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Fox Sports: "Zach Arnold's Fight Opinion site is one of the best spots on the Web for thought-provoking MMA pieces."

« | Home | »

Reports: Station Casinos is in big financial trouble

By Zach Arnold | October 23, 2008

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When Dana White announced a while back that Lorenzo Fertitta was making a 100% commitment to UFC and moving away from actively managing Station Casinos, it was heralded as a move that was going to forever change the MMA business. Much to the credit of Fight Opinion Radio lead host (Jeff Thaler), Jeff never bought into the initial explanation given as to why Lorenzo Fertitta would give up such a lucrative position in Las Vegas to go to UFC — a profitable company, but nothing close to the money-making machine that Station Casinos had been over the past decade.

Addendum: In addition to the Station Casino troubles, MMA Payout claims that there are problems between UFC and Walmart. Ironic, given the stances that both Station Casinos and Walmart have taken in regards to worker’s unions.

Update: This sounds not-so-good.

Topics: Media, MMA, UFC, Zach Arnold | 63 Comments » | Permalink | Trackback |

63 Responses to “Reports: Station Casinos is in big financial trouble”

  1. Alan Conceicao says:

    As I made sure to post about in the article you’ve been kind enough to link to, this should have been the first thing in people’s minds. Echelon can’t get financing, MGM is scrambling to find money for Citycenter, but the casino chain that depends on the health of the big boys is perfect? It didn’t make sense then and its hilarious to see people coming to that conclusion now.

    The endless fawning of the internet over Lorenzo as the hulking superman to guide MMA to mass market hyper success was enormously misguided fanboyism pretending to be some sort of journalism/editorial hybrid. I bet there aren’t many folks willing to put forth retractions.

  2. Smithson says:

    They have nothing to retract.

  3. Alan Conceicao says:

    You’re right. Short of someone from Colony Capital coming out and saying “we gave Lorenzo an ultimatum,” no one would say anything, even if the company went under. At that point, it would just be a “huge shock” or something.

  4. jdavis says:

    So your saying that Lorenzo was forced out of Station in June because of a economic crash in September/October?

    You know even if he did leave Station as a money saving measure it doesn’t really change anything anyone was talking about with him joining Zuffa. These are MMA news sites not Casino news sites, I’m not sure what they would have to retract?

  5. 45 Huddle says:

    This can be typical of companies that go private. They put a lot of the debt into the company, and hope for the future profts to pay it down. But when the economy takes a turn for the worse, these “going private” deals end up looking horrible.

  6. Zach Arnold says:

    If UFC continues making money like it has, there won’t be any problems.

    However, we know that Zuffa has that huge line of credit & loan they took out a couple of years ago that they need to pay off by 2013. Combine that with what’s happening with Station Casinos and the hope (if you’re a UFC fan) is that the Fertittas don’t have to start pumping their own cash to finance some of the operations or, worse case scenario, sell off UFC or any sort of business assets they have.

  7. Alan Conceicao says:

    Crash that happened in September/October? Please. The fortunes of Vegas have been in a downturn much longer than that. Airfare shot through the roof and the lack of cheap rooms on the strip is killing the place. They’ll argue that they’re looking for “bargain hunters”, but the real estate bubble in the Vegas suburbs first popped in late 2006 and has been rapidly deflating ever since. You go tell Caesars/MGM-Mirage/Boyds that this is all the last 60 days and see what they tell you in response.

    What you have is a company that, like everyone in Nevada, started seeing quite serious attendance drops and seems utterly baffled as to what to do. The Fertittas don’t own it and Colony, the private capital firm, holds the controlling share of the company since it went private. They’re obviously gonna demand results and Lorenzo leaving to go run Zuffa was a likely a great out. Don’t be shocked to see Frank out of there in a year or so either. The location of all their hotels well off strip or out of city limits in Henderson and the like means that they’re gonna have to come up with something drastic to draw in tourists accustomed to South Strip if they want to survive.

  8. Alan Conceicao says:

    However, we know that Zuffa has that huge line of credit & loan they took out a couple of years ago that they need to pay off by 2013. Combine that with what’s happening with Station Casinos and the hope (if you’re a UFC fan) is that the Fertittas don’t have to start pumping their own cash to finance some of the operations or, worse case scenario, sell off UFC or any sort of business assets they have.

    My guess is that Colony ends up buying out their share somewhere down the line. Things are bad if you’re on the strip, and bordering on apocalyptic if you’re downtown/Fremont. Now imagine being 10 miles away with no steady transportation to/from the tourist centers.

