You could probably pick a better time to build a gaming company than the Great Recession and its sluggish aftermath, but no one can ever accuse Tilman Fertitta of not knowing when to make a deal or how to build a company.
Fertitta, the founder and architect of Landry’s, Inc., opened his first restaurant in 1980 and it grew steadily to $30 million in revenue by 1993, when he took the company public. Today, Landry’s, which Fertitta took private in 2010, operates about 425 full-service restaurants under 30 different brand names such as Chart House, McCormick & Schmick’s, Mastro’s, Bubba Gump Shrimp Co., Morton’s and Rainforest Cafe; non-gaming luxury hotels; four casinos (with a fifth set to open next year); and luxury destinations such as the Kemah Boardwalk near Houston and the Galveston Pleasure Pier. All told, Landry’s is projected to generate over $2.7 billion in revenue this year.
Landry’s entered the gaming industry in 2005 when it purchased two Nevada-based Golden Nugget properties, in downtown Las Vegas and Laughlin. Starting out with the idea of owning 10 or perhaps a dozen casinos, Fertitta watched as the industry struggled in established markets across the country. But, in fairly short order he has planted the Nugget flag in Atlantic City, Biloxi, Miss., and Lake Charles, La., acquiring properties in each market in 2011, 2012 and 2013 respectively. Along the way, the Golden Nugget has won praise for the quality and appeal of its renovated properties, the clarity of its branding and its willingness to invest in a marketing vision that leverages the full weight of Landry’s as a leisure entertainment company. With those achievements in mind, Casino Journal is proud to name Tilman Fertitta its 2013 Executive of the Year.
DOING IT HIS WAY
The Fertitta name is of course familiar to the gaming industry, perhaps less so the family’s Galveston, Texas, roots where, during the city’s so-called “open era,” the family had its first exposure to the casino business before the political tide led to a crackdown on previously tolerated, and thriving, gaming establishments in the late 1950s.
“What happened was when the city closed up in Galveston, Frank picked up and moved to Vegas,” Fertitta said. “Frank’s dad had died and my dad’s mother didn’t want to go to Vegas. And my dad’s a great guy and he would have done well out there. We stayed in the Houston/Galveston area and, growing up, I worked in my dad’s restaurant.
“[But] I was real close to Frank and Lorenzo’s dad,” Fertitta added. “When I was young I was already very entrepreneurial and I always kind of ran with the next generation of the family. I was also always familiar with gaming because I would visit Las Vegas when Big Frank was at Circus Circus. I did my first hotel with Frank Sr. in Galveston and I was an entrepreneur doing deals. The rest is history. I can remember sitting there with them in April of ’93 when they went public and it was just Palace Station with the dream of another location. My cousins have done a great job and here we all are today.”
With his first acquisition, Fertitta and Landry’s showed right off that they were a qualitative addition, both to downtown Las Vegas and to the broader gaming industry. The company invested over $300 million in the Nugget, updating and expanding the project, culminating with the opening of a new, 500-room hotel tower in 2009. Other additions included The Tank, a year-round outdoor swimming pool complete with a 200,000-gallon live shark aquarium, private cabanas and a sleek H2O poolside lounge that was voted a Top 10 swimming pool in the world by Forbes Traveler; a new Chart House restaurant with a 75,000-gallon aquarium; and high-end retail. The downtown Nugget is the only Nevada hotel to win the AAA Four Diamond Award in consecutive years since 1977.
“When I bought the Golden Nugget, two years later the roof kind of fell in on gaming,” recalled Fertitta, “but I think I’m still the only guy that, in the tough times, ended up owning more. I was a public company and I went private when times were tough. Everybody else lost equity in their properties and I own 100 percent. I think one of the things that gave us an edge is that the gaming industry had never seen a downside. And I always used to discuss that with Frank. There had never been a downturn, ever, until 2007. It went like this for truly 50 years. Percentage-wise and number-wise, we’re one of the best, if not one of the top, operators of restaurants in the country. You don’t have slot machines; so you understand how to manage operations. I think that was an advantage for us.”
