Station buys stake in Mich. casino firm

By Liz Benston (contact)

Friday, Nov. 14, 2003 | 11:10 a.m.

Station Casinos Inc. said today it purchased a 50 percent stake in a company that expects to develop and manage a casino for a Michigan tribe. The deal marks the company's first Indian contract outside of California, where it has relationships with two tribes.

Station Casinos said it would pay up to $6 million for a half interest in MPM Enterprises LLC of Michigan, a local group that has a pre-existing management agreement with the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians in southwest Michigan.

The proposed casino would be located on about 145 acres of land on Highway 131, about 25 miles north of Kalamazoo, Mich., and would be complete by 2005, Station executives said. Developing the casino would involve converting an existing 192,000-square-foot building. The site would include up to 2,500 slot machines, 75 table games, a buffet, specialty restaurants and an entertainment venue.

Station Casinos is managing a tribal casino near Sacramento and has a second contract with a California tribe to run a Sonoma County casino that is underway. The company is meeting its objective of expanding its franchise of management contracts with Indian tribes nationwide, executives said today.

"There appears to be no shortage of opportunities in this market niche," Station Chief Financial Officer Glenn Christenson said, adding that the company continues to pursue contracts with other tribes.

Some analysts applauded the news and said they anticipate Station signing other deals with tribes.

"We view this deal positively, as it builds on (Station's) growth strategy of acquiring management and development contracts in Indian country, which provide a very attractive low cost, low risk, recurring income stream to the company," Fulcrum Global Partners casino analyst Joe Greff wrote in a research note to investors today.

Deutsche Bank Securities analyst Marc Falcone estimates the management deal could be worth between 10 cents and 13 cents per share in annual earnings for Station.

The casino would be located less than 100 miles from two "very profitable" casinos, Boyd Gaming Corp.'s Blue Chip casino and the Soaring Eagle tribal casino, Falcone said in a separate research note.

The Match-E-Be-Nash-She-Wish Band, more commonly known as the Gun Lake tribe, must jump several hurdles before it can build the casino. Land for the casino must be taken into trust by the federal government, which also must approve the management contract with the tribe. Gun Lake also must sign a casino compact with the state.

Station Casinos Chief Legal Officer Scott Nielson said the Gun Lake tribe already has filed an application with the Department of the Interior for the land to be taken into trust. The tribe's compact had already been approved by the Michigan legislature and is awaiting the governor's signature.

Gov. Jennifer Granholm, who took office in January, hasn't yet taken a position on the casino and is still in the process of negotiating compacts with other tribes.

"The governor does not want Michigan to be considered a gaming state and is not interested in a wholesale expansion (of casinos)," the governor's press secretary, Liz Boyd, said today.

The state has three non-tribal casinos in Detroit and 16 tribal casinos.

A nearby Michigan tribe, the Pokagon Band of Potawatomi Indians, has been angling for years to build a casino in southwest Michigan. A taxpayers group blocked the proposed casino with a lawsuit that was filed in 2001 after the Department of Interior announced it would take land into trust for the tribe.

Published reports indicate that some local residents oppose the Gun Lake casino. Station executives today acknowledged the risk of lawsuits filed by opponents, including potential competitors, against the project.

"There certainly is always opposition out there," Nielson said. A 6,000-member group called Friends of Gun Lake supports the casino, however, he said.

MPM would be paid the $6 million agreed to with Station if MPM reaches certain objectives, Station Casinos executives said today. Subject to certain contingencies, Station may also pay an additional $12 million in the final two years of MPM's seven-year management agreement with the tribe.

Station also expects to arrange for or provide the financing to develop and build the casino. Prior to obtaining financing, Station expects to advance $10 million to $15 million to the tribe for the acquisition of land and other development costs.

MPM will receive a management fee of 30 percent of the casino's net income. Station will receive a set percentage of the management fees earned by MPM during the seven-year life of the contract. Station agreed to a fee structure set at 50 percent of the first $24 million earned, 83 percent of the next $24 million and 93 percent of any management fees in excess of $48 million.