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Best of Howard Stutz

Gaming Guru

Howard Stutz

Companies may be hired to run sold-off properties

26 May 2009

LAS VEGAS, Nevada –- Randall Fine is busy enough right now.

He knows, however, as the financially challenged casino industry weaves its way through restructuring over the next couple of years, his life may become a little more complicated.

Fine, managing director of The Fine Point Group, a Las Vegas-based casino management company, took over operations of the bankrupt Greektown Casino in Detroit in January.

With several casino operators already in some form of bankruptcy restructuring, and others potentially close, Fine and his competition could be called upon to operate casinos that have been pared off by debt-laden casino corporations seeking to shed assets to satisfy creditors.

Greektown, the smallest of Detroit's three casinos, is owned by the Sault Tribe of Chippewa Indians and has been in bankruptcy for more than a year, owing some $777 million to creditors and lenders.

Since Fine's company took over, Greektown, with 2,600 slot machines and 21 gaming tables, has grown its market share 13 percent. Monthly gaming revenues have exceeded projections, blowing past an independently prepared financial plan by 100 percent in April.

"When you're running the smallest casino with the lowest capital expenditures in the market and you pick up 300 basis points in market share, people take notice," Fine said.

Herbst Gaming filed a prepackaged Chapter 11 bankruptcy in March. Prepackaged bankruptcies are Chapter 11 reorganization plans prepared with creditors' cooperation. Company managers work out reorganization terms with creditors before bankruptcy is filed.

When Herbst emerges from bankruptcy, it will be divided into two operations. Herbst will retain its Nevada slot machine route business while its bondholders will gain 100 percent ownership in the company's 15 casinos, including the three properties in Primm and the off-Strip Terrible's Casino.

It's widely thought the new owners will seek a management company to operate the casinos.

"(Casinos) are going to need management," Fine said. "Some of the lenders don't believe they are qualified, nor do they necessarily want to go through the licensing process. When you have a company with a proven track record like ours that has been licensed, we become attractive to these new owners."

Fine, who once oversaw Harrah's Entertainment's Total Rewards customer loyalty program and the marketing efforts for casinos operated by financier Carl Icahn, won't be alone.

Larry Woolf, chief executive officer of the Las Vegas-based Navegante Group, is also preparing for an influx of potential clients. Navegante, which operates the Sahara casino, the Grand Sierra in Reno and three casinos in Elko, is already talking to the casino lending community about management possibilities.

Woolf, who was the first president of the MGM Grand and has been managing casino assets since 1995, said he and his executives were preparing a road-show presentation of his company's capabilities for potential clients.

"The current economic market has created a tremendous opportunity for our company," Woolf said. "Not only can we assist casino investors who do not have gaming experience, we can assist in the licensing process, where appropriate and develop opportunities."

Many gaming executives sidelined during the recent economy or by consolidation from several multibillion-dollar corporate mergers earlier this decade could also find themselves back in the action.

Former Las Vegas Sands Corp. President Bill Weidner, whose noncompete clause with his former company expires in March, expects to receive calls from the new owners.

Weidner, who ran Las Vegas Sands for 14 years and once headed the Pratt Hollywood Casino Corp. in Atlantic City, believes the market shake-up will continue into next year and new ownership groups will emerge.

"There are going to be a lot of changes and people are going to end up owning different assets that they didn't expect to own," Weidner said. "They are going to need someone to run them, someone with experience. So, it would seem logical that there will be plenty of opportunity for people with casino experience."

Greektown is the only casino Fine and his company is now operating as the management team. He is paid a $150,000 a month management fee, but also shares in any profits that exceed the baseline projections.

But that contract could end soon. Two bids have been filed with the bankruptcy court to purchase the casino, including an offer from Penn National Gaming. Greektown's owners must choose one of two paths to follow by June 1, either reorganize under the tribe's ownership or sell the hotel-casino.

Fine's company is also advising other casino clients on marketing. However, he wouldn't mind expanding his universe.

The Detroit casino has become a case study for potential clients.

"We're looking to manage assets across the country," Fine said.

The key for companies like Fine's and Navegante will be the ability to operate multiple casinos in one market.

Fine said he doesn't believe competition in such cases is an issue because such casinos are not direct competitors.

"The Strip is a series of micromarkets," Fine said. "When I was at the Stratosphere, we didn't worry about what the Bellagio did."

Woolf said Navegante operates a casino employee recruitment business with 20,000 potential workers of all categories, including managers, in a database that he could draw upon to staff operations.

He said Navegante's management contracts do not have noncompetes clauses covering a single market. Still, Woolf said he would not want to operate casinos seeking a similar customer base.