The Hottest CEO in Vegas Just Bought the City's Strangest Casino
(Bloomberg) -- Even in Las Vegas, the land of faux pirate battles and Elvis-themed wedding chapels, the Stratosphere is something of an oddball.
Conceived by poker pro Bob Stupak, the Space Needle-shaped hotel-casino featured a roller coaster and other attractions at its summit when it opened in 1996. Its location on the lightly trafficked north end of the Strip proved too much of a handicap, however, and the casino declared bankruptcy months after its debut. It remained open, and for awhile it was owned by Carl Icahn.
Two decades later, the Stratosphere is providing a thrill ride of sorts for shareholders of Golden Entertainment Inc., the Las Vegas-based casino owner that bought the property and three others last month from a Goldman Sachs Group Inc. real estate fund. Since the $850 million deal was announced in June, Golden shares have risen 56 percent on hopes that Chief Executive Officer Blake Sartini can apply the same magic at Stratosphere that he did with Golden’s main business—operating slot machines in convenience stores, bars and other locations.
“Nobody goes there but to bungee jump,” Chad Beynon, an analyst at Macquarie Group Ltd. in New York, said of the casino, which still features amusement-park rides on its roof. “If they can fix that, earnings will go up significantly.”
Sartini, 58, is a Las Vegas native who got his start in the business working the 25-cent craps table at the El Cortez Hotel downtown. In 1983, he married Delise Fertitta, whose family owned casinos catering to Las Vegas residents. Sartini joined the business, then called Station Casinos, the following year and rose to become chief operating officer.
In 2001, Sartini decided he wanted to go out on his own. He convinced his brothers-in-law, Frank and Lorenzo Fertitta, to sell him the company’s slot machine routes, which serviced 900 machines in the Las Vegas area, for $14 million. Delise Fertitta cashed out her stake in Station when the company, now called Red Rock Resorts Inc., went private in a 2007 buyout.
In 2015, Sartini merged his company with publicly traded Lakes Entertainment. Since the deal closed in August 2015, shares of the renamed Golden Entertainment have almost tripled.
Sartini began applying tools of the traditional casino business to what he calls “distributed” gambling, such as offering frequent-player cards that reward returning customers. He began buying or opening pubs with slot machines for Las Vegas residents in a sort of hyper-local version of what Station had been doing. Unlike most casinos, where slot players are older, 73 percent of Golden’s gaming revenue in the bars comes from players age 55 or younger.
The company now operates 10,000 slot machines in Nevada and Montana taverns and stores, and Sartini is expanding in Illinois, where it recently got licensed, and is eyeing Pennsylvania, which last month approved gambling devices in truck stops.
Still, it will be Stratosphere that most investors focus on. “It was a transformative transaction for them,” said John Decree, an analyst at Union Gaming in Las Vegas. “It’s now on the radar of a lot institutional investors.”
The deal more than doubled Golden’s revenue—to a projected $847 million this year—and the company now forecasts $180 million in earnings before interest, taxes, depreciation and amortization for 2017. Debt has also soared, to $1.1 billion from $171 million before.
Some one million people a year visit the Stratosphere to enjoy the view from its Top of the World restaurant or ride Insanity, which propels thrill-seekers over the edge of the tower, spinning at 40 miles an hour. Sartini said he’s still evaluating some of the investments he’ll make to the property, such as adding meeting space, and remodeling the 2,427 hotel rooms that sometimes sell for under $30 a night.
His end of the Strip, which lies between more familiar properties such as Caesars Palace and the city’s downtown casinos, is starting to perk up. The SLS Hotel opened in 2014 and Genting Bhd. is building Resorts World nearby. Sartini plans to remodel the interior and exterior of Stratosphere.
“That property is iconic in terms of any skyline photo or rendering you see of the Las Vegas Strip,” Sartini said. “It’s more appreciated now than it was 20 years ago.”
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