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Back To The Future

Private, individual owners and low room rates are back

Back To The Future

Capitalism is working its wondrous ways in the casino industry, bringing it at least partly back to its roots-the return of private, individual ownership, not to mention cheap room rates.

In addition, private capital in other forms appears ready to replace the frozen public markets.

And private casino operators are stepping into Indian Country, where issues of lender rights in a sovereign environment are making both borrowers and lenders nervous.

All of this is happening as the public capital markets and banks have become so difficult and expensive, and as covenant violations force the issues.

Entrepreneurs Are Back

Phil Ruffin, Neil Bluhm, Anthony Marnell III, David Cordish, and maybe Mike Ensign and Carl Icahn.

Those are names of individuals, some with fellow investors, who are doing what public corporations can’t-buying and building casinos.

Ruffin bought Treasure Island from MGM Mirage for $775 million, and his first day on the job told employees that the emphasis will be on customer service. Sounds like a throwback.

Bluhm rescued the downtown Pittsburgh casino, and has projects in the works in Philadelphia and suburban Chicago.

Marnell recently opened the $1 billion M Resort in Las Vegas-with the help of MGM Mirage’s investment. The M has a number of unique touches that show the personal Marnell qualities. Another throwback.

It also has a number of employees who left corporate operators because at M, they know who they work for, Marnell notes.

Cordish put both the financial and creative oomph behind Indiana Live, the new racino near Indianapolis. He is ready to try again to build in Kansas City, Kansas.

Ensign also is ready to develop in Kansas, though with a group of local investors in Sumner County.

Icahn, who once rescued the Stratosphere in Las Vegas, is ready to try his trick again at the Atlantic City Tropicana.

Entrepreneurs have advantages as casino owners-they can return to the personal touch that made the casino industry, and they can make decisions fast and decisively.

At least one other name that could join this list: Jack Binion, who still has the cash from selling Horseshoe Gaming to Harrah’s.

 Big Private Capital Lurking?

Who has the money to buy casinos if lenders break up companies?

That is the dilemma, many think.

But other observers say that big private capital is hanging around, waiting for the right prices. And when prices become compelling, some of these unidentified hedge funds and foreign deep pockets would find opportunity worth the intrusive licensing process.

You Don’t Have To Own It To Make Money

Top officers of one private company made it clear that they are aggressively looking for opportunities where they won’t have to take on big debt.

The reasoning: lenders will soon own casino companies, and they won’t want to break them up or sell them until prices improve. In the interim, they’ll want a strong management team to run the properties.

Among companies that can fill that bill: Larry Woolf at Navagante, the Marnells, former Station COO Bill Warner, Golden Gaming, Millennium Gaming and any of a number of experienced casino managers who can assemble a team.

Indian Country and the Sovereignty Dilemma

As some tribes move toward covenant violations, both they and their lenders are becoming nervous.

Lenders worry about the security of their investments. They can’t take assets, such as real estate and buildings, as collateral because those assets are held by a sovereign power.

Indian tribes worry that any bankruptcy of an enterprise under such a circumstance might scare away future lenders.

And both sides worry what courts might decide if the issues land in a judge’s lap.

One solution: A company offers to refinance the relatively small debt that most tribes have at a rate considerably lower than banks and bondholders would require. In turn, the tribe signs a management contract with the group.

We note that at least one management team, assembled by Bill Warner, is now running the Inn of the Mountain Gods, the troubled Mescalero Apache property in New Mexico.

How To Play It

Of course, by definition, private investors are closed to the public markets. But there are ways to search for plays:

• Debt. Many of these private players will be borrowing money in the public markets, or affecting existing publicly traded debt by buying out public companies, or the properties of public companies that carry debt.

In addition, the management companies that can improve the results of Indian gaming enterprises will also improve the value of their publicly traded debt. That will happen at Inn of the Mountain Gods, for example.

• The relief factor. Stocks should rise on publicly traded companies if they get a buyout offer, or sell some of their properties. Of course, the buyout price could come lower than today’s if stocks keep falling.

• Patience. Eventually, much of what is private becomes public as entrepreneurs seek required equity from someone else’s pocket, or as comes are sold off in the stock market.

Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at

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