Q&A: Scott Butera

By Liz Benston

Friday, Sept. 10, 2010 | 3 a.m.

Although some casino employers battle labor unions, Tropicana Entertainment CEO Scott Butera makes peace with them.

Butera, a Wall Street investment banker for 14 years, left to restructure Donald Trump’s ailing casino company in 2002. He’s a pragmatist with a Mr. Fix-It reputation who thinks Chapter 11 is preferable to postponing debt obligations.

Since 2008, Butera has been repairing damage at Tropicana Entertainment, a mismanaged company bought out of bankruptcy this year by investors who include Carl Icahn.

Icahn, who won the stalled Fontainebleau at auction, has generated profits of more than $1 billion by turning around cash-strapped casino companies. With nine casinos in five states, Tropicana Entertainment was the first major casino company to exit from Chapter 11 since the recession. After reducing debt by $2.5 billion in bankruptcy, it reported an operating profit in this year’s second quarter.

Las Vegas-based Tropicana Entertainment doesn’t have a local property, but has two in Laughlin. The Tropicana Las Vegas was purchased out of bankruptcy by different investors.

How did Tropicana Entertainment lose control of the Tropicana Las Vegas resort to another group of creditors in bankruptcy? Was there any effort made to keep this prized asset?

The Las Vegas property, which was funded as a land loan, had a separate set of creditors than the rest of the company. Each group had its own bankruptcy process and bankruptcy plan, which unfolded around the same time. At first, that land loan group of creditors didn’t have a manager, so the original plan was that we would end up running that property for them under a management agreement. But Onex Partners, which bought debt during the restructuring process, ended up controlling that creditor group. They wanted the property for themselves and had their own management in Alex Yemenidjian, so we went our separate ways. I was happy about it because we weren’t quite sure what we were going to do with the property. It’s an older asset in a competitive environment and was predicted to lose a significant amount of money. It wasn’t a bad outcome to have people willing to financially support it and keep it alive.

Are there any plans to fold the Fontainebleau on the Strip into Tropicana Entertainment given that the company lacks a Las Vegas casino?

Not at this time. A separate company, Icahn Associates, owns the Fontainebleau. Icahn owns 47 percent of Tropicana Entertainment, but he owns 100 percent of Fontainebleau. Anything’s possible down the road but at this point, they are two separate entities.

Why move the company’s headquarters here without a Las Vegas casino presence? Any chance you will move elsewhere down the road?

We moved here from Kentucky in 2008 for strategic and financial reasons, including access to gaming professionals, recruiting opportunities and ease of access to our properties spread across the country. There are also some tax advantages here. It’s conceivable we could create a corporate presence in other areas such as New Jersey. At this point we still think it’s healthy and good for us to be based in Nevada, where we own three properties.

What’s it like working for Icahn?

I enjoy working for Carl. He’s very excited about the business and he likes the gaming industry, where he’s done very well as an investor. He’s very smart and a strategic thinker. Carl and his team have helped us in the way we think about the types of initiatives to take on and avoid. He gets involved. He’s been able to provide us with resources in operations and procurement. Icahn Associates was one of our lead lenders helping us exit bankruptcy. It’s been a great benefit and has given us an advantage.

How much influence does he have on day-to-day operations?

We spend a lot of time talking to Carl and other investors about what we’re doing. It’s our job to advise and execute. We need to give ownership our best viewpoint about what’s best for the business and work with them to come up with strategy and a business plan. In any healthy business there’s a lot of interaction on the decision-making front between management and ownership. Carl lets people he has faith in run their businesses. On a day to day basis, we’re able to do what we think is right for the company, but clearly we keep Carl and his team very informed and involved in anything of consequence.

You also worked for another high-profile guy. Can you compare and contrast Trump with Icahn?

I had a great experience working for both of them. They are very different personalities. Trump has a big media image and brand and has a lot of other things going on in his life. I was fortunate to work with him when he was doing well. They are both very smart and driven. There is no lack of work ethic between them. It’s incredible the amount of hours they keep and how disciplined they are about their businesses. With any person that achieves that level of success you’re going to find a significant amount of intelligence and work ethic -- and some fortuity along the way.

This wasn’t just a financial restructuring, but a complete management overhaul. What did that accomplish?

