Flipping over a casinos for fun, profit, and Glory

The partners make $113 million in profit (226% on their $50 million investment)—called the highest rate of return in such a short time in the gaming industry.

Tom Breitling and Tim Poster came to Las Vegas in 1993 right out of college intent on making a fortune in the internet hotel reservation business. By the year 2002 they sold the company to Expedia for $105 million and began looking to purchase a casino. They were about age 30, and no one thought that individuals could purchase a casino anymore. In 2003 they persuaded MGM-Mirage to part with the Golden Nugget, the foundation of the Mirage Corporation (and Steve Wynn's) fortune back in 1973. They settle on the casino in January 23, 2004 for $215 million.

The two friends are dating TV stars and sign a deal with the creator of Survivor, the reality TV show. A short lived reality TV series called Casino features them managing the Golden Nugget. People magazine's sexiest men alive magazine story of 2004 features the duo. Tony Bennet performs at the Golden Nugget theater. Like Old Vegas they decide to lift the table limits and introduce 6X-8X-10X odds on the craps tables. The Golden Nugget is awash with high rollers who haven't been downtown in years. The friends are riding high on money and glory.

But then disaster begins to strike. Running a huge 4 diamond hotel with no experience and without a larger network of hotels means that costs rise as they hire expensive talent. Despite the huge increase in gaming action, they are just barely breaking even. The TV series is a flop and is quickly canceled . Then in September 2004, only 7 months after they purchase the casino, they discover why casinos have table limits. A repulsive high roller, nickname Mr Royalty hits his point 23 times in a craps game earning $100K per roll. All total he wins $8.5 million from the casino, and then he runs off to another casino with a pillow stuffed full of cash. They are left alone and despondent. Then around Christmas, Tilman Fertitta, cousin to the Fertitta's that owns Station Casinos and CEO of Landrey's Restaurants wants to get into the traditional family business. Tilman agrees to purchases the Golden Nugget only 1 year after Tim and Tom acquire the casino giving the pair a cool $113 million profit. The boys make double their money in a year.

Good story of money, glamour, huge profits, and table limits. Read Double or Nothing.
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A quick after story. Landrey's Restaurants sells their popular chain, Joe's Crab Shack to concentrate on making major improvements in the Golden Nugget. They invest an additional $300 million on a radical makeover of the casino. Unfortunately, they are unable to franchise the name into Louisiana. The Holy Grail for their company is legalization of gambling in Texas, where Tilman's mafia ancestors openly ran illegal gambling in Galveston for decades. Despite the massive improvement to the Golden Nugget which includes the first new hotel tower downtown in two decades, revenue begins to decline to the level when Tim and Tom ran the casino in 2004. Moodys downgrades their debt rating endangering the company. For thanksgiving of 2009 at the grand opening of his new hotel tower Tilman Fertita openly states "I'm not getting the customer I want". The story is still unfolding. It is not clear if the venerable casino will bring down the corporation. Tilman has made several attempt to purchase the company from his shareholders since he acquired the Golden Nugget.

I really want to read this book. If anyone owns this, and is done with it, I have a few Vegas books up for exchange:

*Both of Ben Mezrich's books, Busting Vegas and Bringing Down the House

*Poker Nation: A High Stakes, Low-life Adventure into the Heart of Gambling Country

*Small Stakes Hold 'Em, Winning Big With Expert Play

*The Art of Making Money: The Story of a Master Counterfeiter

(This isn't really a Vegas book, but I just finished it and it's really good.)

I read both the Mezrich books. Busting Vegas was better than Bringing Down the House (although they are basically the same book). I also liked Al Alvarez's The Biggest Game in Town. The guy is a great writer. Jackpot Nation by Richard Hoffer is also good; at least read the first chapter, which will stick with you for a while. If anyone has a copy of Whale Hunt in the Desert about Steve Cyr, I'd be willing to trade/buy it from you.

http://www.amazon.com/Double-Nothing-Friends-Legendary-Casinos/dp/0060835834

Amazon has some used or kindle editions which are down considerably from the $19 initial price. It was released 15 months ago which has to be close to the lifespan of a book like this.

