Anthony Sanfilippo, Casino Journal’s Gaming Executive of the Year, has Pinnacle Entertainment poised for future growth.

Lumiere Place Casino & Hotels


Table game room at River City Casino

Anthony Sanfilippo is a man on a mission. On paper, Pinnacle Entertainment-the company Sanfilippo took over as president and CEO in March, 2010-is somewhat modest as commercial casino enterprises go, with seven properties in four states that generated net revenue of $1.1 billion last year. Although currently limited in scope, Sanfilippo envisions a grand future for Pinnacle, nothing short of it evolving into the “best casino entertainment company in the world,” a slogan that has become the company’s internal mission statement since he came on board.

In the brief 14 months he has been on the job, Sanfilippo has diligently built the foundation needed to make this statement a reality. He has altered the company focus from development to operational growth, instilled a new corporate philosophy that puts customer, employee and shareholder concerns first, and launched an evolutionary player reward program to capture and retain upper-end clientele.

“Prior to my arrival, Pinnacle concentrated more on opportunities for development than being a great operating company,” Sanfilippo said. “Of course, at that time there were a lot of opportunities for domestic development, which led to the creation of a lot of great assets that were and are the best in their markets. But the company really didn’t focus on operationally good day-to-day practices. That is what we have worked on the past year-creating a corporate function that constantly looks to add value and better operations.”

So far, Pinnacle has performed well under Sanfilippo’s oversight. At a time when most gaming operators continue to feel the pinch of a recessed economy, Pinnacle Entertainment’s $1.1 billion in 2010 net revenue was an 11 percent increase over the $987 million in revenue the company generated in 2009. Even more impressive was Pinnacle’s improvement in earnings-from $160 million in consolidated adjusted EBITDA in 2009 to $214 million in 2010, a 33 percent increase. Operating income, a $14 million net loss in 2009, rebounded to $52 million in 2010.

“It’s clear that the strong 2010 financial results, including substantial increases in adjusted EBITDA and operating margins--both of which outpaced revenue growth--demonstrate significant progress toward our goal of driving improved returns from our property portfolio,” Sanfilippo said last December. “Notably, Pinnacle has further opportunities to improve utilization of our personnel and systems to grow hotel yields, optimize our gaming floor layouts and game mixes, revise our approach to marketing and promotional activities, and effect additional corporate and property expense reductions. Each of these factors contributed to our strong full-year results and these areas remain priorities for improvement in 2011.”

Indeed, these results appear to have carried over into 2011, with the company reporting first quarter net revenues of $287 million, a 9.6 percent increase over the $262 million produced the same quarter last year. Adjusted EBITDA totaled $62 million, a 14.3 percent uptick over 2010 numbers.

Pinnacle’s continued strong performance has not gone unnoticed by the financial community. “From our perspective, Sanfilippo’s changes at Pinnacle have been positive,” said Michael Paladino, senior director and analyst of gaming, lodging and leisure for Fitch Ratings. “He has refocused the company away from development and more toward operations, which is good. The margin improvement has been really solid thanks to this operations focus, and there has been three solid quarters of EBITDA growth. It’s clear his management strategy is being executed, which can only be viewed positively.”

Sanfilippo’s emphasis on organic growth through better operational practices does not mean he’s neglecting brick-and-mortar development. Pinnacle currently has a couple of projects in the pipeline. L’Auberge Casino & Hotel Baton Rouge is under development and scheduled to open in the summer of 2012. The $357 million Louisiana-based project will include a 30,000-square-foot casino, a hotel, a multipurpose event center and a parking garage. Meanwhile, Pinnacle purchased River Downs Racetrack in Cincinnati, Ohio, in January for $45 million. Plans call for creating a VLT parlor at the site once enabling legislation for the slot-like machines is approved.

Sanfilippo also has an eye out for any overseas casino development opportunities that may crop up, especially in Asia. “In five years time, we will no longer be considered a regional gaming company-we will have expanded beyond that,” he said. “This could include an international presence; we like the growth profile in Asia.”

Pinnacle Entertainment’s turnaround, continued strong performance and stated goal of becoming a major player in the gaming space make Sanfilippo a fitting recipient of Casino Journal’s 2011 Gaming Executive of the Year designation.



