Santa Fe Gaming Corporation
Santa Fe Gaming Corporation
Incorporated: 1983 as Public/Hacienda Resorts, Inc.
Sales: $148.4 million (1996)
Stock Exchanges: American
SICs: 7011 Hotels, Motels; 6719 Holding Companies, Not Elsewhere Classified
Through its chairman and CEO, Paul W. Lowden, Santa Fe Gaming Corporation holds a more than 20-year stake in Las Vegas casino history. Formerly known as Sahara Gaming Corporation, Santa Fe owned and operated the famous Sahara and Hacienda casino hotels. Santa Fe sold those properties in 1995 to former Circus Circus leader William Bennett, but the company remains active in Nevada’s casino industry as owner and operator of the Santa Fe Casino Hotel, located in northwest Las Vegas, and the Pioneer Hotel and Gambling Hall, located in nearby Laughlin, Nevada. Santa Fe also owns extensive real estate parcels in Henderson, Nevada and on Las Vegas Boulevard South.
The Santa Fe Casino Hotel, which opened in 1991, features a 200-room hotel, a 65,000-square-foot casino, a 60-lane bowling center, a National Hockey League regulation-sized ice skating arena, three themed restaurants, and a bingo parlor on its 40-acre site. Located some nine miles north of the main Las Vegas casino strip, the Santa Fe and its southwestern theme cater primarily to Las Vegas residents. The company also owns a 22-acre parcel of land adjacent to the casino. The Pioneer Hotel and Gambling Hall, opened in 1982 and acquired by the company in 1988, sits on 12 acres of land with 770 feet of frontage along the Colorado River. Built in classical western style, the Pioneer’s four buildings house a 21,500-square-foot casino and 417 motel rooms. The Pioneer’s clientele comes largely from Laughlin-area residents and drive-in visitors from Southern California and Arizona.
Santa Fe’s property holdings include 39 acres in Henderson, Nevada, 27 acres on the Las Vegas Strip, and 40 acres on Las Vegas Boulevard, approximately eight miles south of the Strip. The company is developing plans to build a casino hotel and entertainment complex on the Henderson site. The Las Vegas Boulevard site was acquired with the intention of relocating the company’s Camperland recreational vehicle facility, which the company formerly operated adjacent to the Hacienda. In addition to these holdings, the company has interests in two aborted casino showboat projects outside of Nevada, in Parkville, Missouri, near Kansas City, and in Biloxi, Mississippi. More than 60 percent of Santa Fe’s revenues are generated through its casino operations. In 1996, revenues were $148.4 million. Including a $40.8 million gain from the sale of the Sahara, Santa Fe posted net earnings of $16.2 million in 1996.
Rooted in 1950s Vegas
Both the Sahara Hotel & Casino and the Hacienda Resort Hotel and Casino were rooted in the early development of the Las Vegas casino industry in the 1950s. The Sahara, built for $5.5 million by the Del Webb Corporation, was founded by Milton Prell, a Los Angeles jewelry magnate, on the site of the former Club Bingo in 1952. The first high-rise casino in Vegas, and the fifth constructed since Bugsy Siegel’s Flamingo (which was also built by Del Webb), the Sahara, and its trademark 100-foot freestanding neon sign, was also the largest at the time—until the Sands opened two weeks later. The following year, the “Jewel of the Desert,” as Prell dubbed the hotel, made the first of many expansions, adding 200 rooms to its hotel. In 1961, Prell sold the Sahara to the Del Webb Corporation, although he continued to run its operations until 1964. Del Webb immediately invested some $12 million in renovations. In 1966, the Sahara added a $50 million, 14-story, 200-room tower, making it the city’s tallest building. Two years later, the Sahara built again, adding a 400-room, 24-story skyscraper, expanding its casino, and extending its operations into Vegas’s growing convention industry by building a 44,000-square-foot convention center. Del Webb, which had grown to become one of the industry’s largest casino operators, continued to manage the Sahara through the 1970s. But when Del Webb ran into financial problems in the late 1970s and early 1980s, it sold the Sahara to Paul Lowden for $50 million in 1982.
Lowden, by then, already owned the Hacienda. That hotel, situated at the far southern end of Las Vegas Boulevard from the Sahara, was built in 1956 for $6 million as part of a California-based chain of low-rise motels owned by Judy and Warren “Doc” Bayley. Problems with the Gaming Control Board delayed the Hacienda’s casino licensing, but by 1957 the hotel’s casino was up and running. Situated far from the main strip, the Hacienda catered especially to families, locals, and “lowrollers,” eventually earning the hotel the nickname of “Hayseed Heaven.” Nonetheless, the Hacienda—which was imploded on New Year’s Eve 1996, an event that was broadcast to a national television audience—was long a popular fixture on the strip and was also the first Vegas hotel to operate an airplane shuttle service, building a fleet of more than 30 airplanes serving a number of major cities. When the Federal Aviation Administration decreed the fleet an airline, that service was discontinued. Doc Bayley died in 1964; Judy Bayley continued to run the hotel casino until her death in 1971. Lowden purchased 15 percent of the Hacienda the following year and became its entertainment director. In 1977, Lowden took full possession of the Hacienda for $20 million.