  9. Body_Shots says:

    [The location of all their hotels well off strip or out of city limits in Henderson and the like means that they’re gonna have to come up with something drastic to draw in tourists accustomed to South Strip if they want to survive.]

    I believe Stations wasn’t built or soley built to draw in tourists it was built around drawing in locals. It seems the locals have been hit just as hard as the tourists have in this economy.

  10. Jeremy says:

    All of the actual articles (Not counting the Ferrell stuff) simply include Station with every other casino that is dealing with the economic struggles.

    Obviously they have problems, but so do the rest of them.

    Alan, like Body mentioned, Station Casinos have never catered to the tourist crowd.

  11. Dukes says:

    You know who the big winner is in all this? Ed fucking Fishman. He was able to get relief from PrideFC for his consulting fee, looked at getting into MMA with one of the other promotions, but had the patience to hold off. He very well might dip his toes in, but he’s had a wealth of failures to keep an eye on and learn from.

    Ed’s angle always was to use the casinos to funnel the big fish to the events and have the casinos back/finance the MMA promotion. With the strip getting anemic, he could have been in a word of hurt now if he had pulled the trigger 18 months ago.

    I’d like to get a beer with that guy one day and hear about all of the shit that went down with PrideFC.

    Zach, why don’t you do a new interview with him – he knows the MMA scene and can really expound on the casino trends and what’s likely to happen with the Station brand….

  12. IceMuncher says:

    This year, Vegas has seen a decrease in visitors, primarily due to rising gas prices. Fortunately, gas prices have gone down; unfortunately, it happened a few weeks after we find out we’re on the verge of a big economic recession.

    Station Casinos has a few things going for it. As was pointed out earlier, they go after locals rather than focusing solely on tourists, and they’ve also got a stronger profit margin than most of their contemporaries, which should give them some flexibility. Unfortunately, they were caught in the middle of going private.

    Everyone is going to be feeling the upcoming squeeze, it’ll be interesting to see how it affects companies like the UFC and Station Casinos.

  13. garrett says:

    I’d love to hear Ed Fishman’s thoughts too.

  14. Zack says:

    Lorenzo went to take over Zuffa to clean up the loose ends. This is what happens before any company flips. When the right offer comes along, they’ll sell. The likeness agreements go right along with all of this…more juice for a sale.

  15. EJ says:

    If that’s the truth then who is willing to pay over a billion dollars for an MMA company because that’s gonna be the price. Anyway Dana and company have been very smart by the way that they have done business, they’ve pretty much built an empire that even if the casino business goes bad their fall back MMA company is bigger than ever.

  16. Alan Conceicao says:

    The fact that they are a “locals chain” was eluded to in talking about the real estate crash and that they are “dependent on the rest”. I assumed we were at the point where it was a given. The problem with being a locals chain when the locals have suddenly no longer have money should be self evident.

  17. Fightlinker says:

    So what have the fertittas done that is so bad that Capital would want to remove them? The economy is the same for everyone, there’s not much fixing it at the moment.

  18. D.Capitated says:

    Not all drops in market are even. Station’s revenue dropped at a rate twice that of Harrah’s/Caesars in the first 6 months of the year. Lorenzo resigned from Station’s board in July of this year.

  19. D.Capitated says:

    Just to sort of give a better barometer of what the problem is with their business plan (you know, the one the Fertittas created):

    http://www.lvrj.com/business/33208049.html

    So, they just finished building a casino in a part of Las Vegas that’s seen gambling revenue drop over 17% in the middle of a planned community when the new housing market in Vegas is going belly up. They can’t even tell the gaming commission how well they think it’ll do because they have no idea. If I were the head of an capital firm who just bought into this business plan, how comfortable would you feel about the future and following the same path?

    To put it another way: The economy is tanking as a whole right now. If you’re an American taxpayer, would you want to see Greenspan come back into the government after essentially guiding the country into this and expressing shock about it? Hey, he was successful once…

  20. cyph says:

    Station Casino has nothing to do with Zuffa. If it fails, it fails. The Fertittas have less money to play with. Zuffa and the UFC will survive.

    I can’t really shed a tear for these billionaires.

  21. Jeff says:

    Anyone who took 5 seconds to think about the situation would have realized that Lorenzo would never have voluntarily left Station to help run the UFC. It made no financial sense. There was no way he could make the UFC grow enough to make up for the lost income.