Landry’s was able to keep “decent margins” at both the Nevada Nugget properties. “When we first went in we took the Golden Nugget from $27 million in Vegas and $5 million in Laughlin to $52 million and $11 million,” said Fertitta. “I remember people saying, gosh, you’re never going to do more than $5 or $6 million in Laughlin. We took it to $11 million in the second year and even during tough times it has never gone below $10 million. Not growing up in gaming and being able to understand how to operate a restaurant and not have all the fat has helped us tremendously. Tough times have made them all be better operators now, but they weren’t before.”
ALIGNING WITH LANDRY’S
Food is one window into how Fertitta sees Landry’s and its market position, be it gaming or otherwise. The company’s restaurant brands are popular features at its casinos, and they are also shaping up as an important differentiator in the ever more crowded and competitive casino business.
At the Nugget in Vegas, for instance, Fertitta focused on “having restaurants that people want to eat at,” he said. “I think sometimes people get caught up in these name-brand chef restaurants but there are only a small percentage of people who even know who they are. I still believe you make it with the masses and spend it with the classes. Our restaurants do very well in Vegas. Vic and Anthony’s has been the number one steakhouse on OpenTable many months. A lot of casino executives come and eat with us because they want to eat good food, not just a bunch of foo-foo food.”
Along those lines, Fertitta’s goal with the Golden Nugget is to make it one of the nicer properties in whatever market he’s in. “Is the Vegas Golden Nugget a Wynn or a Bellagio? No, but it dominated downtown and if you put in on the Strip it would still be one of the nicer properties. If you go back and look at a picture of how the Golden Nugget looked from the exterior when I bought it, it’s a totally different property now. And when I built a new tower, instead of making it look glassy and shiny I took the old buildings and made them look newer and made the new tower the same so they look like they always looked like that together. In every market, I want to be one of the best. In Atlantic City, I still have one of the best looking properties; everything is new, including the rooms. Same thing in Biloxi and in Lake Charles, because it’s truly a new property, is going to be as nice a property as you’ll see anywhere.”
Fertitta has stayed away from challenging and costly licensing battles in new jurisdictions and kept the focus on acquiring existing properties in established markets. “One of the reasons I’ve been successful and have a $3 billion company today with 55,000 employees is I fight battles I can win,” he said. “There is only so much human capital and capital in general. I’m more of a sure thing kind of guy. I’ve also always known my place. Where I might be a bull in the restaurant industry and bought six public companies and done more M&A than anybody else, I’m not the bull in the gaming industry. My goal has always been to have around 10 or 12 properties in good markets around the country. The recession slowed us down. I’ll have five properties come next year so I’m well on my way again. But it’s also a different world than it was when I got into the business in ’05. It has gotten a lot more competitive; you just can’t go out and spend $1 billion on a property anymore.”
To help compete in gaming, the restaurant side is being fully leveraged. The Golden Nugget started the first Wine Fest in Vegas and the first Beer Fest; and Golden Nugget Atlantic City last month started the first Whiskey Fest, ideas that came out of the corporate special events department. Moreover, Landry’s, whose restaurants have 1.1 million Select Club Card holders, is developing a one-card solution that will enable customers to apply points earned from eating at its restaurants and taking them to a casino and exchanging them for slot points. Or taking slot points and using them to eat in one of its restaurants, which is being tested right now in Atlantic City.
“We’ll end up with one card with gaming and restaurant brands that you can use everywhere,” said Fertitta. “When people sign up, they’ll be asked if they want the combination or not. We sign up an average of 1,000 per day Select Club members. That’s nothing compared with what casinos sign up but a lot of people sign up at casinos and might not ever go back for five years. They sign up because they think they’re getting something that day. Our Select Club customer signs up and continues to use the card. And to think that still every day we’re signing up over 1,000 people; you’re building a real customer, not just one for the weekend or that week’s stay.
“It’s kind of funny, we had people in Hawaii sign up for the Select Club just so they could get their room upgrade in Vegas downtown. We let them know what they can get at our properties. But now being more diverse with multiple locations and being in the South with two properties in Biloxi and Lake Charles, the card is going to be huge for us. We’re very strong in Houston but we never had a shot at getting a lot of those people to Vegas because they never went downtown and they were already someone else’s customers. We’re going to build on those higher-end customers in Lake Charles. And now that they’re your customer you can introduce them to the Vegas property. So we’ll be spending more money on the Vegas property right now, continuing to upgrade it because we’re going to have more customers.”
