Doubling down on Cesars Entertainment…

If you buy shares in a company that someone else controls, you pretty much have to resign yourself to taking what you get. At Cesars Entertainment (CZR), that turns out to be very little. Management, on the other hand, gets plenty.

The company’s shares have performed miserably lately, sinking by almost 44% over the last year. But 70% or so of the stock is owned by a consortium of private-equity investors that took it private in early 2008, including Apollo Global Management and TPG Capital. Ceasars has listed shares only because the investors sold some stock back to the public earlier this year.

As a result, we can get a sense of just how Cesars’ management runs the place, thanks to a proxy filed last week.

To start with, the company is exchanging a bunch of existing options for its executives, “to increase the retention and motivational value of the outstanding equity awards…” And you can see why they need to improve the motivational value: The options in question are “significantly underwater” — aka, worthless for the foreseeable future. (But when have you seen a company exchange in-the-money options?)

Nor are we talking about just a few options at the margins. Chief Executive Gary Loveman holds 3.4 million of the options being replaced, or about 42%. That amounts to about 94% of the 3.7 million options he holds — and about 42% of all outstanding options, according to a table in the proxy.

And the options being replaced are deeply under water. They have strike prices of $21 or above, and most of them are being replaced with options at roughly the current stock price: $8.63.

Moreover, for regular stock options that are being replaced, 20% of the new options will be fully vested from the get-go; the rest will vest over the next four years. Some of the options being replaced would have vested only if the company’s major shareholders had reached certain return on investment thresholds; the replacements will vest at share prices of $35 or $57.41 — admittedly lofty goals from the current vantage point.

Replacing options is almost always a little dubious. But that’s just the start for Cesars.

Loveman, for example, made $20.4 million last year, $5.8 million of it in cash and most of the rest in options. He also got some nice perks: $236,443 in “executive security,” another $539,005 for personal use of company aircraft, $126,710 for “company lodging” — plus another $90,817 to pay his taxes on the housing perk. That goes a long way toward putting him in the upper end of the perks bracket.

Unlike a proxy at a regular company, Cesars shareholders don’t get a vote on any of this — given their supermajority stake, the private-equity investors can make the decisions unilaterally.

Those investors, it turns out, operate together under the the euphonious name of Hamlet Holdings. For the sake of their tag-along investors, we just hope they prove luckier than that prince of Denmark did.

Image source: Close up of roulette with ball on zero via