Fitzgeralds’ loss widens on occupancy weakness

By Liz Benston

Thursday, Nov. 13, 2003 | 11:03 a.m.

The Indiana-based parent company of the Fitzgeralds hotel-casino in downtown Las Vegas on Wednesday announced plans to restructure the property so it can have greater financial flexibility to pursue upgrades and other capital spending projects.

Also Wednesday, the downtown casino revealed a widening operating loss and negative cash flow for the third quarter compared to a year ago as part of the company's third quarter results.

The Las Vegas property reported an operating loss of $1.4 million in the quarter ended Sept. 30 compared to a loss of $900,000 for the same quarter of last year. It reported negative cash flow of $700,000 compared to a negligible amount a year ago.

Majestic Star Casino LLC, parent company of the Fitzgeralds chain and owner of a similarly-named riverboat casino in Gary, Ind., said it expects to receive approval from Nevada gaming regulators next month to establish Fitzgeralds Las Vegas as a direct subsidiary of Barden Development Inc., the owner and holding company of Majestic Star. Fitzgeralds Las Vegas is now an indirect subsidiary of Barden Development, which is owned by Detroit businessman Don Barden. Through subsidiaries, Majestic Star Casino also owns Fitzgeralds casinos in Black Hawk, Colo., and Tunica, Miss.

Last month the company completed a bond refinancing deal by issuing $260 million of 9.5 percent senior secured notes and also entered into an $80 million credit line with Wells Fargo Foothill Inc. The proceeds from the notes and about $28 million of the new credit line were used to retire most of the company's notes. The senior secured notes and credit facility are secured by company assets excluding the Las Vegas property.

By spinning off the Las Vegas property as a non-guarantor, it will be freed from the restrictive covenants governing the bond and bank loans, Majestic Star Chief Financial Officer Jon Bennett said.

The company is considering strategies to upgrade the property but nothing has yet been defined, he said.

The Las Vegas property has experienced some weakness due to the sluggish economy as well as competition from other downtown casinos, he said.

The company hasn't been able to quantify the effect of California tribal casinos on business, though it may be a factor now that customers "have casinos closer to home" as well as "limited discretionary dollars," he said.

"We are pleased with some of our results so far for this quarter," he said. The company still must face a historically slow period between Thanksgiving and Christmas holidays, however, he said.

The downtown hotel's average daily rate rose to $34.69 from $32.64 but its occupancy rate fell to 83.9 percent from 88.7 percent.

Casino revenue was flat at $9 million and slot revenue fell 3 percent to $6.8 million. Table game revenue rose 10 percent to $2.2 million. Overall revenue rose 3 percent to $11.9 million.

The average win per slot machine per day fell to $81 from $84 a year ago though the property reported six more slot machines in use in the third quarter of this year. Average win per table game per day increased slightly to $758 from $751 with three more table games this year. Fitzgeralds had an average of 911 slots and 28 tables during the quarter.

Excluding the Las Vegas property, parent company Majestic Star Casino LLC reported a $1.9 million decrease in earnings to $267,000 for the quarter. Revenue was $66.5 million, down from $70.5 million last year.

A 6 percent decline in casino revenue primarily hurt results across the three casinos, the company said. Casino revenue at Majestic Star, Black Hawk and Tunica fell 3.7 percent, 8.8 percent and 8.4 percent, respectively.

Both Majestic Star and Fitzgeralds Tunica casinos experienced disruption due to remodeling. The upgrade included new cashless slot machines, carpeting and a new configuration of games on the floor, executives said. Majestic Star also is paying higher gaming taxes implemented in 2002 that is accruing at a higher rate than a year ago, they said.

Cash flow has increased since the disruption and the company expects to save on labor costs with the new machines, executives said. The company expects to have 400 cashless machines in Indiana by the end of the year and to convert the balance of machines next year. The company also expects to install a new casino management and slot monitoring system at Fitzgeralds Tunica in the by March and remodel some of its hotel rooms by the end of the year.

The company contributed nearly $180,000 to an effort to defeat a voter referendum to introduce slot machines at race tracks in Colorado, which would have created new competition for the state's casinos.

Tunica and Black Hawk markets were weak during the quarter, executives said.