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Private Equity

Private equity gone wrong

A private equity gamble in Vegas gone wrong

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How buyout giants Apollo and TPG lost big (and made hedge fund enemies) by betting on Caesars Entertainment.

There have been so many truly extraordinary twists and turns in the saga of Caesars Entertainment CZR -2.34% over the past eight years that it’s hard to pinpoint exactly when the whole thing went off the rails. After all, an $18.4 billion bankruptcy filing at one of the biggest gambling empires in Las Vegas tends to result in a lot of finger-pointing. But for symbolism alone, nothing can beat the evening of Nov. 17, 2012.

That was the night that David Bonderman, the billionaire founder of private equity firm TPG Capital, threw himself a 70th birthday party. It made sense for Bonderman to have it in Vegas. He and his wife had planned a lavish celebration with 1,000 of their closest friends. Actor and comedian Robin Williams would serve as the emcee, with music legends Paul McCartney and John Fogerty rocking out. Bonderman had also agreed to make a $1,000 donation in the name of each guest to the charity of his or her choice, and every attendee would receive an iPod filled with the private equity mogul’s favorite tunes. It was the kind of event for which top-tier casinos are made.

And Bonderman just happened to be part owner of one. In 2008, TPG had joined with Apollo Global Management APO -0.98% , the buyout firm led by former Drexel Burnham Lambert banker Leon Black, to take Caesars private. Four years later, Caesars was straining under its heavy debt load, and the two private equity shops stood to lose the bulk of their $6 billion equity investment. By having his gala at Caesars Palace, the company’s crown jewel, Bonderman could have made a high-profile show of support.

Ceasar's Palace in Las VegasThe pool scene at the Caesars Palace hotel and casino in Las VegasPhotograph by Michael Lewis for Fortune

Instead, Bonderman took his celebration to the Wynn Resort WYNN -6.18% , Caesars’ biggest Vegas rival.

Everything went off without a hitch—food, liquor, accommodations, entertainment, and limousines. “It was a beautiful evening,” says someone who was there. “Probably spent $7 million to $8 million on this party.”

None of that money went to Caesars, which certainly could have used the revenue. Instead, Gary Loveman, the Caesars CEO, and his management team were left to stew. Their company was then being whipsawed by a fatal confluence of too much debt, an unanticipated overcapacity in the gaming industry, and the aftershock of the 2008 recession, which had forced gamblers to reduce both their casino visits and their wagering. The Caesars execs were stunned by Bonderman’s public snub. “That was a tough pill,” says one today. “It was so demotivating to the people that work here that our principal owner is going to have this big event somewhere else.” (Bonderman declined requests to be interviewed for this story.)

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