I’ve been involved in restructurings for a long time and it’s never really about the financing. At some point the financing made sense based on the operations and usually there’s a significant dropoff in operations. The last few years were probably an exception because the financing markets were so robust prior to the market crashing that people were able to get unusual amounts of financing. Usually there are significant operational problems that lead to a restructuring. The first thing we had to do was get the company’s finances ironed out. More important was getting the operations fixed. When I got here the company was broken, both front of house and back of house. Accounting, human resources, risk management, marketing, sales, hotel management, food and beverage -- none were functioning well. Hiring practices weren’t effective. People were in positions they shouldn’t have had, they weren’t trained to do their jobs well or they weren’t ethical. Because of the bad economy, we were able to recruit new management for all our properties. As a result, we were able to increase our bottom line in spite of a significant dropoff in revenues. We also hired a new corporate team over the past year and a half. We’re able to decentralize a bit now that we have good management at all our properties.

Did you set out to clean house?

When you have a company in as tough shape as ours was, there’s a pretty good chance you’re going to need to replace a lot of people. But it wasn’t like we came in to clean house and anyone who was with the old company was collateral damage. We spent a lot of time talking to people and finding out who was valuable. Some people we wanted to keep ended up leaving for other opportunities. It was rewarding to be able to recruit good people during the restructuring because that process can scare people off. When you’re turning around a company there’s never nirvana from Day One. Sometimes you need to make changes to take your company to the next level. We evaluate people and make sure they perform. And we’re not afraid to make changes.

How did things get so bad?

There was a bit of a misunderstanding about how a gaming company is run. The prior company was a hotel company that viewed gaming as an amenity. They had multiple general managers and people were not incentivized to work well together. Maybe there was lack of oversight from the top or oversight that was misguided. Either way, it wasn’t working. We installed strong corporate structure to get things fixed. (Former Tropicana Entertainment owner) Columbia Sussex and (CEO) Mr. (Bill) Yung have been very successful. It’s hard for me to say why it didn’t work out so well here. I don’t think it’s from any lack of effort or skill. It was a different time and an approach that didn’t work as well in this industry as they thought it would.

Casino workers are afraid for their jobs these days. What are you doing to reassure workers, in light of cutbacks under previous management?

Morale was really bad when I joined the company. A lot of workers had suffered through broad layoffs that were less than strategic. They were in the wrong place at the wrong time, which is the worst of all worlds. My approach has always been that our team members are our most important asset. Early on we came to an agreement with (union) UNITE HERE in Las Vegas and recently signed a contract with the United Auto Workers in Atlantic City. You can’t employ as many people in tough times, but we communicate with employees, so there are no surprises. It’s hard to handle bad news when it’s a total shock. I spend a lot of time with employees and managers explaining where we are going as a company. There will always be a home for talented, hard-working people. If you’re very good at what you do and enthusiastic, we need you more than ever. The employee who is biding his time, wishes he had another job or is upset about his pay is at risk. In tough times you end up with less people and those people work harder. You can accomplish reductions without layoffs with attrition if you’re patient and take a long term view. Morale is something you always have to work on, because it doesn’t take much to have a bad experience. Communicating with employees is key.

How are the company’s regional casinos performing relative to one another?

The benefit of having nine properties is better markets can offset worse ones. It’s going to be a grind until this economy improves, however. Every market is very challenged, with most experiencing flat to declining topline growth. Until we start to see meaningful job growth, this is going to be the new world order. The second biggest problem is supply. Prior to the bad economy we had this really great economy and all this investment, which created new competition. Atlantic City is getting increased competition from Pennsylvania, New York and Maryland. Some markets have been relatively stable. Our Indiana casino in Evansville is doing better than it was a year ago. Nevada has been challenging. Laughlin used to be the economic alternative to Las Vegas and now has to compete on more than just price, as well as new competition in feeder markets like Southern California, Phoenix and New Mexico. Because of all this new supply, regional markets are getting more localized. Your radius of people coming to your property is going to shrink. You have to focus on getting people to spend more at your property. People have a limited amount of time and money to spend. If they can do something that’s a block away versus three hours away its hard to convince them to come unless you offer something special. You have to accept that everything is becoming more localized. If you had a business that made a $1 billion and now makes $700 million that doesn’t mean it’s not a good business. You have to run it like a $700 million business -- you can’t have $800 million in costs. Atlantic City was a $4 billion market and might be a $3 billion market today. That doesn’t mean it’s not a great market. But you have to give people a reason to go there.

Are some operators misguided in trying to chase profits they had before the recession and may never have again?

I think so. We came into this situation with a fresh perspective. We cleaned things up to operate in this new world. A lot of companies have refinanced and postponed their debt obligations hoping for a financial recovery down the road. I don’t know what’s going to happen years from now. Maybe things do come back better than ever. Maybe they don’t. It’s hard to make the former argument. We’ve spent a lot of money trying to stimulate the economy and there are significant debts that need to be dealt with. I don’t see any huge catalysts for monster growth in the next few years. Rather than kicking the can down the road, it’s more prudent to bite the bullet and get your financial obligations to where they are manageable, even in bad times.

