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Gaming Guru

Richard N. Velotta

Gaming Commission Chairman Urges Protection for Investors

18 May 2005

LAS VEGAS -- The state's top gaming regulator encouraged accountants attending a conference to work with their respective companies to preserve the integrity of the gaming industry.

Peter Bernhard, chairman of the Nevada Gaming Commission, said Tuesday that in an era of corporate scandal it is more important than ever for accountants to monitor the actions of executive officers to make sure that investors are protected.

He marveled at the changes that have occurred in the financing of megaresorts since 1969 when Nevada began changing its regulations to accommodate public ownership of casino properties.

"It's incredible for those of us who have been around the industry for a long time to see all the change," Bernhard told more than 100 financial professionals gathered at the two-day Nevada Society of CPAs Gaming Conference at Wynn Las Vegas.

"The era of public corporations financing resorts has changed the landscape," he said. "It's very difficult today for mom-and-pop gamers to compete. And today, it's very important to have cooperation between the licensees, their professionals and the regulators."

Bernhard gave a history of the shift in casino ownership to the public sector with the adoption of regulations allowing for equity and debt offerings to finance new projects.

The owners of the Stardust, Caesars Palace, the Dunes and the Sahara were the first to take advantage of public ownership regulations in 1969. The number of public companies grew slowly but steadily from four in 1969 to 39 in 1989, Bernhard said. One of the most notable examples of the new era in financing occurred when Drexel Burnham financed the construction of the Mirage with junk bonds.

Bernhard said the expansion of the gaming industry into other jurisdictions made gaming a more attractive investment, with large banks no longer viewing casino loans with disfavor.

Public offerings mushroomed in 1993 when state regulators adopted institutional investor waivers. That allowed institutional groups and funds to invest in casino properties without individual members having to submit to background checks.

The arrival of public companies to the table built a new respectability in the industry, Bernhard said, today, many of the major resorts have a component of public equity or debt. Among them: Wynn Las Vegas, Las Vegas Sands Inc. (owner of the Venetian) and MGM Mirage, which recently helped finance the acquisition of Mandalay Resort Group with public financing.

Bernhard used Mandalay as an example of how the public markets have changed in two decades.

Prior to 1983, William Bennett and William Pennington co-owned Circus Circus. After an initial public offering, they owned 76.4 percent of the company, which held Circus Circus in Reno and the Edgewater in Laughlin in addition to the Las Vegas property. Financing was primarily mortgage bonds ($75 million at 14.25 percent) and notes secured by $64.8 million in real property. The mortgage notes were later registered by the state.

In 1983, an initial public offering underwritten by Drexel Burnham netted $35 million, which was used for general corporate purposes and debt reduction.

The company had a $100 million public offering in 1984 to build hotels in Reno and Las Vegas and a $75 million construction loan was written by Security Pacific Bank for the construction of the Colorado Belle in Laughlin.

Circus Circus Enterprises had another series of notes issues for miscellaneous projects and to refinance more expensive debt. When it came time to build the Excalibur -- at the time the largest hotel in the world -- the company was able to do with cash flow from its existing operations, a strategy that became part of the corporate culture.

In 1994, the company expanded beyond Nevada's borders, building in Windsor, Ontario; Tunica, Miss.; and suburban New Orleans. It also became a partner in the Silver Legacy project in Reno.

In June 1996, the company teamed with Mirage Resorts Inc. to build the Monte Carlo -- another resort funded from cash flow.

By January 1999, the company had established a $2 billion credit facility and was able to use it and cash flow to build Mandalay Bay.