Building a Dynasty – Casino Q&A
Fertitta Family Takes Station To New Heights
by Len Butcher
Dynasty: A succession of people from the same family who play a prominent role in business, politics, or another field.
This is the definition in the Oxford American Dictionary. It could easily have added: i.e. the Fertitta family.
In 1976, when Frank Fertitta Jr. purchased The Casino, one wonders if he could see the day when that 5,000-square-foot property would be the start of a gaming operation that would dominate the locals casino market in the Las Vegas Valley. As The Casino grew, the name was changed to Bingo Palace and finally to Palace Station, which remains the flagship property of the Fertitta empire.
In 1993, Frank Sr. stepped down, the company went public, and his two sons, Frank Fertitta III (chairman and CEO) and Lorenzo (vice chairman and president) took over the operation. They had both been schooled in the casino business by their father since they were young boys. Each had also majored in business at university (Frank with a degree from USC; Lorenzo with a Masters degree from University of San Diego).
Over the next 13 years, they grew Station Casinos Inc. (STN) to dizzying heights, owning the largest number (15) of “locals” casinos, and controlling almost all of the land zoned for casinos in the Valley. There are plans to build another four facilities by 2008, as well as two in Reno. Their latest, and most expensive project ($925 million), Red Rock Station, will open April 18.
Frank and Lorenzo sat down with Casino Player Managing Editor Len Butcher at their Palace Station corporate headquarters to talk about the Station dynasty.
CP: In a few weeks, you will be unveiling your most ambitious project yet. What can we expect at Red Rock that will be different than anything you’ve done so far?
FF: I think you’ll see that the design of Red Rock is very contemporary, in a way that no one has done before. It’s desert modern architecture versus the themes, the layers of frills, and all the old world stuff that’s presently in Las Vegas. We’re going for something that’s new and fresh. A lot of things are going to be different at Red Rock. For instance, we have 6,000 parking spaces and two garages, each with elevators that drop right to the casino. We even measured the walking distance from the front of the building to the casino to make sure that it would be convenient for our customers.
Does Red Rock signal a trend for the company to look for more affluent areas to build casinos?
LF: Rather than doing cookie cutter projects, we try to tailor our projects to their location. That means doing a lot of demographic research so that we build the right project for the people in that area. Our Wild Wild West site on Tropicana at I-15 will probably be another step up from Red Rock, but that doesn’t mean all of the future sites will be like that. The Aliante and Durango sites will be different than Red Rock. They’re going to be nice, but they’ll be different. Red Rock and Green Valley Ranch have higher-end elements to them, but we build casinos that are like one-stop shopping—plenty of variety with something for everyone.
FF: Every time we’ve gone out to build a project, we’ve tried to raise the bar to some degree, to learn from our mistakes and build a better mousetrap. I think we did that when we went from Palace to Boulder to Sunset to Green Valley Ranch, which was the first time we really got into the out-of-town visitor market. We’ve always had hotels, but they were middle-market facilities that didn’t have the high-end amenities. With Green Valley Ranch, we even surprised ourselves at how well it did, starting off with 200 rooms, then adding another 300 rooms, for people looking for a luxury hotel experience. Same as the spa. We started out with 10,000 square feet and just completed a 25,000-square-foot addition to it.
You do very well with room occupancy. Who stays in your hotels? Tourists, business people?
LF: Our friends [laughing]! For the most part, our hotel guests are people who have been coming to Las Vegas for a while, done the tourist thing, and are looking now for the same value and service that the local customer wants. Ultimately, the locals are the most discriminating customers. Every casino is a potential option for them, so we have to offer more value and better service to keep them from going somewhere else.
The tourist who comes to Las Vegas and talks to locals like cab drivers and cocktail waitresses invariably asks, “Where do you play slots? Where are the loosest slots?” Many of these people say, “I play at Stations,” because they are Station customers. That has created a following of people who want to come and experience our product, which in turn has resulted in the need to have more hotel rooms. We also do quite a bit of group business because of our meeting rooms. A lot of corporations want to come to a place where they can put all their people, but without all the distractions on the Strip.
When choosing a location for a new property, is there one factor that tops the list?
LF: One of the biggest things we look for is convenience. The population may not be there today, but we think we know how the Vegas Valley is growing. We’ve had sites on the 215 Beltway long before there was any population there. I don’t know if there is any single factor, but we consider the convergence of traffic patterns, population, growth potential, and having a big enough piece of property to build what we want.
Speaking of location, what were your reasons for buying the Castaways [formerly the Showboat]? It was closed when you bought it and the location can’t be considered prime.
FF: When you look at Las Vegas, there are a limited number of locations zoned for unrestricted gaming, and that property already had a full gaming license. The facility itself was not competitive, but as part of our overall strategy, it’s no different than what we would do with a piece of property out on the freeway where there’s not a lot of population. This could potentially be a great site for a new property and we’re working on plans for it.
Is there any chance that you may build something on the Strip in the future?
FF: Back when we had only this casino, I remember talking to my father about doing something on the Strip. And he told me, “Don’t get caught up in that ego game. We have a better business, we’ll make more money, and we’ll get a better return on investment. Stick to what you know and what you do.” And basically, that’s what we’ve done. We’ve focused on our franchise and we’re continuing to develop it. We won’t build a trophy just for the sake of looking at it. Worry about what you’re putting in the bank instead.
