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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gambling Beyond Las Vegas: What's Based Here May Not Stay Here

24 January 2005

From the window of his Hughes Center 18th floor office, Pinnacle Entertainment Chief Executive Officer Dan Lee has a superior view looking down toward the heart of the Strip.

But when Lee wants to check on one of his company's nine casino projects, he either clicks onto an Internet webcam or hops on an airplane. Pinnacle Entertainment leases almost 16,000 square feet of prime Las Vegas office space for its corporate headquarters, but the company's nearest casino is about 475 miles north, just outside Reno.

A few Hughes Center buildings over, all executives at Ameristar Casinos' corporate headquarters have bookmarked online reservation sites for major airlines serving the Midwest.

With the company's flagship resorts in Missouri, and its two Nevada properties tucked into Jackpot near the Idaho border more than 400 miles away, Ameristar officials know visiting one of the company's properties isn't a trip around the block.

"There is good air transportation out of Las Vegas," Ameristar Executive Vice President Gordon Kanofsky said. "It's really a transportation hub to our properties."

Despite a touch of inconvenience, executives from Pinnacle and Ameristar, two of the gaming industry's fastest-growing regional casino operators, enjoy having their corporate headquarters in Las Vegas. Neither company operates a Strip hotel-casino, or any property in Southern Nevada, for that matter.

Both corporations are heavily focused on the booming gaming markets of the Midwest.

Pinnacle's flagship resort is the Belterra Casino in Indiana, about an hour from Cincinnati and Louisville and within an easy drive of nearly 5 million people in a 100-mile radius. A $37 million expansion that was completed last May increased Belterra's hotel capacity to more than 600 rooms.

The company also owns properties in the south and is planning a May opening of the $365 million L'auberge du Lac, a destination resort, casino and golf course complex on 227 acres in Lake Charles, La., about two hours east of Houston.

Last year, Pinnacle was chosen by both the city and county of St. Louis to build two casino-hotels that will open in 2006 and 2007, with a total cost of more than $500 million.

Ameristar operates two resorts in Missouri: Ameristar St. Charles near St. Louis and Ameristar Kansas City, which have twin 130,000-square-foot gaming halls and various entertainment attractions.

The company also operates Iowa's largest riverboat casino in Council Bluffs and recently spent $117 million to purchase Colorado's largest casino, the Mountain High in Black Hawk, which will undergo a $90 million remodeling and will be renamed Ameristar Black Hawk.

In December, Ameristar announced plans to open a joint-venture casino and entertainment complex in the United Kingdom with a British arena developer once that country deregulates gaming.

In their most recent financial reports covering the third quarter of 2004, Ameristar reported total revenue of $215.7 million and Pinnacle had total revenue of $141.6 million.

Despite having the bulk of their activities some 1,500 miles from corporate headquarters, both companies believe it's easier to be in Nevada.

"When it comes down to it, you need to be in Las Vegas," said Lee, who engineered Pinnacle's move from Glendale, Calif., in 2002. "When the analysts come through to meet with some of the larger gaming companies, they'll stop by and visit with us. They don't have to make a separate trip to Los Angeles."

Lee added that the architects and designers for the company's venture in Lake Charles are all Las Vegas-based businesses with vast résumés of gaming industry experience.

"The leading-edge hotel designers are in Las Vegas and it makes perfect sense to be right here in the center of the industry," Lee said. "If I need to talk with our architect, Joel (Bergman) is right down the street. I can meet with the interior decorator at his offices over on Warm Springs. We get our slot machines from Reno (at International Game Technology). Everybody we need is right here in Nevada."

Kanofsky said Ameristar has found similar reasons to have a Southern Nevada address.

The company moved its headquarters to Las Vegas in 1996 from Twin Falls, Idaho, hometown of Chairman Craig Neilsen, when construction began on an Ameristar hotel-casino in Henderson. That property, then known as The Reserve, opened in 1998 but was subsequently sold to Station Casinos in 2000 as part of the deal to purchase what are now Ameristar's two flagship Missouri casinos.

Still, there was never any doubt about keeping the headquarters in Las Vegas.

"It's been an important move for our company because it puts us in the main location for gaming and on everyone's map," Kanofsky said. "Being in Twin Falls wasn't very convenient for our analysts and even our outside auditors, who were in Los Angeles. Now, they're just 45 minutes away by plane."

Deutsche Bank gaming analyst Marc Falcone, who works in New York and frequently visits Nevada, said being in Las Vegas enhances both companies' images.

Even without a Strip casino, it's important for any gaming operator, he said, to have headquarters in the nation's gaming capital.

"From employees to the services needed to build a casino, Las Vegas is the best location for those important aspects," Falcone said. "(Pinnacle and Ameristar) are two very good regional casino operators, and there is no drawback because they aren't headquartered where their casinos are located. It makes sense for them to be in Las Vegas."

Both companies had to uproot the lives of some corporate employees to make their moves. Many employees chose to remain in their previous cities and found new jobs. But company leaders also foresaw a job pool rich with gaming experience.

Lee took over Pinnacle, once known as Hollywood Park Entertainment, when the business direly needed experienced gaming leadership. Lee, who spent several years as an analyst on Wall Street and six years as the chief financial officer for Mirage Resorts under Steve Wynn before MGM Grand bought out the company, had handpicked his general counsel, but the attorney couldn't move from Las Vegas to Glendale, Calif.

"That's when I realized that we needed to move Pinnacle to Las Vegas," Lee said, admitting he "agonized" about completing the decision for about six months because he knew the move would disrupt some lives. "The company was at a point where it needed a general counsel with a vast amount of gaming experience. There are good attorneys in the Los Angeles area, but no one with the hands-on gaming experience in Las Vegas."

In all, Pinnacle employs about 150 workers in its corporate offices, most of whom joined the company after the move. Ameristar has a similar-size staff in Las Vegas, and Kanofsky said only about 25 have remained since the transfer.

"There is obviously a good employee base in Las Vegas with individuals having tremendous gaming experience," Kanofsky said.

Neither company would rule out some day operating a casino on the Strip. But both realize the investment may be above their current financial capacity.

Soon after he was named Pinnacle CEO, Lee, who was involved in developing Mirage Resorts' three largest projects during his tenure as CFO, tried to engineer a purchase of the bankrupt Aladdin for a bargain-basement price.

Lee said the company dropped out of the bidding when the price went higher than it could afford.

"Steve (Wynn) is spending $2.5 billion on his property," Lee said. "Our company's cap would be about $500 million and what is that going to get you in Las Vegas? In St. Louis or Louisiana, that money can build you the best property in that particular market, and that's our goal."