GGB is committed to providing updated news and analysis on our weekly news site,

Smaller and Leaner

Smaller and  Leaner

At one time, it seemed that all casinos were destined to wind up as part of one or two giant U.S. companies and a corresponding number of large international companies. It was consolidation at its strongest, and the survival of small companies was an open question. And when private equity companies came sniffing around, the large companies believed they could add fuel to an already-blazing conflagration.

But when the economy started to go south, the big companies experienced the problems that the economies of scale created by consolidation could not address. And mountainous levels of debt diverted attention from efficient operations to cash flow, and even survival.

Individual casinos under the umbrella of the large companies often have neither the capital nor the flexibility to respond to market conditions that are frequently unlike any experienced by other casinos in the group.

Today, the small companies are feeling the same pinches as the behemoths of the industry: a decline in business, cost-cutting measures, large debt loads and tight credit. In some cases, some of the smaller gaming companies are teetering on the brink of bankruptcy. But in other cases, a solid balance sheet, manageable debt and efficient management have put them in an enviable position where they could take advantage of the troubles of the larger companies.

In this environment, however, small companies could become big players. Whether it is operators ready to devote the time and resources necessary to make a marginal property a category killer or it’s a vendor providing niche service in a specific genre, the small company is ready to pounce.

Very few small companies have the financial wherewithal to buy even smaller properties on their own (unless they are very small, as the involvement of some of the profiled companies in Colorado proves), so all need clients/partners/tribes to complete their vision.

In this story, we review five companies that have barely scratched the surface of the gaming industry. Although frequently led by industry veterans with experience in companies large and small, these organizations seem to have an innovation and spirit rarely seen in the larger companies these days. And they give an appreciation for the wide range of people who play a part in the growth of the gaming industry.
Golden Opportunity
[Nevada Gold and Casinos]

The Wild West was once a region of frenzied hunts for gold and silver. Gambling always went hand in hand with that search, and when those resources were exhausted, gambling remained.

Nevada Gold participated in both of these endeavors. The company got into the casino business when land it owned in Black Hawk, Colorado became a coveted casino site in the early 1990s. Through a partnership with Isle of Capri, Nevada Gold was part owner of one of the largest and most successful casinos in Black Hawk—though a silent partner, since Isle managed the property.

When Bob Sturges was hired in 2006 to revive a struggling company that had its hand in almost everything—including a string of Pizza Huts in Brazil—he brought in experts who changed the corporate culture to a pure gaming company.

Sturges began his gaming career as a regulator in New Jersey (a background he has in common with many higher-profile gaming executives, including G. Michael “Mickey” Brown, Dennis Gomes and Kevin DeSanctis, among others). He later led the gaming division for Carnival Cruise Lines, which moved off the sea to build Louisiana riverboats and tribal casinos, before being swallowed by Penn National Gaming.

At Nevada Gold, Sturges saw a diamond in the rough. But if it was going to be a gaming company, he had to divest the company of its non-gaming holdings, including the original gold mines and those Pizza Huts.

“We had to clean up our balance sheet and keep our mission pure,” says Sturges.

Indian gaming also played a part in the company, but Sturges realized several of the deals didn’t make sense and terminated them.

In addition, partnerships in several New York racinos, at Tioga Downs and Vernon Downs, were questionable.

“We had management contracts and small pieces of equity that didn’t look like they were good investments, in light of the effective tax rate of 68 percent at the time,” he says.

Nevada Gold sold its interest in the tracks and also its interest in the Isle of Capri in Black Hawk. It was soon a gaming company with not much gaming.

It continues to own and operate the Colorado Grande casino in Cripple Creek and has a 40 percent interest in Buena Vista Development Company, which has a development agreement with the Buena Vista Rancheria of Me-Wuk Indians for a tribal casino. That entitles the development company to 25 percent of the net income for seven years. This project is in the final stages of approvals and is expected to generate a “couple of hundred million dollars in annual revenue,” says Sturges.

He stresses, however, the Buena Vista deal is not a management contract, thus freeing the company to concentrate on other deals.

Financial Focus
By streamlining the company and applying principles and skills Sturges acquired during his previous gaming stops, Nevada Gold has developed into a “nice little success story,” he says, with EBITDA rising from $35,000 when he arrived to more than $700,000 last year.