ROAD TO LAKE CHARLES
Landry’s next stops after Nevada were Atlantic City, where it purchased the Trump Marina for $38 million, and Biloxi, where it purchased the Isle of Capri for $45 million, with each property receiving a $150 million makeover. The fully renovated Atlantic City property opened last fall and the Biloxi renovations will be completed next spring.
“The reason I’ve been able to make Atlantic City work and I’ll make Biloxi work is that I took properties that look brand new but if I would have built them new they would have cost $500 or $600 million,” said Fertitta. “Biloxi is the third-largest property in the market with 730 rooms, and to go and build that new would have been impossible.”
The two mature markets have their own sets of challenges, Atlantic City in particular. While the Golden Nugget has outperformed the market there, the market has lost so much revenue to competing jurisdictions that success is most often measured by losing revenue at a much slower rate than most of its competition.
“In Atlantic City, you just have to wait it out and see what happens,” said Fertitta. “I still have one of the best looking properties; everything is new, including the rooms. Atlantic City is never going to be good enough again to support 12 casinos. There are a fortress of casinos coming in around it; you’re seeing the addition of casinos to Baltimore, Washington and Boston and you’re not brining any new people into Atlantic City.”
From a regulatory standpoint, New Jersey has been “a disappointment,” said Fertitta, the pending creation of an Internet gaming market there notwithstanding.
“They still require 30 days just to move a slot machine,” he said. “You can’t just react and move a slot machine. I can’t even go sit at a table or a slot machine at another casino in Atlantic City just to see what they’re doing. Isn’t that crazy? I’m not a big gambler, but I love to go into my competition and sit down and see what’s going on. A lot of New Jersey’s pain is self-inflicted. I just think they’re still in the trap of thinking that everything’s going to work out.”
Golden Nugget Atlantic City received its Internet gaming license in October, but Fertitta warns against inflated expectations. “It’s something that you’ve got to do because it’s there,” he said. “I don’t think it’s a panacea. I’m not sitting there saying, ‘gosh, I’m going to be making $50 million out of it in the next five years.’ I think you have to do it for your brand because everyone else is doing it and you might make a little money out of it. But it’s not the savior for Atlantic City.”
The picture is dramatically different in Lake Charles, which Fertitta calls, “a protected market; all of Texas” (he does not see Lone Star state politics lending themselves to casino legalization anytime in the near future). Landry’s purchased Ameristar’s casino-in-development from Pinnacle, which was compelled by the FTC to divest it following its acquisition of Ameristar, as it operates the market-leading L’Auberge du Lac next door. The price was Ameristar’s invested capital ($213.9 million) and other development costs minus a $37 million credit. Another $600 million will be invested into Golden Nugget Lake Charles, which is projected to open next November and will include an 800-room hotel and an 18-hole championship level golf course.
“You’ll see us make use of the waterfront in Lake Charles,” Fertitta said. “We’ll have three restaurants opened up to the water and the way we’re doing the beach, the marina and everything; we’re making the exterior and the waterfront of Lake Charles more a part of the casino.”
“L’Auberge property and our property are going to be two of the nicest properties side-by-side anywhere in the United States of America, including the Strip, and ours is going to be 10 years younger,” Fertitta added. “You’ll drive into these two beautiful golf courses; we’ll both be on the water with beaches, and great restaurants. Between the two of us, all we have to do is $200 million in EBITDA and we’ll both be successful. We’ve got 15 million people within driving distance. We’ll bring in a lot of new people. You want some competition because people still want to go next door to another property. I feel I have a built-in customer with their customer base because everyone who goes there is going to gamble with me. I think it’s going to help both properties. I think you’ll see a little dip in the beginning then I think we’re going to both do great.”
Supporting it all will be the tight executive team at Landry’s that Fertitta has assembled over the years and has remained remarkably stable. “I have never had turnover with my key people; isn’t that interesting? And I’m not easy,” said Fertitta. “But you know where you stand, and it’s fun. We’ve never not had a very interesting year.”