    I said at the time that I wished I knew what had happened behind closed doors at Station to make Lorenzo leave. Now we have a good idea – Stations stumbled and the private equity firm politely ‘suggested’ that he leave.

    With the UFC’s huge debt and Stations casinos stumbling, look for the UFC to drop its purchase price and start actively looking for buyers again.

  22. D.Capitated says:

    Station Casino has nothing to do with Zuffa. If it fails, it fails. The Fertittas have less money to play with. Zuffa and the UFC will survive.

    I can’t really shed a tear for these billionaires.

    The money the Fertittas have is very likely not liquid and much more likely to be tied up in, you know, their key business (Station Casinos). So basically, the Fertittas (owners of the UFC) would be broke and have nothing to back the Zuffa loans from last year (over $300 million worth) except the UFC’s intellectual properties. At that point, should business falter at all (and it takes quite the leap of faith to believe they’re gonna coast through the biggest recession in 70 years), we enter the “bad things happen” realm.

  23. cyph says:

    You should read up on the discussion on Bloody Elbow. Corporations back their own debt. Individuals don’t. Debts are backed up by the assets of the corporation itself.

  24. cyph says:

    The UFC is now a viable company. Their recent finance deal was solely on the merit of the UFC as a business entity. It has nothing to do with Station Casino.

  25. D.Capitated says:

    I get it entirely and I laid it out for you. Any hiccup in Zuffa and their ability to make money would be disasterous with the Fertittas lacking the money they had in Station Casinos. They wouldn’t be billionaires anymore or anything close to it.

  26. cyph says:

    No they wouldn’t. And I actually prefer that. Then they can’t sell the only baby they have left, the UFC.

  27. D.Capitated says:

    Uhhh, why wouldn’t they? Particularly if a downturn in the market causes it to be less profitable or if a buyer offering significant amounts of capital appears? I wouldn’t go pretending you’re inside Lorenzo and Frank’s head here. Given the choice of the casinos or the MMA organization, they may not share the same values as you, dear.

  28. cyph says:

    “No they wouldn’t” to your comment of their not being billionaires any more. I have no idea if they will sell the UFC or not.

    If they lost their casino, then they only have one profitable business left. Entertainment historically have weathered recessions well. In a recession, you don’t throw good toward bad. You flee to safety.

    And don’t call me dear.

  29. Fluyid says:

    “Entertainment historically have weathered recessions well”

    Possible counter-argument:

    http://www.newsweek.com/id/135638

    http://www.forbes.com/feeds/ap/2008/10/23/ap5598783.html

  30. Fluyid says:

    ^ *Correction: Not a counter-argument, but perhaps evidence that this section of the entertainment industry isn’t weathering this economic downturn very well.

  31. D.Capitated says:

    If Station goes Chapter 11 or even Chapter 7, they might use the UFC to raise capital to purchase assets from it should they feel the market had bottomed. After all, their core competency has been casino management, has it not?

  32. IceMuncher says:

    “Anyone who took 5 seconds to think about the situation would have realized that Lorenzo would never have voluntarily left Station to help run the UFC. It made no financial sense. There was no way he could make the UFC grow enough to make up for the lost income.”

    If I was a multi-billionaire, I would absolutely quit working at a casino company I already own and work at the UFC. No hesitation.

    If he didn’t own the company he was “leaving”, and if he wasn’t a huge MMA fan, then it would be, as you put it, obvious.

    If this was a financial move to save the company money, I have to wonder why he isn’t instead working at Station Casinos at a greatly reduced salary so he can continue to help the troubled business. Given how important Station Casinos undoubtedly is to the Fertittas, that seems like a smarter play than jumping ship to a company that is doing excellent without him.

  33. D.Capitated says:

    If I was a multi-billionaire, I would absolutely quit working at a casino company I already own and work at the UFC. No hesitation.

    Okay, Ice, here’s the thing: If you’re a multibillionare, chances are your personal wealth is not liquid. Its stuff. In the case of the Fertittas, it is real estate and businesses. Their wealth is directly tied to Station because of their ownership in the company and its assets. Namely, this is the very physical ownership of land and things developed on the land, like hotel/casinos.

    If the Fertittas were just guys paid to work on the board with some stock options and enormous cash salaries, that would be one thing. But it isn’t the case here.

  34. cyph says:

    Entertainment as in movies, sports, UFC… not casino.

    Entertainment has historically weathered recession well. I don’t see anything so far that contradicts this.