It is Sturges’ financial scrutiny that continues to boost the company. A low debt load combined with about $15 million in the bank makes the company lean and ready for deals.

In the meantime, however, the company has continued to reach out as a consultant and has formed a division called Creditor Consulting Services. CCS is designed to assist management teams, boards, creditors and Native American tribes by consulting on business plan initiatives, operational improvements and financial restructurings in the current business environment.

In this environment, Nevada Gold is talking to creditors about the management of several casinos and will offer advice on the future directions of these distressed properties.

“We’re not looking to take these properties over,” Sturges says, “but we are interested in generating fees for services.”

As an example, Nevada Gold was awarded a management contract with SunCruz Casinos, a Florida-based gaming cruise line—the largest in the country—running daily gaming cruises. The company will receive a base fee of $1 million per year through 2010, and get a bonus of 25 percent of operating results exceeding certain profitability thresholds.

This is the kind of project that Sturges is seeking.

“Our main focus is to look at existing operations,” he says. “We’re looking at underperforming properties where we think we can leverage our operating expertise.”

While Sturges will not rule out development opportunities, he says Nevada Gold isn’t excited about the long cycle necessary for development of new properties.

“We’re not in the mode right now to look at development projects with a longer horizon,” he explains. “We want to create cash flow for the company so we can become self-sustaining. We’ve been living off the sale of non-core assets, and now we need to bring cash flow to bear.”

For similar reasons, Sturges says Native American gaming is down on his list as a preferred type of operation.

“The projects tend to be very complex and very volatile, often because of changes in tribal leadership,” he says. “They are also very short-term because of the limits to the length of the management agreement. Because of those factors, you don’t get the credit in the stock price, in the capital markets and in the return on investment. We’re not totally shutting the door, but it’s not one of our priorities.”

Sturges says he’s excited about the new opportunities that are becoming apparent because of the distress that the large gaming companies are suffering. He cites potential sales of marginal properties as something that might interest small companies like Nevada Gold.

“It’s very much a buyer’s market, and we’re pleased with the opportunities that we see developing,” he says.

At the same time, attracting the interest of investors is difficult as a small company.

“It’s challenging to get the attention of the folks who have access to capital because we’re working in a smaller fishbowl,” he says.

Sturges won’t limit geographically the areas Nevada Gold is investigating.

“We’re looking primarily at the U.S.,” he says. “But we’re not confining ourselves to the U.S. I have experience in the Caribbean, South America and Canada, so we’re open to any and all opportunities.”

Small is Big
While concerned about the credit market, Sturges is pleased he doesn’t have to put the final financial pieces in place for the multibillion-dollar projects that the large companies are envisioning.

“We’re looking at projects that are in the $20 million to $40 million range,” he explains. “Getting credit for those kinds of projects is going to be somewhat easier, although still extremely challenging. But we’ve found that people who have access to those kinds of dollars are receptive to our plans. So we’re optimistic we can get financing for the small projects we’re considering, although the cost of capital will be somewhat greater than it was a year ago.”

Sturges has nothing but good things to say about his executive team, which includes James Kohn, the company CFO; Donald Brennan, the senior vice president of development; and Ernest East, the firm’s general counsel. He says each possesses abilities that make him a great fit for Nevada Gold.

“We’re a lot more entrepreneurial than the larger companies,” he says. “We all get involved, roll up our sleeves and get to work. We’re a very hands-on company. We don’t have large departments or committees so there’s not a lot of bureaucracy, which I never particularly enjoyed. We don’t have those layers of management.”

When the employees of the operations are added in, Sturges says they’ve created a close-knit community.

“The sense of family within the company is important to us,” he says. “The relationships we develop with the employees is as key to us as the relationship with the customers. You can develop this in smaller properties and deliver a level of customer service that is impossible in the large properties.”

He says the corporate culture he’s trying to create is simply an extension of his personality.

“The culture tends to take on the personality of the person at the top—the CEO or chairman. That is especially true in a small company, kind of like an athletic team that takes on the character of its coach.

“I’ve tried to install that esprit de corps and I think we’ve got a gung-ho, high-morale organization. We’re all on the same mission.”

Low-Risk, High-Result Marketing
[SCA Promotions]

Cash and prize giveaways have long been woven into the fabric of casino marketing. The big-money giveaways tend to give casinos some of the best chances to increase play and grow their databases.