Belterra Casino Resort & Spa

CLIMB TO THE TOP

Sanfilippo’s entrée to the gaming industry took place in Austin, Texas, where he worked alongside someone who had just come from Harrah’s Entertainment (now Caesars Entertainment). “He said that if he was a young man like me, he would go work for Harrah’s,” Sanfilippo said. “He said that it was a great opportunity in a growing industry and that Harrah’s trained and promoted from within. I had never been to a casino before, but I took a couple of days off, went out west to Reno, interviewed, and landed a job with Harrah’s.”

That was 1983 when Harrah’s was primarily a Nevada-based casino operator. Sanfilippo started in the corporate accounting office in Reno but soon transferred into hotel operations and eventually landed in Las Vegas as the head of hotel and non-gaming operations for the Holiday Casino. In 1993 gaming had spread across the U.S., Harrah’s was following it, and Sanfilippo was given a chance to be the opening day general manager at a casino facility Harrah’s was developing in Shreveport, La. By 1997, Sanfilippo has risen to the post of divisional president for Harrah’s Central and Western divisions, responsible for the management of 35 gaming properties and thousands of employees.

“I was involved with tribal casinos, commercial casinos and racinos,” Sanfilippo said. “I oversaw large properties like Harrah’s New Orleans. I very much enjoyed my time as a divisional president, I learned a lot.”

That’s not to say the job was without its challenges, the largest being Hurricanes Katrina and Rita, which struck while he was in charge of Harrah’s southern casinos. “Both of those natural disasters primarily hit my division,” Sanfilippo said. “In addition, Harrah’s had recently purchased the Grand Casino properties in Biloxi and Gulfport. Both of those were destroyed. Harrah’s also had two licenses operating on Lake Charles and Rita destroyed both of those. Harrah’s had 8,000 team members affected by these storms and all of them were part of my division.”

Sanfilippo oversaw the rebuilding and reopening of Harrah’s southern assets but soon after felt it was time for a change. “My employment agreement with the company was up in 2007,” he said. “I had been there 23 years, 10 of them as divisional president. I decided to see what else was out there.”

Instead of latching on to another casino company, Sanfilippo decided to tackle a new industry-slot machine manufacturing. In 2008, he became CEO of Austin-based Multimedia Games. “I enjoyed being on the supplier end of the business and focusing on game technology,” Sanfilippo said. “I realized how much I didn’t know about technology on that job and once again I learned a lot. Multimedia was a terrific company with lots of talented people.”

Sanfilippo might still be working at Multimedia if it wasn’t for Pinnacle knocking at his door in January 2010 with an offer that “fit my sweet spot,” he said. “Really, the only opportunity that could have turned my head from Multimedia was the Pinnacle Entertainment job. The company had great assets in markets I knew and operated in before.”

Pinnacle Entertainment came into being in 2000, when the non-racing properties of Hollywood Park were spun off into a separate company before the track was sold off. At that point, Pinnacle consisted of Boomtown Casino Reno in Verdi, Nev., and Boomtown Casino New Orleans, which was based in Harvey, La. The company grew quickly in the first decade of the new century, opening Belterra Casino Resort & Spa in Southern Indiana in 2000; L’Auberge du Lac in Lake Charles, La., in 2005; Lumière Place in downtown St. Louis in 2007; and River City in southern St. Louis County in 2010. The company had also acquired Casino Magic gaming properties in Biloxi, Miss., Argentina and the Bahamas, and had purchased and demolished the old Sands Atlantic City in preparation of building a $5 billion megaresort.

But then the recession hit and Pinnacle Entertainment, like many gaming companies, suffered. By the end of 2009, gaming revenues had seemingly plateaued at $980 million and adjusted EBITDA was stuck at $160 million. Making matters worse, Dan Lee, the former CEO, suddenly resigned from the company in November 2009.

Sanfilippo seemed to be stepping into a less than ideal situation.





Pinnacle's L'Auberge Casino & Hotel Baton Rouge is scheduled to open summer of 2012.

INNER GROWTH

But Sanfilippo felt he could quickly turn the company around, primarily by installing an operations-first mentality throughout the enterprise. “The company was not focused on operations,” he said. “There was lot of profit to be had if we paid more attention to how we ran the various business units within our properties.”

Sanfilippo’s solution was to have the company concentrate on three key assets: customers, team members and shareholders. Going forward, capital and time expenditures would only be undertaken if they directly benefited one of these core three groups. “These three things are key to a successful organization,” he said. “You need to take great care of your guests. You need to have engaged and dedicated team members to take care of guests. You need to meet your responsibilities to the shareholders and owners of the company. If what we’re doing doesn’t benefit one or all of these groups, then why are we doing it?”