    When people are depressed they either (a) hit the bottle, or (2) go out for some entertainment. Human nature never change.

  35. skwirrl says:

    D. Cap has much more eloquently got across what I was trying to elaborate on at Bloody Elbow. I’ve been out of the world of big business intricacies for a while and didn’t get across the points I meant to. As Cyph pointed out to me over there – Zuffa LLC can’t be seized if Station goes bankrupt. However since the Fertitta’s likely aren’t liquid… Where is the money for ZUFFA’s loans to come from? ZUFFA will get sold – I would hope to Cuban possibly in partnership possibly with Golden Boy/Affliction

  36. skwirrl says:

    Cyph this last comment is true – And especially true in the combat sports genre. Boxing’s boom days was the Great Depression, HOWEVER… I think the mainstream fan income regarding PPV’s will not hold up with historical trends. There is no evidence to support this, just a hunch. I think you’ll see alot more fans following plan A) — Going to the bar – hitting the bottle AND watching the fights.

  37. cyph says:

    Skwirrl,

    The money for Zuffa’s loan comes from profits!!!

    Zuffa is profitable!!!

  38. Fluyid says:

    “ZUFFA will get sold – I would hope to Cuban possibly in partnership possibly with Golden Boy/Affliction”

    That’s a bold prediction. Assuming for the sake of discussion that it’s true, you do NOT want Cuban as the owner unless he gets a new crew of MMA people to surround himself with.

  39. skwirrl says:

    There is a big disconnect from Cuban and Ayre/some of the other failed MMA owners.

    Cuban is a proven owner/operator of a Sports franchise and all the facets of business involved in it. He took the Mavericks from NBA laughing stock and one of the worst teams in history and not only made them profitable but turned them into one of the most valuable teams in sports. He owns his own delivery service for the product. HDNet.

    If the UFC went to HDNet it would only increase the value of one of businesses he already owns 10 fold. This is because it would drive consumer demand on cable companies to include that in their service sky high. With the channel on more services – Advertising revenue skyrockets for all programs involved. Then its mutually worthwhile for GBP/Affliction to be involved because they are getting high profile advertising of their product while covering only some of the costs of putting on the show and fighter salaries.

    Also Cuban isn’t a stupid business man – this is already been established by making the Mavericks profitable – I seem to remember reading something about him consulting with Ed Fishman before ever going into the MMA business in the first place. He would bring in the people to handle it right for MMA fans. If he didn’t he would still be a more dignified President than Dana White or Skala.

  40. The Gaijin says:

    The one thing I would note about the UFC’s large debts is that a big chunk of that debt financing didn’t even go into the “the Company” but to line the pockets of Frank, Lorenzo and Dana.

    So they’ve definitely got some personal liquidity going on that end.

    Regardless they have some big ppvs coming up that are most likely to make their year-ends look pretty good, so I wouldn’t be too worried about them.

  41. skwirrl says:

    UFC 91 will be the barometer… If that does less than 700,000K buys there are troubled times ahead IMO

  42. Fluyid says:

    Don’t diss $kala, Skwirrl!

  43. jdavis says:

    Let me get this all straight. If Station Casinos doesn’t adjust it’s covenant agreement with the banks for some odd reason then the banks may decide to push them into bankruptcy instead of actually trying to work with them and then the Fertitta’s may lose much of their investment in Station Casino ownership and property holdings and then if the UFC also happens to completely crash financially they may not have the money in their personal pockets to cover Zuffa’s $325 million dollar loan that comes due in 2013, provided they don’t refinance it before then? Man the UFC may or may not be in trouble if a bunch of incredibly bad things happen, the sky is falling the sky is falling the sky is falling!

  44. skwirrl says:

    I would say the same thing. But shit in Vegas is alot worse than everywhere else in the country.

  45. jdavis says:

    Is it? Because it sure seems that it’s a lot worse on Wall Street where they are actually losing money as opposed to just making less. Nevada doesn’t seem to be doing as bad as Michigan or Ohio in the tough times catagory. Of course being as Zuffa isn’t really dependant on Vegas the whole subject is irrelevant anyway.

  46. Jeff says:

    jdavis,

    It does not take an apocalyptic scenario for the UFC to change hands.

    If the Fertitas are coming up short at Stations, and the UFC either looks shaky on its debt or is not going to give them the kind of cash flow their lifestyles demand, look for them to cash out by selling the UFC.

    Just my opinion, of course.