Not everyone can afford such costly promotions, though, and even some who can afford to back the big prizes consider it too risky to the bottom line to offer millions in promotional prizes without a guaranteed return in increased business.

That’s where SCA Promotions comes in.

Founded in 1986 by 11-time world bridge champion Bob Hamman, SCA found success underwriting life-changing prizes for promotions in a variety of industries. By 1996, it was obvious the same underwriting services would benefit casinos—particularly smaller casinos seeking a low-risk way to offer multimillion-dollar promotional prizes.

Bob Brian, SCA’s vice president and founder of the company’s casino division, says Hamman—who is still the company’s CEO—became known for entertaining promotions that carried low risk, particularly in sports, where SCA was soon the market leader with now-famous events like basketball halftime contests to sink a basket from half-court for $1 million.

“He was in the life insurance business, he was a gamesman, and he was a bit of a gambler,” recalls Brian, “and he was able to combine his interests to pioneer this little niche of underwriting life-changing prizes for many different industries.”

That little niche soon became big, and has grown to make SCA one of the industry leaders in promotions of all kinds. Companies ranging from radio stations to auto dealers to banks to bars and restaurants were soon using SCA to back big-money promotions designed to drive foot traffic and, ultimately, sales.

And of course, a sizable chunk of that business has been with casinos, through a gaming subsidiary officially established in 1996. That division grew out of a move into casinos two years earlier, headed by Brian, who says he knew early on that SCA’s business model would fit well with the gaming business.

“I decided there was a natural fit between the psychographics of the gaming customer and the sales benefits of these life-changing prizes,” he says. “In 1994, we moved into the gaming space.”

In the ensuing years, SCA established itself with memorable promotions across the casino industry. One of the big successes early on, recalls Brian, was the “Safecracker Sweepstakes,” created for the Atlantic City Tropicana. Once a day, player’s club members would swipe their cards for a chance to guess eight random digits in a “combination” to a safe containing a cash prize of $10 million. New members also would get a chance to guess the combination.

The odds, of course, were prohibitively long—the prize never was won—but SCA’s underwriting of such a large cash prize allowed the Trop to milk the promotion for loads of entertainment value, complete with a huge safe in a public concourse area. The promotion generated a steady stream of new customers and new player’s club sign-ups.

Other famously successful promotions followed, from having players “e-mail themselves a million”—a chance at a million-dollar prize that happened to give a casino’s player’s club a new database of e-mail addresses—to promotional game shows held in showrooms or on casino floors, to free pulls on promotional slot machines with million-dollar top prizes, in exchange for signing up for slot clubs.

“Typically, we would do a free pull on a million-dollar slot machine, with the prize backed by us, to hopefully motivate a lot of new players into the casino,” Brian explains. “Originally, I anticipated that by using the giant jackpot prize model, I could help smaller operators level the playing field against larger ones.”

The larger operators, though, soon began to learn the benefits to be had by running a big-time promotion without assuming all the big-time risk. “I was surprised at the response I was getting almost instantly to my marketing efforts,” Brian says. “I was a one-man department based in Dallas—not exactly a gaming Mecca! But my marketing efforts got response from the smallest operators to the largest. Relatively rapidly, we got interest from the older names on the Las Vegas Strip. And executives at Station Casinos, which was bursting at the seams in those years, appreciated being able to outsource some small part of their marketing and leverage their fixed budget for other costs.”

Along with a core team of less than 10 marketers, Brian put together a casino division for SCA that has worked with over 300 properties in North America, South America, Europe, Australia and, most recently, Macau, to stage more than 3,000 gaming promotions, paying out over $70 million in cash and prizes while assuming more than $850 million in promotional risk over the years.

Creativity and Agility
The reason for SCA’s success in the casino industry has been a combination of creative promotions and an agility that has allowed the company to quickly respond to changing market trends.

Brian says his team learned early on that a promotion needed to be more than “pieces of paper to cover a jackpot”—they were shows, designed to draw patrons to a casino and keep them there. As such, SCA almost single-handedly made the game show theme a staple of slot club promotional sweepstakes events.

