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Nevada is expected to grow faster than any other state during the next two-plus decades — great news for a gaming company that caters to the local community.
Lori Calabro, CFO Magazine
July 1, 2006
What happens in Vegas stays in Vegas, or so the slogan goes. But what's happening there in terms of development, says Glenn C. Christenson, CFO of Station Casinos Inc., is hard to keep secret. According to the U.S. Census Bureau, Nevada is expected to grow faster than any other state over the next two-plus decades, with many new residents settling in and around Las Vegas. That growth might not matter to the megacasinos on the Strip, which mostly target vacationers, but it's great news for Station Casinos. Unlike its major competitors, the $1.1 billion (in revenues) gaming company caters to the local community. And with a lock on land designated for future gaming, Station Casinos, says Christenson, is as close to a sure bet as you will find in Sin City.
In April, you added a 15th property — Red Rock. As the most expensive resort off the Strip, does it change your business model?
We really pioneered the concept of the "local market," and now we are enhancing it. There are, after all, many people who live in the area who aren't looking for the experience on the Strip but one away from it. For example, at Red Rock we have the National Park, six or seven golf courses, hiking, and other activities. And if people still want to eat in a particular restaurant or take in a show on the Strip, we're only a 15-to-20-minute drive away.
At $925 million, Red Rock is obviously a hefty investment, and much has been made of the 3.1 million crystals used in the chandeliers and the surprise concert on opening night by Sting. Was there anything you said no to?
No. Our chairman and president [brothers Frank and Lorenzo Fertitta, respectively] have their fingers on the pulse of what makes these local properties successful. My primary concern is making sure we have the right financing. Besides, we have probably had [concerns about the size of our investment] on the past eight projects. One of our first, in 1994, was Boulder Station, and investors questioned how much money we were spending then.... But Boulder has one of the highest, if not the highest, cash-on-cash return on investment [EBITDA divided by the cost of the project] of any property built in Las Vegas to date.
Why are you so sure that the local market is the key to your growth?
I have the benefit of having lived here for almost 34 years, and there have been 5,000 to 8,000 people per month moving to Las Vegas for as long as I can remember. As baby boomers make their way toward retirement, Las Vegas is a very attractive option because of all the activity and because we don't have state income taxes. For at least the next 5 years, things should be strong here.
If those statistics pan out, what's to stop competitors from copying your business model?
Back in 1997, the Nevada legislature passed Senate Bill 208, which limits where these local properties can be built. There are only a few sites that can be developed as casino properties, and we control the majority of them. In fact, we own more gaming-entitled nondeveloped land in Las Vegas than any other company. And there is no way that anyone can duplicate that.
How do you know when to capitalize on that advantage?
Generally, about 60 to 70 percent of our customers for a given property [live within] a three-to-five-mile radius of that property. So we have the ability to look at various sites and get a pretty good idea of when there is enough critical mass to know when it's time to develop.
The key gaming metric these days seems to be overall customer spending rather than spending per available room. Is that what you use?
We look more to spend per customer visit.... Eighty-seven percent of our cash flows come from slots. So we are very much oriented toward our casino floors, which is one reason we are able to give [earnings] guidance. We have guidance out there for 2007; no other gaming company is doing that. Hotel rooms and table games are very volatile. And on the Strip, hotel cash flows make up about 40 percent of the total; table games about 12 to 15 percent. Consequently, the Strip companies are not able to give guidance out anywhere near as far as we can.
Your industry is facing new competitors from wireless gaming and the Internet. How worried are you about these new players?
Wireless gaming will certainly be a piece of what we do. I'm not sure it will be a disproportionate piece. We had the ability years ago for people to gamble in their rooms, but the Gaming Control Board strongly encouraged us not to go forward, because it is impossible to know who is in the room at any one time. It's the same situation with Internet gaming. It is so difficult to ensure that you don't take an illegal bet. And as a licensee here in Nevada, we can't put that license in jeopardy. Plus, we haven't decided as a country how we are going to police Internet gaming. Until that becomes legal, I don't think we'll be worrying much about it.
You chair the state's committee on problem gambling. Is that a conflict of interest?
I'm not sure how it could be construed as a conflict. The panel is made up of practitioners, representatives of not-for-profit organizations, the gaming industry, and "at large" representatives.... [And we] have been requested by the governor to allocate $2.5 million for problem gambling in our state. I'm very interested in the whole thing because I have obviously benefited personally from being in the gaming industry. Unfortunately, there are some people who are not capable of gambling responsibly. My understanding is that problem gambling can be treated more effectively than other addictions, and generally at less cost. We just finished allocating these funds, with roughly 70 percent going to treatment and 10 percent each for research, education, and prevention.
What is your favorite betting game?
The stock market. But the big difference between gambling in the casino versus the market is that the casino rules are fair for everyone.