Sunday, July 11, 2010

Looking FOR LEVERAGE: Fertittas' Station Casinos Empire Running Out of Time

By: Rich Bergeron

The Fertitta Family is in crisis mode to save Station Casinos from the throes of bankruptcy, and without a solution materializing by Thursday there could be some major trouble brewing for the multi-billion dollar gaming empire.

While the Fertittas are not the only ones who find themselves stuck in the stagnant economy and obliterated by Las Vegas' worst-in-the-nation housing crisis, they are one of the most heavily leveraged casino operators and land-owners in an industry that depends on both locals and tourists alike being able to pay to play.

The Las Vegas Sun got the jump on the situation yesterday by printing a piece about commonly situated Harrah's and Station's different approaches to getting out from under their massive private debt. Sun Reporter Liz Benston described the troubling outlook in no uncertain terms:

"Analysts say Station will likely default on the company’s bank loans by year’s end because it has too much debt relative to cash flow. That could allow the bank to demand repayment, triggering a filing for bankruptcy protection."

The company's new deadline for a debt exchange Hail Mary has been set. They have until 5PM on December 11 to consider all the options on the table. Assets could potentially be sold, and reports have surfaced indicating the Fertitta Family is willing to put their own money to the cause, but they certainly won't be getting any sweetheart deals out of this scenario.

One thing's for sure, Uncle Sam will not be bailing out any casinos.

The Fertittas live in the lap of luxury, and it's not out of the realm of possibility to maintain that lifestyle even despite a potentially ugly bankruptcy of Station Casinos. Right now Frank Fertitta, Jr ranks at #20 on the list of the top 100 property tax payers in the Spring Valley CDP district of Vegas.

Frank's next-door neighbor is none other than former Aladdin Casino owner Jack Sommer, so he has someone one door down who could give him all the casino-related bankruptcy advice he needs should Station Casinos decide to go that route.

Frank Junior's sons live in mansions, too. Lorenzo's got a multi-million dollar house on Greensboro Lane, and brother Frank Fertitta III has the kind of obnoxiously huge spread that is best classified as a complex. Here's a great shot of the manse:

Vegas has been very, very good to the Fertitta family so far, but this economic crunch time comes at the worst possible moment. They are stuck at the apex of their aggressive development and massive expansion of the Station Casinos suburban hot-spot model. The company's strategy of developing huge resort-style casino communities in the suburban areas of Vegas backfired amidst the massive wave of foreclosures in those very same areas.

A town that has seen its fair share of casino implosions is undergoing a major makeover of the strip, evidenced by the recent completion of what is sure to become the next big Vegas spectacle: A GIANT VOLCANO AT THE MIRAGE THAT COST $25 MILLION JUST TO CONSTRUCT. Cranes and crowds of construction workers populate the strip now, fast at work creating a new lavish landscape for tourists to be amazed by.

And for those who didn't want to be spectacles themselves there would always be the off-strip offerings of Station Casinos like the new Red Rock facility and the still unique and secluded Green Valley Ranch--each promising pampering, privacy, and perfect ambiance. Yet, no longer are so many bigwig executives throughout the busted economy able to blow so much money without batting an eye. The out of the way premium stops are being skipped over for the conglomerated and concentrated on-strip locations. Facilities like Red Rock may be obsolete before they even get off and running, but there's no doubt a whole new level of luxury available there:

Green Valley Ranch looks like the kind of fantasy land that makes you forget you're there for the casino in the first place:

By the time the Fertittas cornered the suburban market, the market had suddenly disappeared. Yet, Station Casinos has faced difficulty before, and they'll hang on tight here and do what it takes to weather the rough patch. Industry suggestions that the company will be bankrupt by the end of the year may be premature, but not impossible at this point. If the Fertittas have mastered one thing in the business it is how to make their customers feel welcome. They represent the image of cut and polished business masterminds, yet they maxed out the company's available debt limit with massive senior secured credit facilities based on a gamble that didn't account for any downturns or deep recessions. You almost have to ask at this point if this is another Kansas City Shuffle going on behind closed doors. The way you get maximum leverage is to always be building.

As the folks who jacked up Boston's "Big-Dig" highway project know all too well, you can come up with some legendary billing proportions for construction on that kind of scale. I think the Dig's not even done yet. What is finished barely even solved the problem and went waaaaaaaaaaayyyyyyyyyyyyy over budget. Not to mention it literally had fatal flaws.

It's easy to lose track of small expenditures when you're dealing in hundreds of millions and every now and then even billions of dollars in contracts, land grabs, and expansion plans. If you cut corners you can free up more dough to play around with.

In organized crime terminology when it comes to casino operations, the off the top tariff called "the skim" has evolved drastically. There is a whole new atmosphere in town. There are corporate land barons and casino magnates running things now rather than Mafia capos. Yet, are we to imagine by any stretch that all the strawmen are truly gone from Vegas? Something tells me the Mob always finds a way to infiltrate from afar and will always have some kind of iron grip on Vegas. Being pushed further underground has only made the organization more tight knit and unwilling to give up any new secrets. They have to come up with more sophisticated schemes and more subtle ways to exert influence. But if they're still entrenched in town, they're hurting, too.

The Fertitta family aren't the only ones in Vegas feeling the pinch.

They're not even the only ones in the world suffering. Australia's gaming interests are reeling, too.

Tourists pinching pennies seem to be going for a look but don't touch approach, and it can't be good for the future of gaming. Boxing and Mixed Martial arts events promoted in Vegas may also suffer in the long run. Only time will tell.

The Fertittas financial issues are by no means limited to Vegas, either. California has been troublesome, too.

The Fertitta family's foray into being publicly traded doesn't seem to have turned out as the Fertittas had planned, and the private buyback last year seems to have over-burdened the brand with hard to shed debt instruments. The Fertittas are reciting a new rendition of the old Robert Frost poem this winter in Vegas:

These times are ugly, dark and deep,
But we have promises to keep,
And billions to pay before we sleep,
And billions to pay before we sleep.

Like the lawyers who promote needless delay in the bankruptcy case, the Fertittas seem to be putting off the inevitable, scrambling to figure out a deal. Lately they've been pushing back deadlines as the local Vegas tourism numbers begin to look weaker and weaker:

Station Casinos extends bond offer deadline again

LAS VEGAS TOURISM: Visitor tally continues to slide

UNLV economist says unemployment eventually may hit 10 percent locally

It should be no surprise that nobody in Vegas saw this coming or bothered to try and stop the corruption at the heart of this whole series of reports, spanning more than two years of my life now. After all, we're talking about a town spending $50 Million on a Mafia Museum project bolstered by its main backer: ex-mob-lawyer-turned-Mayor Oscar Goodman. Regardless of who is looked upon as the lesser of two evils, be it the Corporate Conglomerate or the Criminal Enterprise both now sharing Space in the new age Vegas, the common people always lose in the long run when greed takes over.



History of Las Vegas


Aladdin Property History

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