“We’ve run some pretty big game shows across the country,” he says. “We’ve filled the 1,200-seat showroom at Pechanga on at least 30 occasions over the past several years. We run the whole show—it’s a scripted promotion, for which we provide the set, and the staff to run it.”

One of SCA’s more recent efforts has been on the technology front, developing turn-key kiosk-based promotions and the hardware to make them happen. Brian says a new kiosk platform the company is launching next year will “blow people’s socks off.”

“Our promotional kiosk platform will enable the operator to employ a full range of capabilities that heretofore have never existed in a single device,” Brian says.

The current economic slump has not slowed SCA down—it has changed the prizes involved in the company’s promotions. “Because of the gloomy economic conditions, there’s been a desire by some of my clients to offer financially transformative experiences to players,” Brian explains, “whether it’s a fill-up of the gas tank with a free gas card, tax-free income for the rest of your life… A payoff of your mortgage has been a popular theme lately! It all fits our business model.”

That’s not to say the economic crisis has left SCA untouched. According to Brian, this is the first year in the company’s history that it has seen only single-digit revenue growth—a problem a lot of executives would like to have in these times.

One real advantage SCA has is its size. Though the company has backed billions and actually paid out more than $159 million in cash and prizes over the years—not to mention developing new promotional technology, running game shows and developing a host of new ideas that are still being used across the industry—it has done so with a remarkably small workforce (only 65 employees in the main Dallas headquarters, for example).

“As a smaller company, we’ve been able to remain agile,” Brian says. “We’ve been able to respond to market opportunities and to our customers in real time, instantly. I think larger organizations can find that much more difficult to achieve.”

So, the next time you’re in a casino and are asked to swipe your card for a new house, or go up on a stage and answer questions for a shot at millions, or guess a safe combination for tens of millions, there’s a good chance that promotion was dreamed up by Brian and his small circle of less than 10 marketers at SCA Promotions.

It is quite possibly the most influential handful of marketing professionals in the casino industry.

Trust and Integrity
[Southwest Casino Corp.]

The days following the passage of the Indian Gaming Regulatory Act of 1988 were heady days for tribes and management companies alike. Several companies became rich and famous—Grand Casinos, Casino Magic and others—while most companies struggled to learn what worked for them and their tribal partners.

Southwest Casino Corp. was born during that time. Jim Druck was a lawyer at the time, working on a charity board set up by one of the major players in Minnesota gaming.

“We thought it was prudent social policy, and when in 1992, an opportunity was presented to us, we made a career change,” says Druck of himself, chairman of Southwest, and his partner, company President Tom Fox.

In 1993, Southwest was the first company approved by the National Indian Gaming Commission to manage a casino for the Cheyenne and Arapaho Tribes of Oklahoma for a gaming facility in Concho, Oklahoma.

Druck says Southwest had to figure out how to work with the tribe as well as navigate the regulatory process. He says the tribe was the most important element.

“We had to establish a trust relationship with the tribal government,” he says. “But we dealt with the people, as well as the government, getting to know the people. We wanted to know what their individual goals and aspirations were, along with the government’s directions. It was very rewarding to do it that way.”

The experiment did not end with the tribal agreement. Southwest then had to work with a nascent NIGC to determine how the process would progress.

“We understood the IGRA well,” Druck says, “and helped the NIGC create the systems they ultimately used to evaluate the management contract. We showed them how to do background checks and engaged a private detective to do a background check on our company, which became the format they eventually used. Most of all, we were relentless in working for the tribe. And they just got sick of us and passed us through as quickly as they could. We’ve been true to their rules and haven’t taken short cuts that some other companies have. We’ve been true to our commitment to them, and I think they’ve always respected that.”

Southwest’s trailblazing efforts were recognized recently when founders Druck and Fox received a career achievement award from the Oklahoma Indian Gaming Association. Druck says it was the technological innovations that really made a difference.

“We had to create electronic systems and bingo systems,” he says. “We had to battle regulatory agencies over the scope of gaming, so we were a leader in that area. We pioneered the first legal electronic games. We helped create the first linked bingo game and had the first fully electronic bingo hall when we first opened. And that pattern of innovation has continued.”