Facets of Pinnacle’s business that could not prove accretive to these core beliefs were dropped. For example, Pinnacle had its own aviation department consisting of a jet for corporate travel and seaplanes that were supposed to bring high-roller customers to properties but were little used. One of Sanfilippo’s first acts was to ax this department. All Pinnacle employees are now expected to fly coach.

An operations-first business approach also called for the company to jettison some of its properties and development plans. Pinnacle has sold off its Argentina casinos and is looking for a buyer for its Atlantic City parcel. It has also discontinued its Mississippi and Bahamian operations.

“These acts sent a strong message throughout the organization that said we’re only going to spend money if it benefits our guests, team members or shareholders,” Sanfilippo stated. “We made some decisions that may have been uncomfortable for people, but they were the right business decisions to make. Our team members throughout the organization got it… we are a company solely focused on three facets right now.”

Sanfilippo believes this three-facet approach to business also provides market distinction to Pinnacle and its properties. “There are a lot of one-dimensional companies out there that are only focused on financial outcomes,” he said. “They think of the guest in a transactional manner only. We don’t. We see the guest as central to the success of our enterprise.”

The fact that Pinnacle has embraced this strategy so quickly and efficiently is a testament to Sanfilippo’s management style which emphasizes respect and collaboration. He fosters an environment where employees feel heard and valued, and where there are no silos between departments-everyone is on the same team working for the same common goals.

“I felt like the organization was hungry for leadership,” Sanfilippo said. “The organization had many members in it that wanted to be successful and were only looking for a CEO that would set a direction and a path to success.”

“Anthony is a very good judge of character and he knows the type of company he wants to create,” said Ginny Shanks, executive vice president and chief marketing officer for Pinnacle Entertainment, who worked with Sanfilippo at both Harrah’s and Multimedia Games. “He knows the best way to get there is to create an environment for talented people to really do their job well and not have to spend a disproportionate amount of their time deflecting other people’s agendas.

“And we don’t. I will tell you it is a joy to come to work because we don’t spend hours a day in meetings and we don’t have to lead our conversations with presentations. We really just trust in each other. We have a good team working toward the same goal.”



(Left to right) River City Casino Senior VP and GM Neil Walkoff and his wife Julie, Sanfilippo, and Jenny Jones, VP of player development for Pinnacle St. Louis, enjoy a day at Busch Stadium.

A MATTER OF CHOICE

The company’s revamped mychoice guest loyalty program is the result of just such a collaborative effort. The highlight of the program is its Owners Club designation, which is given to only the most valuable of Pinnacle’s loyal customers. Owners Club members receive 100 shares of Pinnacle stock, an annual multi-night package at Wynn Las Vegas or Encore, a cruise on a Royal Caribbean liner and annual lease payments for a Mercedes-Benz sedan or SUV. All these perks are unique to the gaming industry and were brainstormed during meetings between Sanfilippo and various Pinnacle departments.

“Anthony’s management style allows room to innovate as well, which is really evident with the mychoice program,” Shanks said. “That was put together in less than a year with the bulk of the work completed in six months.We were able to do it because we were all focused on that singular goal. We didn’t have to sell it in to so many people that it got diluted. There is trust in the decision making that we have with our leadership team.”

In return, mychoice has already helped to boost Pinnacle’s bottom line. “On the revenue side, we have already seen early benefits from the revised mychoice rewards program,” Sanfilippo said.

Even with a strong rewards program, Sanfilippo realizes the company will eventually have to look beyond internal measures for continued growth. That is why the company is continuing with its plans to develop gaming properties in Baton Rouge and Cincinnati. Sanfilippo also made it clear Pinnacle is willing to consider expansion opportunities beyond U.S. borders. “We pay attention to potential expansion not only domestically but internationally,” he said. “We feel strongly we are a very good operator and we provide a lot of memorable and magical experiences for our guests. We will grow wherever it makes sense for us to grow and where there is the best opportunity from a shareholder perspective.”

Fitch Ratings’ Paladino sees value in Pinnacle pursing a controlled brick-and-mortar growth strategy. “Right now, they only have a handful or properties and two true core markets-St. Louis and Lake Charles,” he said. “Baton Rouge is an attempt to establish themselves in a third core market, which is a prudent approach for the company to take.”