Becoming a Vegas Mogul in the 1970s
Lowden was a teenager when, with $7,500 in savings, he journeyed to Nevada in 1961. He joined a band playing in a Reno casino, then moved to Las Vegas, where he worked through the decade as a keyboardist, accompanying, among others, singer Ann-Margaret. By 1970, Lowden had become the musical director of the Flamingo. But Lowden had already set his ambitions higher.
With no formal business training, Lowden began investing in the stock market. These investments proved successful enough that, in 1972, Lowden and a group of partners raised $250,000—half of which came from the Valley Bank of Nevada—to buy 15 percent of the Hacienda. One of Lowden’s partners brought in Allen Click, a land developer from San Diego, to purchase majority control of the Hacienda. Lowden became the hotel casino’s entertainment director. Under Lowden, the Hacienda launched its famous “topless” ice skating revues, which ran in various incarnations until 1993. Lowden expanded his casino holdings in 1975, putting up $500,000 for a share of the Tropicana. By then, a fresh scandal was brewing along the Vegas Strip.
In mid-1976, Lowden walked away from his Tropicana investment, discouraged by Mafia figure Joseph Agosto’s control over the hotel casino’s operation. Lowden first asked the Tropicana’s majority owners to buy out his investment; when they declined, Lowden simply walked away rather than jeopardize his casino owner’s license through the Tropicana’s Mafia association. Lowden did not begin to regain his investment until 1979, after Agosto had pleaded guilty to skimming charges and the Tropicana’s owners were forced out by the state.
Meanwhile, a similar scandal was brewing at the Hacienda. Click, who at age 29 controlled two other casino hotels, the Stardust and the Fremont, making him Las Vegas’s second largest casino operator, had come under a separate skimming investigation. Click would later admit that he had been working as a Mafia front. In 1977, facing these charges and financial problems, Click agreed to sell the Hacienda to Lowden. Paying $21 million, raised through Valley Bank and the First American National Bank of Nashville, Tennessee, Lowden bought out Click and the other minority owners and took full control of the Hacienda.
Lowden immediately ran into difficulties. The Gaming Control Board, concerned by Lowden’s past association with Click, recommended against allowing Lowden’s purchase of the Hacienda. But the Nevada Gaming Commission overturned the recommendation and cleared Lowden of any connection with Click, giving Lowden a new license to operate the Hacienda. Lowden was joined by William Raggio as corporate counsel, who served at the time as Republican majority leader in the Nevada state senate, and who later joined Lowden’s company as a director and officer. One year after buying the Hacienda, Lowden began looking to expand his casino holdings by buying Click’s two remaining casino properties. But the mortgages to the Stardust and Fremont were held by the reputedly mob-tied Teamsters Central States Pension Fund. Because of this connection, Lowden’s investment banker refused to handle the financing for the deal, and Lowden backed off on the purchase.
Building Sahara Gaming in the 1980s
Instead, Lowden concentrated on expanding the Hacienda. In 1980, he spent $30 million on a facelift and expansion of the property, revamping the hotel in the style of Old World Spain and adding a convention center and an 11-story, 300-room tower. The Hacienda proved profitable, as did the institution of a side business, that of selling timeshares in the Hacienda hotel rooms—a first in Vegas. By 1982, Lowden had built up a $25 million timeshare portfolio in that and another hotel in Hawaii. The timeshares mortgages gave Lowden valuable collateral for additional financing and Lowden began looking for a new casino purchase.
The Del Webb Corporation, which had been suffering losses since the late 1970s, put the Sahara on the block in 1982. Leveraging his assets, Lowden put together $50 million to purchase the famed casino. The following year, the Sahara and Hacienda went public, incorporating as Public/Hacienda Resorts, Inc. With the proceeds from the public offering, the company expanded the Hacienda again, adding 400 rooms and more than doubling the size of its casino, hotel, rooms, and restaurants. Next, the company acquired an additional 22 acres behind the Sahara for the hotel’s future expansion plans. In the meantime, the highly leveraged company, burdened by interest payments on more than $30 million in debt, was bleeding. Losses began in 1982 and continued into the next year, when the company lost $2.6 million on $92.6 million in revenues. The following year, with revenues of $94 million, the company lost nearly $2 million. It was not until 1986 that the new corporation, by then renamed Sahara Resorts, recorded its first profit, of $411,500 on $101 million in revenues. Meanwhile, the Sahara, which had not had any large renovations in nearly 20 years, was beginning to show its age.
Lowden hit on an idea to provide financing not only for a Sahara expansion, but also to help the company reduce its debt.