Operations and Opportunities
Today, Southwest operates several casinos and card rooms:  Gold Rush and Gold Diggers in Cripple Creek; Running Aces Harness Park, outside of Minneapolis (in partnership with MTR Gaming); and an agreement to help develop and operate the casino at the Palace Resort in Punta Cana, Dominican Republic. The resort will eventually host 1,800 rooms, many restaurants, a golf course and other outdoor recreation. Southwest will operate the nation’s largest state-of-the-art casino, with up to 1,000 slots and 50 table games, as well as a race and sports book.

The Dominican Republic is the best-kept secret of the Caribbean, Druck says.

“The food is cheap, traveling is inexpensive, it’s safe; the resorts are full-service, with the casinos as just an amenity,” he says. “We’ll be one of the first to go after it as an independent, stand-alone casino market. We’ll have full junket programs and the ability to issue comps just like any casino.”

Druck says the company is constantly looking for opportunities, and it can do anything.

“We’ve done several startups,” he says. “That includes developing a vision for a property, drawing up plans and full development services.”

As a small company, Southwest has the ability to respond quickly and produce results, according to Druck.

“We have developed a ‘SWAT’ team of multi-disciplines that we send into a distressed casino to look at every single area of an operation,” he says. “Then we make suggestions on adjustments and changes that can quickly address some of the problems the property is experiencing. And we’ve been very successful in that arena.”

With the large companies in trouble, Druck believes there is an opportunity to acquire some of their smaller, under-performing properties.

“Properties can become orphans in a company,” he points out. “Personal attention can really turn it around very quickly. What’s going to be challenging for us is access to capital.”

If they can line up a steady stream of investment, Druck believes the sky is the limit.

“I believe we have the knowledge and experience that are important in this business,” he says.
“We’ve been schooled in the hard knocks and have the poise now to capitalize on opportunities that are going to be forthcoming in the next year or two. In five years, I believe we’ll be many times this size, operating mid-sized properties scattered around this country and in the Southern Hemisphere.”

But it is the credit crunch that is really impacting the business today. Last month, Southwest was forced to restructure its ownership of Running Aces because of problems servicing its debt. The company turned over its equity in Running Aces in exchange for another infusion of capital, with the understanding that Southwest can re-acquire the equity next year. Fortunately, Druck says the deal was accomplished without acrimony.

“It comes down to our respect for the property, the employees, the community and those that put money into the project,” he says. “We put all of them first. They all saw that, and that’s why I believe we were able to strike the arrangement we have with our lenders, Black Diamond, and why we expect to be back in the property nine months from now.”

Walking the Walk
Communication is the most important aspect of successful borrowing, says Druck.

“The most important part of any relationship with lenders is to keep them informed and up to date on what is happening with the property,” he says. “In the process, we earn their respect and develop relationships that have served us well.”

With such diverse partnerships, Druck says Southwest concentrates on the one thing that is important to them all.

“We are partners with a family, a government and a mid-cap gaming company,” he explains. “They are all fundamentally different, but they have the same basic expectations: honesty, hard work, a commitment to the vision and good reporting. We’ve tried to understand the specific needs of those different kinds of groups and meet them, but in the final analysis it comes down to our core value of integrity. They don’t have to worry about getting a fair count or getting a hard day’s work.”

Southwest is a small company that behaves like a large company when it comes to responsible gaming and corporate social responsibility. Druck is proud of helping the Cheyenne and Arapaho tribes reclaim an important piece of land that was a crucial part of their history.

“This was the site of the 1860 Sand Creek Massacre,” he says, “where the Colorado militia wiped out women, children and elder chiefs. The site was in private hands and slated for development, but the tribe had been trying to acquire it for decades. Several years ago, we purchased that land and donated it to the tribe. It is now a national historic monument to that horrible event.”

For a small company, these kinds of expenditures are expensive and not required, but Druck says they are necessary, especially in the case of responsible gaming.

“We’re in locals markets and competing with dinner and a movie, tickets to baseball or football games,” he says, “so we have to be responsible. We have training programs to identify patrons who are having a difficult time. We provide social interaction where necessary and have self-exclusion programs we support.”

Overall, says Druck, companies need to understand that it’s just the right thing to do.

“We’re all on this planet together and if we don’t have a commitment to one another, then we have nothing.”

Worldwide Focus
[Century Casinos]

Century Casinos is a different kind of small company. Having operations on three continents is not usually the image brought to mind by the qualifier “small,” but in light of the company’s international roots it makes perfect sense.

