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Best of Liz Benston

Gaming Guru

Liz Benston

Station Acquiring Locals Casinos in Henderson

29 March 2004

Station Casinos Inc. announced an agreement Friday to buy two small casinos in Henderson, a deal that gives the company six locals casinos in the region.

Company officials declined to disclose the purchase price of the Magic Star Casino on Boulder Highway and the Gold Rush Casino, located on the corner of Sunset Road and Marks Street. But the sale is expected to top that of the Wildfire Casino, a small Las Vegas casino on Rancho Drive the company purchased last year for around $10 million.

The 11,000 square-foot Magic Star Casino has 191 slot machines, a sports book and a restaurant. The Gold Rush is 8,600 square feet and features 179 slot machines, a sports book and restaurant. All of the 200 or so employees and managers on the properties will remain in place. Both will keep their names and be operated separately from other Station properties.

"These acquisitions will allow us to enhance our ability to serve the niche market of customers in the Henderson area who prefer to gamble in a smaller, more intimate environment," said Chief Operating Officer Steve Cavallaro.

The company cited similar reasoning for purchasing the 20,000 square-foot Wildfire Casino, which is dwarfed by Station's Fiesta and Texas Station casinos in North Las Vegas.

One obvious benefit of the deal for Station is securing the Gold Rush site, which is next to the company's Sunset Station property, analysts said.

One insider who declined to be named said the Magic Star came along as part of the deal to buy the Gold Rush.

A securities analyst agreed that expansion of Sunset Station is potentially in Station's long-term plans.

"The longer-term opportunity would be to have a more seamless master-planned development on the Sunset Station site," bond analyst John Mulkey of Bear, Stearns & Co. said.

Deutsche Bank Securities analyst Marc Falcone said the deals will allow Station to gain market share in the profitable locals market in the short term and redevelop those properties in the long term.

"Station Casinos has always been aggressive in locking in long term growth potential and expansion opportunities," he said. Falcone said he expects Station to expand more aggressively in the locals market after Boyd Gaming Corp.'s purchase of locals competitor Coast Casinos Inc.

Station Chief Financial Officer Glenn Christenson disputed suggestions the deal is being driven by a plan to expand Sunset Station, saying the company already has some 70 acres there available for expansion.

"The real reason (for the deal) is if you believe in the supply-demand dynamic in this market, with limited supply capacity and growing demand, you should probably take advantage of these opportunities when they arise," he said.

The owners of the Magic Star, who also own the Gold Rush, viewed the sale to Station as "good timing" for the property, which faces stiff competition in the locals' market, said Steve McLaughlin, general manager of both casinos.

Both casinos are profitable and do well in their respective locations but reinvestment costs were proving challenging, McLaughlin said.

"There are so many gaming products that come to market so quickly now that it's harder for us to bring game titles to the floor as quickly as we wanted to," he said. "It's harder for the small casinos these days to stay up with things and have the latest equipment. (Station Casinos) will be able to keep us fresh and more up to date on a regular basis because they have the cash flow of a large corporation."

McLaughlin said Station isn't expected to make any significant changes to the properties and Station officials said they haven't yet decided on any changes.

The Magic Star does almost as much business as the Gold Rush, which is located along one of the busiest retail corridors in Henderson, he said. The Magic Star, which offers live entertainment on weekends, attracts more of a swing shift and late evening crowd than the Gold Rush but the two properties are otherwise similar, he said. Both properties are linked to a single slot player loyalty club of about 20,000 people.

The casinos are owned by an investment group that includes Randy Markin, Randy Edwards and Bill Stern. The men will still own smaller properties around town, including The Lift, a small casino pub on Valley View Boulevard.

The casinos will add to Station's four other casinos in Henderson: Green Valley Ranch Station, Sunset Station, the Fiesta Henderson and Barley's.

The Greenspun family, owner of the Las Vegas Sun, is a partner with Station in the Green Valley Ranch and Barley's properties.

Station Casinos is "constantly" evaluating potential deals around town, spokeswoman Lesley Pittman said. The company has no other definitive deals in the immediate horizon, she said.

The company recently purchased about 34 acres of vacant land south of the Nevada Palace and Sam's Town casinos but said the company has no plans yet to develop it. The company bought the land because its long-term option on the land was set to expire.

State law requires gaming regulators to consider any new purchase so that no company has too great a share of the market.

Regulators ask a range of questions about its ability to successfully manage another property as well as the effect of its purchase on competing casino operators, casino suppliers and other vendors, workers and gambling consumers.

After evaluating the competitive impact of the acquisitions, regulators have allowed Station to make several major locals casino purchases over the past few years, including its purchases of The Reserve (now Fiesta Henderson), Santa Fe (now Santa Fe Station) and the Fiesta (now Fiesta Rancho).

Regulators agreed with Station's lawyers, who argued that the company's share of the entire Clark County market, rather than of the Boulder Strip or North Las Vegas markets, was the critical factor to consider when deciding whether a purchase gave the operator too much market power.

Christenson said today that the deals are too small to make much difference in the company's market share when compared with other companies in the Clark County market, including those on the Las Vegas Strip.

Separately, Station Casinos today announced it would increase its quarterly cash dividend by 40 percent to 17.5 cents per share. The dividend is payable June 4 to shareholders of record on May 14.

The increase "reflects confidence in our ability to generate significant, reliable cash flows in the long term," Christenson said.

Some analysts today boosted their earnings estimates for the company and said the move reflected the strength of the Las Vegas locals' market.

Morgan Stanley analyst W. Todd Scott said Station will likely continue to "aggressively increase its dividend" based on the company's ability to generate cash flow.

Station Acquiring Locals Casinos in Henderson is republished from