It is out of stock in most of the area bookstores.

The duo seemed reasonably well liked in Vegas by their employees. The worst things I have heard were that they were extremely interested in being famous (which seems obvious) and they sometimes didn't have enough money to cover their huge bets (which is more of a compliance issue).

Tilman Fertitta (the present owner) doesn't seem well liked by many people. I've heard dozens of awful stories about him.

Since October 6, 2010 Landry's Restaurant has been taken private by Tilman Fertitta in a $1.4 billion deal. Since then he has bought Trump's Marina in Atlantic city.

The last revenue statement released to the public before the buyout was Gaming revenues for the six months ended June 30, 2010 were $117.2 million compared to $112.5 million for the same period in 2009. That's a fairly small increased in revenue ($4.7 million in 6 months) considering the new luxury $150 million 500 room hotel tower which opened on November 2009.

The gambling revenue for all of Downtown has been perfectly flat for the last 5 months reported (Oct, Nov, Dec, Jan '11, Feb '11).

Has anyone seen any changes in the property over the last few months?

Revenue seems to be flat pretty much everywhere if you smooth things out a bit and forget about a few specialty events such as the Chinese New Year.

I touched upon this in a few other posts but part of my thinking about the inflation and five dollar tables issue is simply that in the past casinos never really invested in their customers and so now its more and more casinos chasing fewer customers who have fewer discretionary dollars.

People still say 'Vegas, Baby! Vegas!' but they seem to be going to their local casinos in their home state instead of flying to Vegas. They seem to be more akin to fleas than is comforting to the casino. And just as two happy go lucky guys learned that youthful enthusiasm won't rescue them, so too are the more established casinos learning that jaded realism ain't gonna do much better.

Gaming revenue is slightly up on the strip for the last 20 months, but it is still headed down in Nevada for off strip. But that fact tends to obscure the fact that the recovery has been almost entirely based on baccarat on the strip which has been declining since the Singapore casinos got into full swing.

Sheldon Adelson has made it very clear that he is no longer interested in trying to lure international baccarat players to the Vegas property. Singapore has a lower tax rate than Macau. It isn't as low as Nevada, but the difference no longer justifies the huge cost of bringing people across the ocean in private jets. I think that Steve Wynn still has some motivation since his property in Macau still has the huge tax rate.

Fiscal Year 2011 (8 months ending Feb 2011)
+2.31% Strip
-2.67% Off Strip
+0.09% Statewide

Fiscal Year 2010 (12 months ending 31 June 2010)
-0.63% Strip
-8.34% Off Strip
-4.30% Statewide

Still better than Atlantic City which dropped 8% in calendar year 2010.

Quote: FleaStiff

People still say 'Vegas, Baby! Vegas!' but they seem to be going to their local casinos in their home state instead of flying to Vegas. They seem to be more akin to fleas than is comforting to the casino.

That's Vegas' biggest problem, despite the recession... they don't offer a unique product anymore

Quote: thecesspit

That's Vegas' biggest problem, despite the recession... they don't offer a unique product anymore

Thats the truth. When they were the only game in the country, they had it made. Casinos are opening so fast in other states, I can't keep up with it.

Quote: thecesspit

That's Vegas' biggest problem, despite the recession... they don't offer a unique product anymore

Logically, you would think that Reno and Laughlin would be in the most trouble since they are offering plain old slots and games. Why would you go to Laughlin to play slots since there are slots everywhere. The high end resorts are still relatively unique in the country. Even from my chart, I said that gaming off the strip is still decreasing.

But that doesn't jive with the amount of money that was invested in huge prices for land, and for buying and selling existing casino companies. Laughlin and Elko are actually making money. But Primm Valley which was sold for $400 million drove their new owners to bankruptcy. The fantastic price paid to take Station's Casino private. The phenomenal amount of money that Goldman Sachs paid for the Stratosphere. The acquisition of Ceasars Inc. by Harrah's Entertainment, and then the additional money to take the whole thing private. The billion dollars to build the M Resort, then selling it a year later for less than a quarter of that amount.