Originally known as Century Casinos Management, the company was created by five partners who had cut their teeth in the international division of Casinos Austria. The plan was to come to the U.S., where the casino industry was spreading from state to state, and put their expertise in startups to use. After a couple of opening moves, the partners incorporated in 1994. Among the five original directors were current Century Casinos co-CEOs Erwin Haitzmann and Peter Hoetzinger, and online operator Bwin’s co-CEO, Norbert Teufelberger. Today, the company is listed both on NASDAQ and the Vienna Stock Exchange.

Beginning with startup capital of $1.7 million in 1992, the enterprise has grown to ownership of or participation in 14 casinos and management of operations on several cruise ships. In 2007 the mix produced $91.7 million in revenue, $21.1 million in EBITDA and net earnings of $4.9 million.

Haitzmann, who is also chairman of the board of Century Casinos, began his industry career as a dealer at Casinos Austria and ended up leading that operator’s international division for 11 years. In that time Haitzmann’s team expanded the international group from two to 101 operations on land and sea.

Hoetzinger, vice chairman of the board and president of the company, started out serving as Haitzmann’s deputy head at Casinos Austria. While there he also served on other supervisory and management boards of Casinos Austria subsidiaries.

“We had been in charge of 101 casinos in 20 countries, spread out over Eastern Europe and South America, all the way to Australia,” says Hoetzinger of their time at Casinos Austria. “So we founded Century Casinos with quite a good deal of international experience.”

Colorado Gamble
The modern version of Century began to take shape in 1996 with the acquisition of Womacks Saloon and Gaming Parlor in Cripple Creek, Colorado. Womacks was then combined with Century’s existing adjacent casino, Legends, to become the second largest property in Cripple Creek.

With a steady revenue producer now established, Century began to look to its international roots for opportunities. In South Africa, the government had decided it would issue 40 new casino licenses. After a couple of false starts with joint ventures, in spring of 2000 the company finally succeeded in winning a license in Caledon, in the province of Western Cape. Century initially held a 50 percent stake in the Caledon Casino, Hotel & Spa, plus a 10-year agreement to manage the casino. Toward the end of 2000, Century increased its position to 65 percent.

In the meantime, a separate effort begun in Central Europe had succeeded a year earlier. The license for the Casino Millennium in Prague, Czechoslovakia, was obtained for a joint venture with a subsidiary of a major European construction firm. Century owned only 49 percent of the project but secured an exclusive 20-year service agreement with the majority owner.

Things at Century moved along steadily for the next five years. Management continued to explore opportunities in various countries and at sea, participating in what turned out to be temporary positions in some ventures and lasting projects in others. Gradual upgrades and expansions were performed at the existing properties. Revenue showed a generally upward trend, growing from $29.5 million for 2001 to $37.5 million for 2005. Net earnings increased steadily as well but by a greater percentage, from $2.5 million to $4.5 million.

Then in 2006 a number of long-term projects came to fruition. In April, Century’s South African subsidiary completed the acquisition of a 60 percent interest in a second South African casino. In June, Century’s Austrian subsidiary announced it had signed an agreement to purchase a company in Poland, which controlled 33.3 percent of the Casinos Poland group of seven casinos and one slot casino. In July, back in Colorado, the company opened its second casino and hotel, of which it owned 65 percent, in the town of Central City. In November, in Alberta, Canada, the new Century Casino & Hotel opened in the city of Edmonton. And capping the year, in December, was the official opening of the new resort facility at the Century Casino Newcastle in South Africa.

The effects of the new additions were clear to see in the 2006 results.

With a full year of the 2006 additions contributing to revenues, plus partial-year income from improvements made in 2007, gross results again were impressive. Revenue climbed 63 percent and EBITDA 67 percent. Net income, however, was down 35 percent, primarily due to increases in depreciation and net interest charges related to the opening and financing of the three new casinos the year earlier.

The business philosophy of Century Casinos is related somewhat to the size of the company, but there seem to be other factors at work as well.

“The smaller, mid-size that we have offers us flexibility and speed and opens up quite a nice niche,” says Hoetzinger. “There are very few companies that are internationally active that don’t mind working hard for a casino that generates $7 million or $10 million in EBITDA a year. And we are also a listed company on the Vienna exchange and NASDAQ, which makes us transparent and easy to check out for partners or for licensing authorities. There are some local guys who compete for new licenses in some places, but there are not many companies out there that do what we do on a broad, international basis.”

