “many of its highest executives were unaware or uninterested in problems and associations which could seriously call into question” its public image.
One of the major concerns of Read and the other commissioners was the fact that Hilton Hotels paid more than $700,000 in fees and expenses to Korshak starting in 1971. The company severed the relationship with great reluctance in 1984 after it realized the tie could endanger its casino license, public records show.
Ironically, a new member of the Casino Control Commission, Frank J. (Pat) Dodd, believes that it was a major blunder to deny a casino license to Hilton. The industry has since fallen on hard times in Atlantic City.
According to Dodd, the decision sent out a hostile signal to investors about how arbitrary and unreasonable New Jersey gambling officials could be. “I don’t think I would have denied them a license,” the commissioner said in a phone interview. “That was a major turning point in the history of Atlantic City. It sent out a bad signal.”