Quote: pacomartin

But Primm Valley which was sold for $400 million drove their new owners to bankruptcy..

You have to be pretty impatient to stop in Primm when you're already so close to Vegas. I've never really understood the logic, except I guess it can bleed off just enough money most of the time in non-recession times, I suppose.

Quote: pacomartin

The billion dollars to build the M Resort, then selling it a year later for less than a quarter of that amount.

The people who built the M Resort were not the ones who sold it.

The casino as "asset" and as "income generator" are two different measures. Goldman Sachs had different motives than an owner would have. Primm couldn't lead anyone to bankruptcy unless something changed... and what changed? Its location? Its rate of stopping passersby? Its bus program?

Quote: FleaStiff

The people who built the M Resort were not the ones who sold it.

The casino as "asset" and as "income generator" are two different measures. Goldman Sachs had different motives than an owner would have. Primm couldn't lead anyone to bankruptcy unless something changed... and what changed? Its location? Its rate of stopping passersby? Its bus program?

I understand your point about the M Resort. I was trying to make the point that the issues of finance are more important now than operational issues. Downtown operated with essentially flat or slightly decreasing gaming revenue from 1991 to 2005. They kept up profitability by automation and cost cutting. Then profits soared as the boom from the strip spilled over, then people started buying property at premium prices. The Stratosphere was a budget property, but it was always profitable. Now with a billion plus dollar mortgage (on the entire company) it would have been lucky to be profitable even if there was no recession.

Primm seemed to suffer from a variety of calamities at once. MGM was in the process of shedding at least 7 of it's incidental casinos that it had accumulated with all the mergers. Golden Nugget and the three Primm Resorts had similar gross revenue. MGM sold the Golden Nugget in 2004 for $215 million, just to see the new owners resell it a year later for a $113 million profit. In 2006 they were determined to get at least $400 million for the Primm Resorts (but keep the golf course). Herbst Gaming was anxious to expand and paid that much. I am not sure what they got for their Laughlin properties.

Then the gas prices went up. When the visitation started dropping, nobody wanted to stop at Primm since there were always cheap rooms in Vegas. Plus Primm catered to families. They had roller coasters and arcades and bowling alleys to occupy the minors while their parents gambled. The Indian casinos in Southern California took a lot of that market. You could leave the kids at home with a baby sitter and go to an Indian casino for four hours.

And I really should say that the company took a wallop in it's other sectors at the same time. Slot routes were wiped out by smoking ban. They also spent too much running around acquiring small casinos in Northern Nevada and other rural locations. Gambling dipped in the midwest. The Vegas strip property also suffered since the general room rates on the strip were going so low that there was no reason to stay a mile away from the strip. But the acquisition of the Primm properties for $400 million was the largest purchase they made.

.....

Still better than Atlantic City which dropped 8% in calendar year 2010.


Think Ac will ever get it right or just continue with the " They are sheep, they are born to be sheared " mentality. From pay to park to having destroyed AC as a vacation destination. Gone is the Steel Pier ( diving horse and all ). The surrounding area has not been upgraded as the casino's made sure there was never a reason to leave. Are the push strollers and bicycles for two still around? What reason is there to leave Pa Ny etc once they have gambling ?

Quote: buzzpaff

Still better than Atlantic City which dropped 8% in calendar year 2010.


Think Ac will ever get it right or just continue with the " They are sheep, they are born to be sheared " mentality. From pay to park to having destroyed AC as a vacation destination. Gone is the Steel Pier ( diving horse and all ). The surrounding area has not been upgraded as the casino's made sure there was never a reason to leave. Are the push strollers and bicycles for two still around? What reason is there to leave Pa Ny etc once they have gambling ?

The rolling chairs are still there, but they're not what they used to be. There are way too many of them and the operators spend the day hanging around and harassing people for rides. If you do want a ride be sure to negotiate.

The Steel Pier is still there. There was no diving horse after Resorts opened in 1978, so I never got to see it.

Do you remember the woman on the stretcher who played the organ with her tongue? I think her name was Celeste.

I remember Celeste. But I doubt PETA would allow the horsa to jump anymore.