Hoetzinger also recognizes the limitations of being a relatively small company, saying, “The size hinders in a way that we can’t really compete with the very large Singapore- or Macau-type developments.”

For financing of projects, Century looks to the areas where they are developing a given property.

“Our approach is to first look at local funding for projects,” Hoetzinger says. “For example, our Colorado properties we have funded through a credit line with Wells Fargo. Our property in Edmonton we did with a local Alberta-based Canadian Western bank. The projects in South Africa we did with South African banks.

“We like the local approach very much, not just in starting the project and developing the project but also in terms of putting the emphasis on what the locals want in terms of the product and the design. So everything that we try to do is with the interaction of locals.”

Corporate Challenges
The current year—especially the last few months—has been as challenging for Century as for everyone else. However, the business of doing business has continued.

In January, the company acquired the remaining 35 percent of the Central City casino.

In Poland, the two other shareholders in Casinos Poland announced they are seeking a buyer for their combined 66.7 percent stake in the group. Century is interested and continues to explore a deal.

In South Africa, the company announced in September that it had received “a number of verbal indications of interest” to sell all or part of its two properties there, and was awaiting written proposals.

As for the next move?

Says Hoetzinger, “We are looking at some projects in the Eastern European states of the E.U. Also, we believe that North America offers some interesting opportunities, because the prices have come down. We want to be players in expanding and I believe that it won’t take too long until we see some M&A activity in North America in the casino industry.”

Mr. Fix It
[Ellis Gaming]

The business model Shawn Ellis has set up for Ellis Gaming works even in bad times—in fact, it thrives in bad times.

While Ellis would downplay the significance of the term, he is genuinely a “turnaround” artist. And that’s why the current state of the economy has kept his company very busy, with its most grandiose scheme, a multibillion-dollar casino resort on the southern end of the Las Vegas Strip—owned by a coalition of Indian tribes—on the back burner for now.

Ellis got his start in tribal gaming as a part of a team that went into the casino owned by the San Pasqual Band of Mission Indians in California. The casino was in default and Ellis, along with Las Vegas legend Tony Marnell and his son Anthony (who will open the M Resort in Las Vegas in March), immediately dissected the problems.

“It was a tough situation where they took some very expensive money,” says Ellis. “That’s where we came in. Mr. Marnell was fantastic. He and his son helped get the tribe straightened out with refinancing. They are friends of mine to this day. And we still do business with San Pasqual.”

Ellis’ experience with tribes starts from his childhood, growing up in Alaska, so interacting with gaming tribes was second nature to him.

“I had dealt with tribal people my entire life,” he says. “That helped me hone my skills.”

After forming Ellis Gaming, tribes have become his principal clients. Ellis has completed at least five management contracts with tribes, mostly west of the Mississippi. The company has no owned operations, but he says he enjoys tribal gaming so much, he decided to concentrate on it.

“We start with consulting and produce results for them, and it turns into management,” Ellis explains. “We call it an extended interview because we look to see if it’s a tribe we can work with and they have the same opportunity. Sometimes it’s difficult—too difficult—to work with a tribe, so we fire ourselves.”

Tough Love
Because most of the situations into which Ellis Gaming is called are troubled, there can be tensions when the company submits its recommendations.

“We find ourselves having to be the bad guys,” he says. “We come in and tell them ‘here’s what you have to do immediately to fix things and keep your business out of default.’

“Troubleshooting is our most important service right now. Marketing comes on the heels of that, and training, re-training and cross-training the people who are left follows that. We cut right through it and give them answers very quickly. That’s what is required in this market.”

Ellis says he enjoys the business because it is challenging and rewarding at the same time.

“I call it ‘business unusual’,” he says. “I find it very positive. There’s almost always a Bell Curve. The first couple of months, you’re on the honeymoon. Then you’re not liked very much for a few months. If you’re not careful, that’s when you go away. So you can’t plan on settling in at that point. If you get through that phase, you normally have a long period where everything goes right because you’re producing and showing the right numbers. But then the tribe has its next election and the people you’ve been working with may get voted out. And you’re back on the curve again.”

