How important is a CEO to the success of a company as an investment?
Obviously, a CEO is more important than anyone else in the organization, but he—or she—also can be limited by outside events, as a lot of investors discovered in the 2008-2009 financial meltdown.
Sometimes, timing is everything, as TJ Matthews and Patti Hart can attest after taking the helm of IGT at its peak with no more market share to reasonably gain and losing important product monopolies.
Then there are entrepreneur CEOs, visionaries with the strength of will and persuasiveness to create from the beginning.
Two obvious examples are Steve Wynn and Sheldon Adelson.
Investors have had three opportunities to ride from the bottom to the heights with Steve Wynn—with Mirage Resorts, at the Wynn Resorts IPO, and after WYNN stock plunged along with all the others in the financial meltdown of 2008 and 2009.
Wynn’s particular vision that he adheres to without deviation is creating the highest-quality resorts in the industry, sparing no detail.
Investors who have gone along with him have been well rewarded. WYNN went public in 2002 at $13 a share. The company in recent years has paid dividends that cumulatively have been greater than the initial stock price.
And even though WYNN stock has tumbled in a weakened Macau, shares are still eight times the IPO price and the current dividend is a 15 percent yield on that price.
Adelson’s vision has been the integrated resort combined with sheer scale at Las Vegas Sands.
The stock has traveled a similar trajectory to WYNN, rising and then plunging on Macau. It has not rebounded as much as WYNN, but twice its IPO level, and pays a dividend that yields 8 percent from the IPO, and 4.7 percent at current prices.
One of the hallmarks of the visionary CEO is the will to hold true to the vision, regardless of the loud demands of others when outside events cause things to go wrong.
Wynn and Adelson are sticking to their respective visions in Macau. The future will tell whether this time they are mistaken. The past suggests their steadfastness will be rewarded.
Pinnacle And Anthony Sanfilippo
Small companies that hit upon hard times offer opportunities for CEOs to make dramatic changes for the better. Consider Anthony Sanfilippo at Pinnacle Entertainment (PNK).
On the day Sanfilippo was announced as PNK’s CEO on March 14, 2010, the stock was $8.64. It is now around $40.
More important than the return is the way it has been achieved, because Sanfilippo has performed in a way that suggests there’s more to come.
Sanfilippo has covered his bases, such as buying into Retama racetrack in San Antonio, both a defensive move if Texas legalizes casinos to compete with PNK’s Louisiana properties, and an offensive move—owning what might be the only casino in a major metro would be a gold mine.
He has taken chances, such as investing in the Ho Tram resort in Vietnam, an opportunity that PNK has written off.
He has executed on the major acquisition of Ameristar, which promises to contribute to profit growth for a long time to come.
And Sanfilippo has shown the ability to be opportunistic, first declaring that PNK would unlock the value of its real estate by creating a REIT, and then being flexible enough to negotiate a good deal when Gaming & Leisure Properties came along and offered to be the REIT vehicle for Pinnacle.
It is the GLPI deal that has driven the stock over $40, and PNK says it values the company at $47 a share.
It should be mentioned that the Ameristar purchase made PNK that much more of a candidate for a REIT conversion.
A few years ago, I wrote that Sanfilippo could be one of the best CEOs ever in the gaming industry.
His focus on team-building, positive attitude, commitment to making PNK the best company in the industry, and his early moves such as at Retama and in Vietnam were the convincers for me. It didn’t hurt that he had a track record as a regional leader for Harrah’s and as CEO of Multimedia Games.
Bob Evans And Churchill Downs
Bob Evans might have been the most unsung CEO in the gaming industry during his tenure at Churchill Downs (CHDN).
Evans took over a company in 2006 that for years appeared to be run more for the blue bloods in the Sport of Kings than for its shareholders.
Evans did more than change that. He transformed Churchill Downs from a horse-racing company to a diversified gaming company, yet one that has protected and nurtured its prize possessions, the Kentucky Derby and its historic namesake racetrack.
A stock around $35 a share in Evans’ early CEO days is now around $135 as he has transitioned from executive chairman to plain chairman of the board, and as current CEO Bill Carstanjen has finished his first year at the top.
The evidence of the revolutionary change was clear in CHDN’s second-quarter earnings report. Racing comprised just 37 percent of revenue, even though the quarter included Kentucky Derby week.
The second biggest source of revenue and EBITDA was Big Fish, the rapidly growing online social gaming company. In the three racing-light quarters of the year, Big Fish will be the Big Fish at CHDN.
The third largest producer was casinos, with $28 million in EBITDA just $200,000 shy of the Big Fish contribution. Casino revenue was zero when Evans took over.
Though Evans has retired, the management team that created the new Churchill Downs remains. And he will stay as non-executive chairman. We suspect the record of success for shareholders will continue.