Motley Crew

(Editor’s note: Whoever labeled the photo at left misplaced the captions. FF3 is the guy having the good hair day and brother Lorenzo is the one with the handkerchief in his breast pocket.)

In my 15 years of following the casino industry, I have never seen the system gamed so openly, shamelessly and cynically as in the farce that is the Station Casinos “reorganization.” For instance, it appears that the bankruptcy court will permit the Station “PropCo,” a massively encumbered four-casino entity, to cherry-pick two key pieces of real estate. (More assets for the same amount of debt? Sweet!)

Also, although it’s willing to plunk $950 million-plus onto the table, Boyd Gaming was ruled out as stalking-horse bidder — a term that takes on a whole new meaning in this context — because it wanted to perform too much due diligence for Station CEO Frank Fertitta III‘s comfort. (Imagine that!) Instead, Station selected its own $772 million bid as superior. As Gomer Pyle was wont to observe, “Surprise, surprise, surprise!” OK, technically the $772 million would be offered by Fertitta Gaming … but since the principals thereto are the Fertitta family and long-suffering Colony Capital (50% owners of a theoretically reorganized Station Casinos, with a Deutsche Bank-led consortium holding the other half), it’s an “arm’s-length” transaction in the same sense that sock puppetry is an “arm’s-length” art form. There’s also something inherently unseemly about a bankrupt company getting to choose its own stalking-horse bidder, for reasons that should be obvious (or in this case, are).

Interestingly, Station says it approached Ameristar Casinos, Penn National Gaming, the Palms and Cannery Casino Resorts as potential stalking-horse bidders. Except for Penn, none of them has the ready money to swing such a deal. Ameristar is hunkering down, waiting for the Great Recession to pass; Penn has only expressed interest in Green Valley Ranch (which, along with Aliante Station, is off the table, sitting in a third, albeit non-bankrupt sub-Station bubble); George Maloof is fighting a hostile takeover by Harrah’s Entertainment‘s owners; and Cannery might be in the market for some Station assets. But 11, a bundle that looks less attractive by the week? Doubtful.

As for the Station the company (as opposed to Station the comedy), it continues to tank. Once the high cost of bankruptcy — $19 million — is deducted from 1Q10 results, losses still widen $500,000 from the apocalypse that was early 2009. Station’s near-total exposure to the vagaries of the Las Vegas market has come back to haunt it. However, looking at some of the specific declines, one must begin to question something that’s always been taken for granted: the competence of Station management.

F&B revenues, perhaps because the operations are now heavily outsourced, are attenuated by a whopping 25%. Green Valley Ranch is a gusher of red ink, so perhaps Penn was wise to shy away from that. A half-interest in the place is now valued at -$19 million. Another total bust is Station’s costly accumulation of residential property (above) for a CityCenter-Lite development just south of Palace Station. Having paid escalating sums of money to obtain a great swath of Richfield Village, that grab-bag of property is now a gargantuan writeoff. Joint-venture partner Fisher Bros. of New York played with the fire that was Vegas real estate and is probably salving some very scorched fingers right about now.

In a greatly more competitive hotel market, it’s no surprise that ADRs, occupancy and room revenue (-14%) have all gone south — why stay at a Station property when one can find comparable rates on-Strip? However, given the ubiquity of Station gaming properties, a 12% dropoff in casino revenue shows the downside to an all-locals-market position. Boyd’s really been slammed on the Boulder Strip and at some of its other properties, but it has other markets upon which to fall back.

A Boyd acquisition, as we’ve noted before, raises the baneful specter of a locals-casino monopoly … although you can bet your soul the Nevada Gaming Commission will devise a convoluted rationalization for rubber-stamping such a deal. It’s what they do. The upside to a Boyd buy — or Cannery, Ameristar or Penn, should they have second thoughts — is that Station’s assets become part of a geographically diversified portfolio. Just barely, in the case of Cannery (which, unlike Boyd or Ameristar, has a piece of the Pennsylvania market). However, Fertitta Gaming is still the odds-on favorite to waltz away with most of Station’s assets at a fraction of their worth. Their investment may be crashing and burning, but Station and Colony stand to be the greatest beneficiaries of their own fire sale. Unbelievable.

Vince Neil tells Steve Friess he’s in negotiations to buy a financially troubled casino in northwest Las Vegas. Red Rock Resort would fill the bill to a “T” except that it’s integral to the Station reorganization plan. Suncoast does heavy foot traffic, so I very seriously doubt that’s on the table. All of which leaves the long-suffering Rampart Casino (left). Lo, these many years ago, it was the disastrous Resort at Summerlin, a debacle-plagued European attempt to reinvent the Vegas casino. It’s been through many ups and downs (mostly downs) since then. Although managed by Cannery affiliate Millennium Gaming, there’s been friction between Millennium and the resort’s owners, who balked at a plan to sell the management contract to James Packer. (Can’t say as I blame them.)

With the possible exception of Arizona Charlie’s Decatur — which, like the current administration, is a subsidiary of Goldman Sachs — I can’t think of another casino that fits Neil’s précis and I suspect that AZ Charlie’s is too downmarket for his blood. I could be wrong … but I doubt it.