And most unusual, says Ellis, you’re not going to be around long in any case because part of his company’s responsibility is to train tribal members to run the business.

“The nature of tribal gaming is that you’re with the tribe for a number of months or years and then they move ahead on their own,” he says. “It’s a rewarding feeling when you move on to your next project.”

Many companies that once managed tribal gaming operations are now turning their attention to other ventures, says Ellis.

“That’s why there’s only a few of these businesses that have been successful,” he points out. “The most difficult thing that I have to do is go to the tribe and explain that we’re going to work ourselves out of a job. But that’s a good thing, because you move to the next tribe and you leave behind tribal executives who can effectively manage the business because of what they learned from you. And that’s the reason I’m in the business. You want to make money but you also want to change lives, and I think we do that.”

And that’s the reason Ellis finds his work rewarding.

“I could make more money owning my own casino and grinding it out every day,” he says, “but I love being able to go in, help people and leave things better than they were. Some people disagree with that because when you go in, you have to make changes. And changes are sometimes very difficult for tribes because they’ve lived and worked together for their whole lives. Sometimes people have to go their own way and you have to help them go their own way.”

Financial Foundations
Because Indian gaming is often more about the tribe and its members than economics, Ellis explains how the work of his company is appraised.

“The bottom line is the first and most important thing that we look at when we’re being evaluated on what we delivered,” he says. “In this economy, where some jurisdictions are down anywhere from 10 percent to 30 percent, we’re up in our consultations around 20 percent, which we think is a direct result of our training. Financial results are the first criteria, but then quickly followed by ‘are you really training people who can take over.’ For some tribes, that factor is just as important. And I think we measure up in both categories.”

Ellis says he tries to find people who have experience beyond the gaming industry to bring new ideas to the table.

“We’ve got a fantastic group of people who are experts in training, marketing and all the disciplines,” he says. “They’re from outside gaming so they take different approaches. We think they make the difference when tribes hire us to do their training.

“If you hire all traditional gaming people,  you tend to go down that path. But if you hire people who have a wider range of experience, you’re able to think outside the box.”

Ellis also likes to work with tribes because the smaller casinos can implement changes and recommendations much more quickly than a larger casino or a big company.

“Tribal people are more willing to accept change,” he explains. “And that’s because the decision-making process in tribal gaming is fairly quick—much quicker than in commercial gaming. New technology is a case in point. It’s approved relatively quickly… or it’s not. Then you move on. I’m not sure if one is more effective or creative, but it is easier to make decisions in tribal gaming.”

With the difficulties in the financial world today, Ellis is pleased that, for the most part, he doesn’t have to worry about that. Tribes either already have financing or a bank recommends that the tribe hire Ellis Gaming to evaluate their operations.

“We work with a number of banks that lend in this space,” he says. “For example, Marshall First Bank out of Minneapolis is one of the leading lenders in Indian Country. It helps us to have the management in place that gives banks confidence to lend money to a particular casino. But for the most part, the deals stand on their own.

“But once in a while, we put tribes together with lenders.”

For the ultimate Las Vegas project, Ellis says lenders have already committed to financing the development, but they are waiting for an economic turnaround to begin construction.

“We’ve got money raised for this purpose in Las Vegas,” he says. “We have three tribes that have committed with hard financing. It’s the future that tribes will come to Las Vegas.”

If working with one tribe can be difficult, Ellis says working with multiple tribes in this development has been easier because he’s honest with them about the development and their roles in it.

“The tribes respect you when you’re real direct,” he says. “And that’s the way we’ve been with these owners, or shareholders as we call them. They liked that and they jumped right in.”

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

    Recent Feature Articles

  • Creating Confidence

    Integrity monitoring in sports betting is crucial, and it’s working

  • Brazil: Ahead of Regulation, at Last

    After years of delays, Brazil and its potentially huge legal market are finally on the horizon. With Brazil being described as the “flavor of the month,” how is the market developing ahead of regulation?

  • The Seminole Model

    The U.S. Supreme Court upheld the Seminoles’ Florida compact giving them a monopoly on sports betting. Can other tribes benefit?

  • Dog Eat Dog

    How Maryland’s legislative defeat has rehashed the question of cannibalization between land-based and digital gaming

  • Smoke on the Water

    Non-smoking trends on the I-5 Corridor in Washington