Pinnacle CEO resigns after meeting confrontation

Published Monday, Nov. 9, 2009 | 7:31 a.m.

Updated Monday, Nov. 9, 2009 | 10:07 a.m.

Missouri agency looks into actions of Pinnacle CEO

Headlines from the Vegas gaming industry

Pinnacle Entertainment Inc. of Las Vegas today announced that Daniel R. Lee has resigned as chairman, chief executive officer and a director of the company "to pursue other business interests."

Former Aladdin Gaming and Harrah's executive Richard J. Goeglein has been named interim nonexecutive chairman and former Hilton Gaming executive John V. Giovenco has been named interim chief executive officer. Both are board members.

"We want to extend sincere thanks to Dan Lee for his seven years of leadership in transitioning Pinnacle Entertainment from a small casino company to a developer and operator of world-class gaming entertainment properties," Goeglein said. "As Pinnacle embarks on a new phase, we will continue to focus on building lasting shareholder value, supported by our diverse portfolio of gaming properties and a solid balance sheet."

Deutsche Bank securities analyst Andrew Zarnett said the resignation of Lee follows an incident during a St. Louis County Council meeting last week.

"Mr. Dan Lee angrily responded to a council vote, which favored the re-zoning of a site near Columbia Bottoms Conservation Area in North County, permitting the development of a new casino and entertainment complex in this area (limitations had been place on new licenses in that state following the November 2008 statewide referendum). Subsequent to his actions, Sen. Timothy P. Green, D-North St. Louis County, had asked the Missouri Gaming Commission to investigate the actions of Mr. Dan Lee, which we believe may be under way."

"This event clearly brings to the surface the political risk that has historically afflicted the risk profile of the gaming industry. Given the limited diversification available to many gaming operators, adverse political risks such as the one present in Missouri today or for that matter in the past (Station Casinos left Missouri in 2000) may negatively impact a large portion of a company's EBITDA (a cash flow measure)," Zarnett said in a report. "That political risk as well as unexpected (and what could be perceived as arbitrary) increases in gaming taxes or additional fees or perhaps additional licenses as well is why we believe many have had an adverse appetite to invest in (gaming)."

He called Goeglein and Giovenco "highly experienced" but likely not intent on holding the Pinnacle leadership reins for the long term.

"Further, given the changes in this industry over the last couple of years, the bullpen is filled with highly qualified executives like Mr. Bill Weidner and Mr. Brad Stone, formerly with Las Vegas Sands, who could suit up for a new assignment,'' Zarnett wrote.

Pinnacle has operations in Louisiana, Indiana, Missouri, Nevada and Argentina.

Despite the management shakeup, Pinnacle shares rose 4 percent to $9.08 in midday trading today.

Discussion: 3 comments so far…

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By American_Gaming_Guru

Nov. 9, 2009

8:32 a.m.

Suggest removal

There is certainly more here than meets the eye here. I think there was some shenanigans with politicians in Missouri trying to force PNK to sell one of their licenses. Couple that with a rather "passionate" CEO and things went very wrong.
By stratboy

Nov. 9, 2009

11 a.m.

Suggest removal

Remember the drama with Stations and Missouri. That's how Ameristar got a riverboat and Stations got "The Reserve" now knowns as Fiersta Henderson.
By GrandmaCrabby

Nov. 9, 2009

7:17 p.m.

Suggest removal

The story quotes Zarnett as describing EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) as "a cash flow measure."

That's not an accurate description on their part. The following excerpt from Investopedia may shed some light:

"EBITDA first came into common use with leveraged buyouts in the 1980s, when it was used to indicate the ability of a company to service debt. As time passed, it became popular in industries with expensive assets that had to be written down over long periods of time. EBITDA is now commonly quoted by many companies, especially in the tech sector - even when it isn't warranted.

"A common misconception is that EBITDA represents cash earnings. EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings. When using this metric, it's key that investors also focus on other performance measures to make sure the company is not trying to hide something with EBITDA."