How is the experiment with The District at Green Valley Ranch?
FF: Actually, Station is not a partner in The District. The Greenspuns own it, but we were part of the initial master plan of where the casino would go and how the two would work together. The results speak for themselves. Returns have been fantastic at The District and I think it’s a great added benefit for Green Valley Ranch. It’s turned the property into an even bigger destination. In Reno, one of the projects we’re developing has a similar District concept. The more amenities you offer, the better to attract people to your property.
Would you consider building a District-type project beside a future casino yourself if there was enough land?
LF: Sure. Right now, adjacent to Red Rock, we have residential towers going up. That’s a joint venture with Steven Molaski and Steven Klubeck, longtime real estate developers in town. We are in the process of designing and developing residential towers where people can live in the Red Rock lifestyle—where they can have all the amenities within a short walking distance, whether it’s the spa, movie theater, restaurants, concerts, and things like that. For a lot of people, that’s very appealing. Hopefully these will be very successful, and you’ll see us doing more types of things where our properties aren’t just casinos, but have significant residential elements.
Reno has experienced a long period of stagnation, yet you’re moving forward with not one, but two projects there. What appeal does Reno hold for you?
FF: When you look at Reno’s underlying statistics, they’re not very different from what’s been happening here in Las Vegas. It has a rapidly growing population base, a lot of new industries driving economic growth, and we feel there is a huge opportunity for both the local and regional markets. When we look at other hotels in the area, it’s clear that they haven’t spent any capital in upgrading their properties. We feel that by coming into the market and offering a product like Green Valley Ranch, we can not only be very competitive, but also grow the market and give people a new reason to come to Reno.
Poker has certainly exploded in the last few years. How important has that become to your properties?
LF: Very important. Even when poker wasn’t very popular, we always had it. On its own, it may not have been a great profit center, but we always felt that we had to offer multiple things to multiple people. If you have a couple where the wife loves slots and the husband loves poker, but you don’t have poker, chances are they’ll go somewhere else. But now, with its new popularity, the demographics have shifted. We’re not only seeing more players, we’re seeing a lot of younger players. It’s become a significant part of our business. We’ve added tables to our current poker rooms and at Red Rock we’ll have around 16 tables.
Station Casinos has been a leader in casino promotions, and you hit gold with your Jumbo Jackpot. How did that come about, and are the results what you expected?
FF: My father is probably one of the most brilliant marketers I’ve ever known in the gaming business. He was always an innovator and was willing to take big risks. He tried to think the way a customer thinks. Is the prize attainable? Does anyone ever win it? Is it believable? That’s how the Car Day in May promotion came about back in 1984. People thought he was nuts. How can you give a car away every day? But for years, he had seen all the promotions downtown where everybody said they were giving something away, but nobody ever won it. So his philosophy was that you have to have credibility—the best customer is somebody who wins something, then goes and tells all their friends, “Hey, look what I won!” It then becomes believable and builds upon itself.
What trends do you currently see in Las Vegas?
LF: I think the biggest thing right now are the multi-faceted developments some of the major corporations are developing—particularly bringing in other brands to supplement their own. What we’re seeing with MGM Mirage’s CityCenter and Boyd’s Echelon project is that they’ll have their casino as the anchor at the core of the project. Just like what we do in the locals market, these projects will offer as many amenities as possible to draw from as wide a demographic as they possibly can. In the case of the Boyd project, they can say, “We’re going to have Echelon, but we’re also going to have the Delano, Viceroy and these other hotels.” These hotels will appeal to different types of travelers, as will the retail, brand-name restaurants and all the amenities.
Ultimately, it’s about capturing as many visits as possible throughout the facility. Then it becomes a question of how many of those visits you can convert to gambling, even though on the Strip gaming is no longer the primary component of profitability. All the other areas that used to be loss leaders, like rooms and restaurants, are now profit centers. At many Strip casinos, non-gaming revenues account for more than half of the total revenue. At Station, our business is still 80 percent driven by gaming.
As a public company, shareholders want results and Wall Street looks at earnings by quarters. How does this affect your planning and decision-making?
FF: I think it’s the hardest thing that any closely-held company has to deal with, going from being a private company to a public company. If you’re long-term strategic thinkers and visionaries, once you get into that public market, all of a sudden you have shareholders that want instant results and maybe only want to own your stock for a year—a much shorter horizon than the people that founded the company.
If you let them start dictating and running the company, I think that’s when you get off track. Now clearly, we’ve had our hills and valleys that we’ve been through as a public company, and there were a lot of times when the guys on Wall Street did not agree with the raw dirt and real estate we were buying on our balance sheet and thought we were crazy. But we stuck to our guns and now in hindsight, people ask how we got in our present “fabulous” position. People weren’t thinking it was so fabulous five, six, seven years ago. I think you have to believe in what you’re doing if you want to be a successful company in the long run. It is easy to get caught up in that track, but you have to stick to your convictions.
Do you see it possible, within the next five to 15 years, that Station would be available for acquisition?
FF: You never say never. We think we have the best growth story in the gaming industry. In the last 13 years we’ve been a public company and have gone from one property to 15, but we still think we’re just in our infancy. We have a very young management team and the best pipeline of growth opportunities that we control with all the real estate, and we’re looking to develop all these opportunities and maximize shareholder value. We’re big shareholders and that’s what we’re focused on.