In 1987, he formed publicly traded Sahara Casino Partners L.P., a master limited partnership (MLP), which sold 6.2 million units at $9 per share. A first for Las Vegas, the MLP offering was immediately successful (in fact, it was oversubscribed) and generated $63 million for Sahara Resorts, enabling the company to pay down its debt and to finance a new expansion of the Sahara. Sahara Resorts retained 63 percent of Sahara Casino Partners. Under terms of the MLP, which was executed shortly before federal tax restrictions were created to eliminate tax advantages from non-real estate partnerships, Sahara Resorts agreed to a five-year subordination of its own profit distributions until minimum distributions were made to public investors. These investors, in turn, would take no ownership position in the casinos.
After paying off the $30 million Sahara mortgage, Lowden, whose interest in Sahara Resorts remained at 73 percent, began work on the casino hotel’s most ambitious renovation and expansion. In 1988, the Sahara added a third tower, this time reaching 26 stories and adding 575 rooms, bringing the Sahara’s total to 1,500 rooms. Two years later, Lowden performed a still more ambitious expansion, adding a new 600-room tower to the Sahara and a 400-room tower to the Hacienda, while doubling the Hacienda’s casino area, bringing that hotel’s total rooms to 1,200 and its gambling space to nearly 40,000 square feet. By then, however, Lowden had already moved to expand his casino holdings.
The Way to Santa Fe in the 1990s
Las Vegas’s 1980 gambling boom had spread beyond the city into other areas of the state, and in 1988, Lowden moved to capitalize on the growing casino demand by purchasing the Pioneer Hotel and Casino in Laughlin, Nevada. The 400-room hotel and casino, situated on 12 acres fronting the Colorado River, had been constructed in 1982. The Laughlin area catered to customers different from those at the Las Vegas casinos, drawing in primarily local residents and the drive-in gambling crowd from Southern California and Arizona. After paying $112.5 million for the Pioneer, Lowden raised $116 million to fund the 1990 expansions of the Sahara and Hacienda as well as to build an entirely new hotel casino and entertainment complex, the Santa Fe.
The Santa Fe took Lowden away from the Strip and into the fast-growing northwestern residential area of Las Vegas. The Santa Fe, built at a cost of $60 million, exploited a niche different from that of the company’s Strip hotels. Instead of gambling tourists, the Santa Fe, with only 200 rooms, marketed to local residents, and featured a 60-lane, state-of-the-art bowling center, a swimming pool, and a National Hockey League regulation-sized public ice skating arena, with 3,000 seats for spectators, in addition to its casino facilities. The Santa Fe, which featured a Southwestern theme, opened in late 1990. Operating without competition for most of the first half of the 1990s, the Santa Fe proved immediately profitable.
Lowden’s activity was taking its toll on the company’s profits, however. By 1991, the company’s debt had soared to $310 million, generating interest payments of some $33 million per year. Despite revenues that reached $179.5 million in 1991 and neared $220 million in 1992, Sahara had returned to the red, posting losses of $9 million and $6.5 million for those years, respectively. These losses would continue through 1995, reaching $15 million in 1994 and $22 million in 1995.
Adding to the company’s troubles were its ill-fated attempts to expand its operations beyond Nevada. Gambling fever had been spreading throughout the country in the first years of the 1990s, with more and more states legalizing gambling and a new trend, riverboat casinos, filling the docks of more and more river communities. Sahara’s first target was Parkville, Missouri, located near Kansas City. In 1993, the company, now renamed Sahara Gaming Corp. after merging the Sahara Resorts and Sahara Casino Partners operations, purchased the Spirit of America riverboat casino complex for $7.8 million and paid to have it towed to Parkville, That community, meanwhile, was engaged in a drawn-out battle over whether to allow casino operations, a process that required three elections and would not be decided until November 1994. By the time Sahara received the go-ahead for its casino, the Parkville operation was losing money, to the tune of $50 million. A second investment outside of Nevada, into the Treasure Bay riverboat complex near Biloxi, Mississippi, also ground to a halt, costing the company a $12.6 million writeoff charge. By then, too, the Hacienda was faltering, draining the company’s revenues. The Laughlin market was also leveling off; meanwhile, the Santa Fe was forced to greet new competition in its area.
In 1995, Lowden retrenched his operations. His first step was to sell off the Hacienda for $80 million to former Circus Circus chairman and CEO William Bennett. By June of 1995, Lowden and Bennett had struck a new deal. Bennett bought the Sahara for $193 million; under terms of the deal, Lowden took possession of an undeveloped, 27-acre parcel on the Vegas Strip. By the time Bennett imploded the Hacienda on New Year’s Eve 1996, to make room for an $800 million hotel-casino megacomplex, Lowden had renamed his company to reflect its new focus. The stripped-down company, now named Santa Fe Gaming Corporation, completed its first year of operations with revenues of $148.4 million. A $40 million gain from the Sahara sale helped the company achieve its first profitable year of the decade.
Principal Operating Units
Santa Fe Hotel and Casino; Pioneer Hotel and Casino.
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—M. L. Cohen