Red Rock's Fertittas Pay Their Mom $120 Million for Casino Land

(Bloomberg) -- Red Rock Resorts Inc. agreed to pay $120 million to the mother of its controlling shareholders, billionaires Frank and Lorenzo Fertitta, for land under two of its resorts -- a big score even by Las Vegas standards.

A trust for the Fertittas’ parents, Victoria and her late husband Frank Jr., has owned about 75 acres beneath the Boulder Station and Texas Station casinos -- two properties catering to local gamblers -- since before the company first went public in 1997. The rental terms were comparable to what a third party would pay, the company said at the time.

Red Rock's Fertittas Pay Their Mom $120 Million for Casino Land

But Red Rock is paying more than double the price per acre that rival Boyd Gaming Corp. paid for a similar parcel in February. It’s also 28 percent more than the Oakland Raiders are paying for land to build a football stadium just west of the Las Vegas Strip.

Red Rock's Fertittas Pay Their Mom $120 Million for Casino Land

Lorenzo, left, and Frank Fertitta

Photographer: Jason Merritt/Getty Images

“I thought it was on the high side,” said David Baron, an analyst with Baron Capital Inc., one of Red Rock’s largest shareholders. Despite the price, he said he understood the strategic rationale for the purchase, owning both the casino and the land.

“We’re long-term believers in the Las Vegas market,” Marc Falcone, chief financial officer of the Las Vegas-based company, said on a May 4 conference call. “Controlling the land underneath those properties was key to our long-term belief in the Las Vegas locals market.”

The deal will save Red Rock $7 million a year in rent, Falcone said. A Red Rock spokeswoman said the company wouldn’t provide any more details. Requests for comment to Victoria Fertitta were referred to the company.

The $120 million purchase price is “fair” given the amount of rent Red Rock was paying, according to John Knott, a commercial real estate broker for CBRE in Las Vegas. Had the rent been lower, “that would have raised eyebrows.”

Publicly traded companies can do business with friends and family members of management legally, in ways that benefit both sides, but such transactions deserve extra scrutiny, according to Charles Elson, chair in corporate governance at the University of Delaware’s Lerner College of Business and Economics. 

“There will always be debate if the terms are fair,” he said in an interview. “You never want to get in one of these situations to begin with.”

Local Betting

Red Rock, formerly known as Station Casinos, declared bankruptcy in 2009 after a failed leveraged buyout. Its shares have risen 21 percent since a public offering in April of last year. Boyd, the company’s main competitor, has also gained 21 percent.

Red Rock’s initial public offering raised funding for a separate family-related transaction -- the $460 million purchase of a casino management company owned by the Fertittas. On May 1, the brothers announced they were launching Fertitta Capital, a Los Angeles-based investment firm, with $500 million of their own money.

Both Red Rock and Boyd have been in expansion mode. Boyd acquired the Aliante and two Cannery casinos in Las Vegas last year for a total of $610 million. Red Rock bought the Palms Casino for $313 million.

Betting by Vegas locals, a $2.18 billion business last year, rose 3.6 percent in the first quarter. Residents of Nevada’s Clark County gamble more than players in other casino markets, over $1,000 annually per customer, compared with $273 in other mature markets, according to JPMorgan Chase & Co.

Casinos that cater to residents of Nevada’s largest city are in “one the most attractive gaming markets in the U.S.,” Joseph Greff, an analyst at JPMorgan who recommends buying shares of Red Rock, wrote in a May 12 report.

There haven’t been any major casinos built to serve Las Vegas locals since 2009, the analyst said, while the outlook for local gambling has improved with rising employment. Construction jobs in the city have increased for 56 months, driven by a housing rebound and new projects tied to sports and entertainment, he wrote.

Three months ago, Boyd paid $43 million for 77 acres of land under its Orleans casino. The Orleans is closer than Red Rock’s casinos to the city’s most valuable properties, those along the Las Vegas Strip. Boyd’s cost worked out to $558,000 per acre, compared with the $1.6 million per acre that Red Rock paid.

The Raiders, which plan to move to Las Vegas from Oakland, California, are paying about $1.25 million per acre, or $77.5 million, for their parcel off Russell Road, according to the team.

The average price for raw land in Las Vegas was $349,000 an acre in the first quarter, according to the brokerage firm Colliers International. The market for land under a casino is limited, according to John Matt Stater, research manager for Colliers in Las Vegas, without many comparable transactions.