Shanks sees Baton Rouge and Cincinnati as only the first two steps of what will be an eventual giant leap forward by Pinnacle Entertainment. “This is a growth company,” she said. “Anthony’s goal when he came into the company was to insure that it was a growth company. He told the employees when he stated that his goal is for Pinnacle to be the best casino entertainment company in the world. That is a lofty statement. When you put that out there, I think it inspires people to be their best.”



SIDEBAR: Pinnacle Entertainment Properties at a Glance

Belterra Casino Resort & Spa
Location: Belterra, Ind.
Amenities: A 38,000-square-foot riverboat casino with 1,500 slots and table games, 608 guestrooms and suites, seven food venues, a shopping pavilion, a spa and salon, a 1,500-seat entertainment showroom, an 18-hole golf course and 50,000 square feet of meeting and conference space.



L'Auberge du Lac Casino Resort
Location: Lake Charles, La.
Amenities: A 30,000-square-foot riverboat casino with 63 table games and over 1,600 slot machines, two luxury hotel towers with over 1,250 rooms, a villa complex, nine bars and restaurants, retail shops, 26,000 square feet of meeting and conference space, two themed pools, a spa, a fitness center and a golf course.

Lumière Place Casino & Hotels
Location: St. Louis, Mo.
Amenities: A single-level, 75,000-square-foot riverboat casino with 2,000 slot machines, 55 table games and a 13-table poker room, two hotels with 500 combined rooms, seven restaurants, a theater and boutique shops.

River City Casino
Location: St. Louis, Mo.
Amenities: A single-level, 90,000-square-foot casino with 2,000 slot machines and 55 table games, eight restaurants and bars and retail shopping.

Boomtown Casino & Hotel Bossier City
Location: Bossier City, La.
Amenities: Three-level casino with 1,062 slots and 28 table games, 280-room hotel, swimming pool and Jacuzzi, fitness center, four restaurants, 2,400 square feet of meeting/conference space and a gift shop.

Boomtown Casino New Orleans
Location: Harvey, La.
Amenities: A 30,000-square-foot riverboat casino with 1,500 slots and 27 table games, four restaurants, a 500-seat entertainment venue and over 4,700 square feet of meeting/conference space.

Boomtown Casino & Hotel Reno
Location: Verdi, Nev.
Amenities: A casino with slots and table games, 318 guest rooms, 203-space RV Park, 10,000 square feet of meeting/convention space and six dining options.



INTERNET EXTRA: Pinnacle Invests in Asian Coast Development Ltd.

Pinnacle Entertainment has entered into a subscription agreement to acquire a 26 percent equity interest in Asian Coast Development (Canada) Ltd. (ACDL), the owner and developer of the Ho Tram Strip, Vietnam's first destination integrated resort and gaming complex, in exchange for a $95 million investment in ACDL securities.

Upon the closing of the transaction, Pinnacle will enter into a management agreement through 2058 (with the potential for a 20-year extension) for the second integrated resort of the multi-phase Ho Tram Strip destination resorts project located approximately 80 miles southeast of Ho Chi Minh City, Vietnam's largest city which attracts the majority of Vietnam's five million tourists each year. The transaction documents provide for proportional representation on ACDL's board of directors and are subject to customary closing conditions.

The Ho Tram Strip will be and is scheduled to open in multiple phases, the first being MGM Grand Ho Tram, which is currently under construction with a planned opening in 2013. The first phase of the MGM Grand Ho Tram will feature 541 luxury guest rooms and suites, a full spectrum of world-class restaurants and amenities, exquisite VIP accommodations, a conference center, and a spectacular entertainment area featuring 90 live table games and 500 electronic games. Pinnacle and ACDL will develop the second project, which will be similar in scope to MGM’s.

"Our investment in ACDL and long-term management agreement for the second integrated resort bring meaningful strategic benefits to Pinnacle, including further diversification and potentially very significant returns on invested capital," said Anthony Sanfilippo, president and CEO of Pinnacle Entertainment, in a statement. "The phenomenal success and continued strong growth of destination integrated resort and gaming facilities in Asian markets are indicative of the demand for quality gaming entertainment options in Asia. We believe this region, when measured by gaming positions per available population, has strong growth potential, especially when compared to more mature markets.”