  47. Alan Conceicao says:

    Is it? Because it sure seems that it’s a lot worse on Wall Street where they are actually losing money as opposed to just making less. Nevada doesn’t seem to be doing as bad as Michigan or Ohio in the tough times catagory. Of course being as Zuffa isn’t really dependant on Vegas the whole subject is irrelevant anyway.

    Michigan and Ohio’s problems are nothing new. The “Rust Belt” moniker didn’t pop up out of nowhere in September. Vegas is a different story. When the real estate boom ended suddenly about 2 years ago, the attitude was that it was merely a matter of time for the market to bounce back. It now clearly is not.

    So when we’re talking about what may or may not happen with Station and how it could affect Zuffa, the fact is this: the UFC’s potential to make money anytime soon compared to that of a healthy Station Casinos is not a comparison that does them well, particularly in a recession where what their market is utterly untested. Casinos, on the other hand, are generally considered bellwethers (though there is evidence showing how that is not the case now).

    Banks reworking the terms of the loan with Zuffa would be a great solution if most of the major banks in this country were not enormously short on capital right now. Offering credit to businesses that are performing poorly is increasingly not an option. Hell, its barely an option for businesses that are performing well. Or even state governments. If they need the money, they may not be able to necessarily lock up any sort of renegotiation with ease as they might have 3-4 years ago.

    Finally, the idea that Zuffa isn’t in any way dependent or at least somewhat reliant on Vegas’ casinos is madness. The three biggest cards of the next 6 months are all going to hotel/casinos in Vegas. Most of their UFN and TUF cards are there too because its cheaper to produce out of there when that’s their homebase. Plus, casinos usually cut excellent deals with programs like the UFC to drive traffic into the hotels/gaming/shopping in terms your average corporate sponsored arena can’t match.

  48. IceMuncher says:

    “Finally, the idea that Zuffa isn’t in any way dependent or at least somewhat reliant on Vegas’ casinos is madness.”

    It’s not though, at least in the way you mean. You have to realize, we’re talking about a company whose fanbase is so enthusiastic that they can still get 200k PPV buys with the worst card you could possibly come up with. The UFC is big enough to bring its own crowd with them to Vegas. The fact that Vegas is making 75% of what they made a year ago will have little effect on UFC attendance. And, like you said, Vegas tends to host the big shows, meaning the shows with the most fan interest.

    Now that I think about it, it’s quite possible that the casinos’ woes will help the UFC. Not to say the recession will help, it definitely won’t, but its effect on the casinos may play into the UFC’s hands. Las Vegas will reduce prices and offer incentives to attract more business during the slow times, business 101. That translates to better deals for the UFC fans that want to catch a live show, and possibly better deals for the UFC.

  49. jdavis says:

    75% of the UFC’s profits come from PPV and that has nothing to do with Las Vegas. So yes the shows they do in Vegas are dependant on selling tickets in Vegas but that’s a long way from being dependant on the casino industry(who would probably cut even better deals if they were desperate for a draw). It’s not like Zuffa only does shows in Vegas. Zuffa’s issue is they are way too dependant on PPV, they can do shows from anywhere.

    Now this whole discussion is about how Station Casinos financial issues are going to affect Zuffa and the link people keep coming back to is that if the Fertitta’s lose their Station Casino investment then they won’t be able to cover this debt of the UFC. Well honestly even if Station Casino comes out of this great and the Fertitta’s don’t lose a dime can they just whip $325 million dollars in cash out to cover this loan? Honestly it’s not like the Fertitta’s were ever a 300million dollar safety net and beyond that what is the link?

    The basic end of all this thinking is that the UFC is on it’s own with its finances and it can logically be assumed that it was that way to start with. What happens with Station Casinos is irrelevant. There is no need for this over-thought sequence of possible events when all that needs to be said is that if Zuffa gets into financial trouble then Zuffa will be in financial trouble.

  50. jdavis says:

    “It does not take an apocalyptic scenario for the UFC to change hands.”

    No you are right it doesn’t take a apocalyptic scenario for the UFC to change hands, so why are people throwing one around? What happens at Station Casinos is irrelevant, you don’t have to have Station get in trouble and Zuffa get in trouble to have Zuffa actually be in trouble. If Zuffa gets in financial trouble then Zuffa is in financial trouble, it is just that simple.

    As for selling the company, hell it is for sell now if you can come up with enough money, the Fertitta’s might decide to sell it off tomorrow because they are sick of the headache and ready to move on to something else. It doesn’t take a apocalyptic scenario for them to one day decide to take a offer on the company.

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