You’re a believer in bankruptcy reorganization. What about the costs and stigma associated with bankruptcy, especially for vendors left in the lurch?

It’s much safer for vendors to work with a company in bankruptcy. We had financing during the process to pay people, and vendors still want the business in this economy. We sat down with them and negotiated amounts based on what we thought we could pay. They knew if they had a significant claim they weren’t going to get 100 cents on the dollar. Vendors were pleased with the outcome because I don’t think they would continue to work with us otherwise. We’re a healthy, well-capitalized company and they are now part of our future growth. Bankruptcy has an ugly stigma, but we did a good job communicating to vendors what it meant and set a track record of paying people on time.

Was the bankruptcy process contentious? We didn’t hear much about it.

Everyone’s trying to maximize their position. There’s always conflicting agendas. Our senior lender group and our subordinated lender group sometimes had different ideas about what they wanted to accomplish and whether to go forward with an asset sale. Our Evansville property went through a sale process and I’m glad it didn’t come to fruition, because that’s one of our better assets. A lot of times lender groups trade positions and then have different goals. It can be difficult at times when one group is telling you to do one thing and another group is saying something else. That happens with every restructuring. You have to do your best to explain to each group that everyone’s opinion is being considered and this is what’s right for the estate. Having had the benefit of going through it multiple times, you have to listen to everybody and stick to your guns if what you’re doing is best for the estate. Everyone has the opportunity to step up and write a big check if they want more influence.

You were brought in by lenders so you had their support throughout the bankruptcy process, correct?

Everybody felt what we were doing was good for the company. But you still spend a lot of time finding out what creditors want. The companies that have trouble in a restructuring are ones that stick to their guns without taking into consideration what their significant shareholders want. If someone writes a big check and wants to be an owner of your company, that’s somebody you should be working with. Maybe they will write another check. I think some people get scared or get into a bunker and hope they can click their ruby heels and it will all go away. That’s not how it works. It’s a grind. No matter how much bad news you have to deliver, you have to make sure you’re talking to everybody.

Has the recession scared off Wall Street investment in casinos?

Wall Street will always support this industry. You have hard assets and good cash flow, which are two things Wall Street can rely on. We’re not as big a growth story as some industries like high tech, but in a bad economy we become more attractive in some ways. We’re highly regulated so the odds of some fraud or accounting scandal isn’t as great as some businesses. If you have to foreclose, you get a piece of valuable real estate and something that’s making money even if it wasn’t able to make debt payments. Wall Street will get more picky about who they support but the best operators will still attract capital.

How is the recession affecting the industry’s investment decisions?

The idea that we’re going to invest in new real estate and make our rooms more beautiful every three years is over. The economics have changed so we need to find other ways to attract customers. We have to grow into a huge amount of supply. Technology and the Internet are areas where you could see significant growth. I think Internet gambling will eventually be regulated in the United States and bring monumental change. Rather than invest in a new hotel tower, maybe you’re investing in a gaming website, for example. People like to gamble, so there will always be growth, but the types of things creating that growth are changing.

You’re rolling out a new Trop Advantage reward card in Laughlin that will eventually work at all of the company’s properties. What else are you doing to start cross-market your casinos?

We have a centralized marketing effort now and our messaging, which mentions all our properties, is consistent. Previously each property had its own loyalty card. Our Laughlin properties would compete against one another. We recently had a meeting with all of our general managers in Las Vegas to discuss cross-marketing opportunities. We’re doing things to create a more prominent local presence, including hosting community events. We are mailing to a smaller radius as a result of new competition in surrounding states. We’ve backed off of billboard and radio ads. Rather than spending money on a lounge act people might not care about, we’re giving customers a free night in the hotel or a free buffet, for example. We’re getting smarter about where we spend our money and we’re thinking about what we would want if we were in the shoes of our customers. Do I want to go to a place with five restaurants or a place with three restaurants but more practical offerings like a pharmacy or a supermarket or a post office?

What about future growth and acquisitions, especially Las Vegas?

Our goal is to continue to improve the operations we have now and get into new markets. We like regional markets in the United States, where we are looking at distressed properties. If we can buy something economically and turn it around, that’s our ideal situation. We’re not adverse to building, but that’s not going to work in this economy. We’re not looking at anything in Las Vegas at the moment. If something became available at the right price, we would take a look. I’m a believer in Las Vegas long term and I’d love to see us here at some point.