While the casino industry suffers no shortage of big egos, Penn National Gaming CEO Peter Carlino zooms past that, heading full speed toward arrogance. When not trying to use the political process to sandbag its competitors, Penn occasionally builds casinos. (It will be interesting to see if Penn tries this Big Man on Campus act in Nevada once its M Resort [left] takeover is finalized.)
Not long ago, it was reported that, while Louisiana regulators where still pondering which company to grace with the state’s final riverboat license, Penn’s backhoes were doing “preliminary site work” in New Orleans. Whether or not this act of presumption backfired on Penn (as similar highhandedness did in Kansas), it experienced a valuable “teaching moment” this morning: Get the license first, then dig. ‘Cause when the gavel fell and the 15th license Pelican State was awarded, it went to Dan Lee‘s upstart Creative Casinos, not to Penn. The vote was unanimous and the size of Lee’s proposed investment — larger than the two losing projects, combined — proved to be the deciding factor. Perceived casino saturation in the Crescent City was another major consideration.
As J.P. Morgan analyst Joseph Greff points out, Lee (left) still has to scrape together the $400 million budget and get voter approval (the latter will surely be easier). If all goes according to plan, Lee’s “Mojito Pointe” (how’s that for a linguistically scrambled idiom?) will enter into direct competition in the Lake Charles market with Pinnacle Entertainment‘s L’Auberge du Lac. Since the latter represents a plurality of Pinnacle’s revenue (37%), Lee has a chance to inflict revenge on Pinnacle, which ousted him as CEO after he browbeat a Missouri public official in a shocking public meltdown.
Said incident, along with some recklessly extravagant fiscal policies that included a gargantuan waste of money on an abortive Atlantic City resort, suggested that early success at Pinnacle had gone to Lee’s head, like too much wine before dinner. He’d been brought in to clean house there and had several good innings before he tried to grow the company too much too soon … and in the teeth of a recessionary economy. He’s got a chance to clean the slate and hopefully has learned from old mistakes like doubling down on St. Louis, where Pinnacle’s River City is cannibalizing its ritzier sister property, Lumiere Place. Just imagine if Lee had gotten his way and been given a third Pinnacle casino in that struggling market. Gadzooks!
One needn’t worry for Pinnacle now, argues Wells Fargo analyst Carlo Santarelli. “[T]he process,” he writes, “will take considerably longer to get built given what we assume will be a slew of lawsuits and a need to raise financing, something we also believe will be difficult.” Remember that Pinnacle once had its own ‘second front’ planned for Lake Charles, the now-defunct Sugarcane Bay project. The company accuses Lee of poaching his Mojito Pointe ideas from them and benefiting from access to its proprietary knowledge of the market, back in his Pinnacle days.
Nor do we need to pass the hat for Penn. Carlino’s got plenty to keep himself busy, building two casinos in Ohio, finishing one in Kansas, absorbing M Resort and trying to leverage a pair of Texas racetracks into racinos. (A real long shot, that.) Losing in Louisiana isn’t going to be any skin off Penn’s nose. It also presented a brief buying opportunity in PNK stock: a Wall Street overreaction to the news caused a midday selloff of Pinnacle shares, which did a quick nosedive, then recovered. Given the unlikelihood of casino gambling in Texas and Lake Charles’ proximity to Houston, analysts are sanguine that the lake is big enough for Pinnacle and Creative alike. So everybody wins … except maybe Penn. And you thought only nice guys finished last.
Ha. Is it Carlino with the ego or Wilmott? I do not know either, but have heard rumblings of the later. Anyway, I think Penn is on a slippery slope with the way they have been conducting their business.
On Lee, yes, he did get into some awkward spots (especially AC..on St Louis, it is pretty well known that the state was forcing any operator that wanted the county license to build in the city first. Lee always knew that the River City development was the prize, but the city property had to be developed first. They made no mistake of telling the investment community about it either) but appears that PNK cut him clean and now they are throwing every lawsuit at the guy to stop him. One thing is for sure, he is no idiot. Why not use the knowledge you have to your advantage? Something the board members at PNK did not think about. My belief is that they cut him to quick and without thought.
But then again, Mojito Pointe can also benefit L’Auberge as well. Critical mass has had a history of attracting more visitors to the market. Regardless, Mojito Pointe looks like a really nice project. Hopefully he can pull it off.
Excellent points, Guru. Too bad lawmakers (case in point: Florida) don’t grasp the “critical mass” concept and try to scatter the casinos as far apart as possible.
As for Penn, there’s some kind of weird ying/yang going on in upper management, an alternating pattern of caution and rashness. Carlino & Wilmott wouldn’t pay $1 billion-plus for The Mirage but were willing to salvage F-blew and spend $1.5 billion, minimum, finishing it. They said they wanted Strip properties that were priced to move but categorically ruled out both the Trop and the Riv (Yemenidjian and Sternlicht were not so haughty). They washed their hands of Atlantic City even as the price of entry was plummeting to bargain-basement levels. Go figure. It’s a strange dynamic.
Thanks for the additional color Dave. Love the post…as always!
Penn got a good price when they bought the M Resort for $230 million dollars but it is 10 miles south of the Strip. I think Penn should have bought the Rio for $500 million dollars instead considering the Rio is around 1 mile west of the Strip.
Penn buying Fbleau for $1.5 billion dollars never made any sense to me. I think Icahn will eventually blow up Fbleau and sell the land.
I’m with AGG, competition can only help Pinnacle in Lake Charles (whether it will help the Pile of Debris and Crapoutta, two properties in serious need of modernization, is another question). LDL is an excellent property, but flawed in many areas. Still, the Houston market is a wealthy one, and Lee’s Creative surely will help it grow.
Who owns the land where access to the proposed site?… Not the Port Authoruity. Can Pinnacle purchase that piece of property and block Lee?
I honestly can’t say, Joe, but I strongly doubt Dan Lee would purchase a site that’s not A) accessible by public road and B) where Pinnacle could cut him off somehow. The big question mark is whether he can line up the financing; as CEO of Pinnacle, he was something of a spendthrift, trying to grow the company too fast and at the wrong time.
If one reviews the information found in (http://publicrecords.onlinesearches.com/Louisiana-Assessor-and-Property-Tax-Records.htm), you will see that Pinnacle owns most of the land next to the highway except for one parcel. The Mojito Pointe group drawings show that the roads would be going through Pinnacle owned land (ftp://ftp.portlc.com/MojitoPointe/Mojito%20Pointe-Dec%2016-v11-no-videos.pdf). This site takes a few minutes to load. Traversing seven eighths the way down the document reveals the site plan. I guess they could always use the existing access. Oh boy! Joe
Great stuff, Joe. I’m reading it now. Thanks!