Trouble in River City

Posted on November 9, 2009 by David McKee

River Place

In a shocking development that’s bound to set tongues a-wagging, Pinnacle Entertainment CEO Dan Lee has “resigned to pursue other business interests” (industry-speak for “Don’t let the doorknob hit you in the butt”). The buzz is that Pinnacle’s strategy was creating friction between Lee and his board, and the former’s intemperate behavior at a St. Louis County Council meeting provided the flashpoint. Lee’s public meltdown clearly made him expendable and Pinnacle has wasted no time in pushing him under the regulatory bus. (The just-barely tenable status of Pinnacle’s Admiral riverboat doubtless contributed immensely to whatever other stresses Lee has been feeling.)

Other factors might have un-endeared Lee to his board: a slow ramp-up of Lumiere Place in St. Louis, for example. Lee was like those of us who gorge themselves at the buffet and regret it afterward. He had another St. Louis-area casino in train — River City (above) — as well as two in Louisiana. And then there was the ongoing embarrassment that was Pinnacle’s Atlantic City project. Lee was too quick to close and demolish the old Sands, and ruffled too many feathers when trying to expand Pinnacle’s Boardwalk footprint.

The eventual mothballing of the A.C. project made it a subject of local ridicule, culminating with the indignity of city fathers mulling the prospect of using it for a parking lot (with the encouragement of Harrah’s Entertainment‘s Atlantic City czar, Don Marrandino) without consulting Pinnacle first. Ironically, for someone who made his name as the Mirage Resorts apostle of fiscal discipline, Lee’s tenure at Pinnacle displayed rashness, a tendency to overspend and/or overplan. Only the suicidal determination of Columbia Sussex to have Aztar Corp. at any cost whatsoever (even to the point of bidding against itself) saved Pinnacle from grossly overpaying for that set of casinos.

Ever-unsentimental, stock pickers rejoiced in the news, rewarding PNK with a runup in its share price. Wall Street speculation has Pinnacle putting both its hard-won Baton Rouge riverboat and its second Lake Charles casino onto the back burner (again). Not only is that a blow to both communities but the timing is cruel, as the two casinos had only just re-emerged from a protracted holding pattern. J.P. Morgan analysts like the idea “which could allow the company to be more of a net free cash flow generator,” although they prefer Pinnacle’s expansion-oriented strategy to Boyd Gaming‘s pursuit of Station Casinos and Penn National Gaming‘s quixotic interest in Fontainebleau.

So the hunt is on for a new CEO and he or she can’t arrive soon enough. Sans Lee, Pinnacle’s fate has been entrusted to interim chairman Richard Goeglein, who helmed (read: bumbled) the famously disastrous opening of the new Aladdin (now Planet Hollywood) as its first CEO. Stepping into Lee’s shoes is casino relic John Giovenco, whose last operational post in the industry was as CFO of Hilton Gaming Corp. … back in 1993. At least some reassurance can be had from the presence of former Boyd CFO Ellis Landau, who’s only a couple of years removed from day-to-day operations.

Pinnacle’s likely criterion for a prospective CEO is said to be someone from a Harrah’s-like, regionally focused operation. As Morgan notes, blackly, “Given a large number of displaced gaming executives, we don’t think there is a shortage of talent out there to replace Mr. Lee.” Names that come to mind just cursorily include Karen Sock, late of Harrah’s (who was to have been entrusted with the Biloxi “Margaritaville” project before that went into a deep freeze), former Hard Rock Biloxi President Joe Billhimer and perhaps even former Caesars Entertainment CEO Wallace Barr, forced out by Harrah’s takeover of that company. Let the games begin!

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