Locals Gambling: Say Hello to South Coast - Monday 6th of February 2006

The meeting might have taken more time if they had decided to order appetizers.

When Bill Boyd and Michael Gaughan got together in early 2004 over dinner at Ruth's Chris Steak House to negotiate Boyd Gaming's $1.3 billion purchase of Gaughan's Coast Casinos, the discussion between the two gaming industry pioneers took all of 90 minutes.

"We wanted to meet at a neutral location. But it turned out Ruth's Chris was Bill's favorite restaurant, so he sandbagged me," Gaughan recalled with a laugh.

On Thursday, Gaughan's latest creation, the $600 million South Coast, becomes the first Coast-built casino to open under the Boyd Gaming corporate flag.

At the time Gaughan and Boyd first discussed merging their casino operations to create what is now considered the gaming industry's fourth-largest company, South Coast was in its final design stages.

By July 2004, when the buyout of Coast was completed, ground had been broken on the 60-acre South Coast site and the hotel tower was starting to rise above the landscape on the south end of Las Vegas Boulevard at Silverado Ranch Road.

Once the deal was in hand, Boyd Gaming took over budget oversight and other typical management duties but also offered a couple of redesign thoughts.

"We wanted to move the movie theaters up to the second floor because it allowed us to build in some areas for future expansion, especially the space beneath the movie theaters," Boyd Gaming President Keith Smith said. "We let them move forward with their plans but we did make a few suggestions."

One hint that surprised Gaughan was Bill Boyd's suggestion to start construction on the second tower earlier than planned.

"We thought it was best to push that forward right away," Smith said. "It didn't seem to make any sense to wait."

The resort, modeled somewhat after other Coast-designed casinos, will open with 660 rooms and an 80,000-square-foot casino, along with 2,200 employees, restaurants, nongaming entertainment, convention space, and an equestrian events center.

The South Coast's second hotel tower of almost 700 rooms will open by next spring while a third room tower has been master-planned for the property. In addition, the property has 80,000 square feet of unused space for casino and restaurant expansion.

Initially, Gaughan thought he could complete the South Coast for around $315 million. But high prices for steel, concrete and other building supplies, in addition to increased labor costs, have made the South Coast Gaughan's most expensive casino yet.

"The price of everything has gone up, but I've got a good track record," Gaughan said.

Boyd Gaming has benefited from the revenues generated from a predominately local customer base by Gaughan's four Las Vegas casinos Barbary Coast, Gold Coast, The Orleans and Suncoast.

Before the purchase, Boyd Gaming had operated just one true locals casino, Sam's Town. The transaction allowed the company to jump back into the race for local customers in a major way.

"It was a great move for Boyd," said gaming analyst Steven Ruggiero of the Connecticut-based CRT Capital Group. "With the properties operated by Coast, the deal helped Boyd move into a bigger sweet spot in the Las Vegas locals market."

South Coast marks the first of two new properties entering the competitive locals market. In March, Station Casinos is expected to open the $925 million Red Rock Resort that will cater to the ever-expanding Summerlin community.

Ruggiero said Boyd Gaming's overall revenue base will be highly dependent on the Coast Casinos subsidiary, especially with the South Coast joining the mix. When the soon-to-be announced redevelopment begins on the 63-acre Stardust site on the Strip, Boyd Gaming will have an even larger dependence on Coast.

During the third quarter that ended in September, Coast Casinos had revenue of $181.2 million, accounting for 34 percent of Boyd Gaming's overall quarterly revenues of $536.5 million.

The quarter also marked the first time Boyd Gaming could compare quarterly year-over-year earnings with Coast Casinos.

The subsidiary's revenue grew almost 12 percent under Boyd's ownership over the same time period in 2004 while cash flow, defined as earnings before interest, taxes, depreciation and amortization, jumped 34 percent, from $45 million to $60.4 million.

"We always had an interest getting back into the locals market in a big way," Smith said. "Coast has obviously been a significant enhancement to our earnings and the overall profile of the company."

When Gaughan bought the bulk of the South Coast site parcel in October 2001, there wasn't much surrounding the area other than a few ranch-style homes and horse riding trails.

Today, with master-planned residential communities rapidly expanding within the South Coast's reach, the casino has a built-in customer base along with plans to tap into the Las Vegas visitor market.

"I never really did real estate but we got a great price," Gaughan said. "Now, I look like a genius."

Added Ruggiero, "Since 2000, the area has grown in population by 70 percent. It's a tremendously underserved market in terms of gaming."

Like the company's Orleans property, which has 1,886 hotel rooms, Gaughan thought the South Coast would have revenues half generated by locals and half generated by tourists.

Gaughan, who's somewhat media-shy, has never been one to praise himself as a casino-design innovator. However, the Gold Coast was the first casino to have a movie theater offering mainstream films with low-priced refreshments, such as 50-cent popcorn and sodas. At The Orleans, a $65 million arena is the home of the Las Vegas Wranglers hockey team, sporting events and concerts. The arena offers free parking and easy access for local residents.

He brought bowling into the casinos and with South Coast's 64 lanes, Gaughan's casinos encompass 268 lanes.

"I'm the baron of bowling," he said.

The South Coast will have a 4,400-seat equestrian center for such events as team roping and cutting horse competition.

"There are 5,000 different horse shows and only two we can't do," Gaughan said.

Once South Coast opens, Boyd Gaming might give Gaughan another project. The company is exploring possible land acquisitions in the expanding areas of North Las Vegas.

Smith said any continued expansion of Boyd Gaming into locals market would carry the Coast name.

"The Coast brand has a high degree of recognition and loyalty," Smith said.

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