Station Casinos leaves Missouri in its wake

David Strow

Wednesday, Dec. 20, 2000 | 11:42 a.m.

In 1994, Missouri became Station Casinos Inc.'s first great experiment in geographic diversification.

On Thursday, six years after Station's first riverboat casino opened in St. Charles, Mo., Station's great experiment will come to an end. On Tuesday, the Missouri Gaming Commission unanimously approved Station's $488 million sale of riverboat casinos in Kansas City and St. Charles to Ameristar Casinos Inc.

For Station, the deal will push all of the company's chips back into the Las Vegas locals casino pot. The deal didn't come cheaply -- Station is taking a $125 million loss on the sales -- but Station officials are relieved that years of regulatory tangles in Missouri are finally coming to an end.

"Let's just say geographic diversification is an overrated experience," said Glenn Christenson, chief financial officer of Station. "It's somewhat been the 80-20 rule. Twenty percent of our cash flow was causing 80 percent of the headaches. We have a much simpler story now, and take a lot of the risk profile out of the business."

The news for Station was not all good this morning. Since the Missouri sale is closing 10 days earlier than expected and because of poor weather conditions in recent weeks in the Midwest, Station said it expects to miss earnings estimates by an unspecified amount for the quarter ending Dec. 31.

Analysts had expected 24 cents per share, and they expect the problems will reduce that by a few cents. This morning, Station was off $1.13 to $14.69.

Station had been fined a number of times by Missouri officials in the past, but its most serious tangle emerged in late 1999 when an investigation began into the activities of Michael Lazaroff, the company's Missouri attorney.

The investigation found that Station had made $500,000 in bonus payments to Lazaroff, payments that went unreported to Lazaroff's law partners. The Missouri Gaming Commission conducted hearings on the Lazaroff matter last summer, but Station officials refused to attend. The commission retaliated by moving to revoke Station's two Missouri licenses.

Those hearings found no evidence that the bonus payments were used as payoffs for local officials, as some had feared. The commission did find that Lazaroff had made numerous improper contacts with former commission chairman Robert Wolfson.

The commission finally settled the matter several weeks ago, with Station agreeing to a $1 million fine. Kevin Mullally, acting executive director of the Missouri Gaming Commission, said the $1 million in expected from Station by Christmas Eve.

"It'll be a nice Christmas present for Missouri's schools," Mullally said.

No serious issues of concerns ever emerged during the commission's suitability investigation of Ameristar, Mullally said. The only issue that could have caused the company any trouble was a lawsuit pending before the Mississippi Supreme Court, accusing Ameristar and Harrah's Entertainment Inc. of using improper tactics to kill a competitor's plans to build a new casino near Vicksburg.

"Our guys looked at it and we mentioned it during the hearing," Mullally said. "But it's a civil issue, and at this point, we have no concerns about it."

Mullally declined to take a parting shot at Station.

"It's just time for us to move forward," Mullally said.

Ameristar promptly took steps to ensure it has friends in its newest state. In hearings, Ameristar officials told commissioners the company plans to immediately move forward with a $105 million expansion of the St. Charles riverboat -- an expansion that has sat unfinished at the property since 1997.

City officials considered the unfinished project an eyesore to the St. Charles riverfront. The expansion will make the St. Charles challenge Harrah's St. Louis casino in size, adding 25,000 square feet and 550 slots to the property.

"I almost yelled, 'Yippee,"' St. Charles Mayor Patricia York told the Associated Press. "But I thought that would destroy the sense of decorum.

"I'd rather have no casino than a bad one, or a cheesy one, as my daughter would say. We feel we will have the premier site in Missouri."

Completion is slated for mid-2002.

Ameristar received permission to continue using the Station brand at the casinos for 120 days. Company spokeswoman Gillian Silver said the casinos will not close down during the completion of the transaction.

"Every effort has been made to create a seamless transition and not to disrupt the guests," Silver said.

With completion of the deal, Ameristar's cash flow will vault to $150 million to $160 million a year, putting it in the league of such companies as Argosy Gaming, Aztar Corp. and Boyd Gaming Inc.

"It's a transformation for the company, a life-changing event," added William Schmitt, gaming analyst for CIBC World Markets. "This deal means these guys have very strong assets.

"The stock is very undervalued. It's a company that should be looked at very seriously ... they've moved up into a whole new league."

Meanwhile, Station will continue to concentrate on its investments in Las Vegas. With the close of the Missouri sales, Station will now proceed with the $70 million purchase of the Reserve in Henderson from Ameristar. That deal is set for hearings before Nevada gaming regulators in January and should close by early February.

By the end of 2001, Station would own eight Las Vegas properties, including the Reserve, the Fiesta, the Santa Fe and a new property in Green Valley being built in a joint venture with the Greenspun family, owners of the Las Vegas Sun.

It is a direction opposite from other gaming operators, who have pressed to diversify their casino holdings in recent years. Still, Station has managed to perform well with its Las Vegas investments, which have turned in returns on capital far above the Las Vegas Strip average.

"(The lack of diversity) partially offsets the positives," Schmitt said. "They have years of growth here, so they don't have to diversify beyond here. But in the future, I'd like to see some geographic diversity."

But Christenson said it's going to be some time before Station considers investing outside of Nevada again, with the exception of the company's attempts to build an Indian casino near Sacramento, Calif. Christenson said any expansion plans outside of Nevada have to be balanced against other investment possibilities, including more expansion in Las Vegas, the repurchase of stock and the repayment of debt.

"I never say never, but we have enough growth opportunities here to keep us busy for the next five to 10 years," Christenson said. "We want to invest as much in the Las Vegas locals market as we can.

"We're pleased with our position here, we have more growth opportunities than any other gaming company in the industry and we're in a market we love."