Showboat, Inc.

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Showboat, Inc.

2800 Fremont Street
Las Vegas, Nevada 89104
(702) 385-9141

Public Company
1960 as New Hotel Showboat Inc.
Employees: 5,700
Sales: $433.70 million (1996)
Stock Exchanges: New York
SICs: 7011 Hotels, Motels; 7933 Bowling Centers

Showboat, Inc. is an international operator of hotel and casino gaming and recreation centers. The company owns and operates the Showboat Casino, Hotel, and Bowling Center in Las Vegas, Nevada, opened in 1954; the Showboat Casino and Hotel in Atlantic City, New Jersey, opened in 1987; and 55 percent of the Showboat Mardi Gras riverboat casino m East Chicago, Indiana, opened in July 1997. The company is also the largest shareholder in and manager of the Sydney Harbor Casino hotel and casino complex in Sydney, Australia; in January 1997, Showboat announced an agreement with Publishing and Broadcasting Ltd. (PBL). of Australia to sell ten percent of Showboats ownership position as well as management control of the Sydney operations, subject to approval of the sale by the New South Wales Casino Control Authority. In addition to its existing operations, Showboat has also been positioning itself to expand into other North American markets. The company has formed a partnership to develop a riverboat gaming complex in Lemay, Missouri. Showboat holds a minority investment in the Rockingham Park racetrack in Salem, New Hampshire. The company has also signed a contract to manage the casino operations of the Lummi Indian Nation located between Vancouver, Canada and Bellingham, Washington.

Showboat is led by J. Kell Houssels, chairman since 1988, and J. Kell Houssels III, president and chief executive officer since 1995. Traded on the New York Stock Exchange, Showboats 1996 net revenues totaled $433 million, generating $75 million in EBITDA income (earnings before income taxes, depreciation, and amortization) and $6 million in net income. Showboats more than 5,500 slot machines form the principal source of the companys revenues, producing more than 76 percent of sales in 1996.

The largest of Showboats gaming holdings is the Showboat Hotel and Casino in Atlantic City. Located on 12 acres on the eastern end of the famed Atlantic City boardwalk, with another nine acres for parking, the Atlantic City showboat features 97,000 square feet of gaming space, including 3,600 slot machines, a 16-story hotel tower and a 24-story hotel tower, which together provide 800 rooms, and a 60-lane bowling center, as well as 27,000 square feet of meeting rooms and convention and exhibition space. Adjacent to the hotel casino complex is a ninestory parking garage, with space for 2,000 cars, a depot for 14 buses, and an underground, 500-car valet parking facility. In 1996, the Atlantic City operation produced $370 million of Showboats total $433 million net revenues.

The oldest of Showboats gaming holdings is its Las Vegas Showboat Casino, Hotel, and Bowling Center, located on 26 acres on Boulder Highway, approximately two and one-half miles from the downtown and Vegas Strip areas. For more than 40 years, the Las Vegas Showboat has catered especially to the local and family gaming customer; since a renovation and expansion in 1995, the complex consists of 75,000 square feet of casino space, an 18-story, 450-room hotel tower, a race and sports book, and 8,300 square feet of meeting room space. The Las Vegas Showboat also features a 106-lane bowling facility, making it the largest in North America and the second largest in the world, and one of the countrys largest bingo parlors, with seating for some 1,300 people. In 1997, the company opened a recreational vehicle park on leased property adjacent to the hotel casino complex, with space for 80 campers. The Las Vegas Showboat, with nearly 1,500 slot machines, contributed $63 million to the companys 1996 net sales.

The newest of Showboats gaming operations is its Mardi Gras-themed riverboat casino in East Chicago, Indiana, approximately 12 miles from Chicago, Illinois. The riverboat, built at a cost of $200 million, featured 53,000 square feet of gaming space on four levels, including nearly 1,800 slot machines and 90 gambling tables, with a total capacity of 3,750 people. Showboat received its preliminary license for the riverboat gaming operation in April 1997, with full operations expected to commence in July 1997.

In addition to these properties, the company has operated, since September 1995, an interim casino complex in Sydney, Australia. The interim complex features 500 slot machines and 150 table games; the permanent casino, operating under a 99-year license (the first 12 years of which grant it the exclusive right to operate a casino in all of New South Wales), was expected to open in late 1997 or early 1998 and would feature 1,500 slot machines, 200 gaming tables, a 352-room hotel, 139 serviced apartments, a lyric theater, a cabaret theater, convention and retail facilities, as well as a 2,500-car underground parking facility. In January 1997, Showboat agreed to sell 85 percent of its management control of the Sydney casino and ten percent of its ownership position to Publishing and Broadcasting Enterprises, owned by Australian magnate Kerry Packer.

Founded in the 1950s

When the Showboat appeared in the Nevada desert in 1954, its owners already held a long pedigree in Las Vegass gaming history. Built for $2 million by William Moore, an architect and designer of one of the earliest Vegas casinos, the Last Frontier, together with partner J. Kell Houssels, the Desert Showboat Motor-Hotel featured 100 rooms and a casino housed in a Mississippi riverboat, complete with a paddlewheel and smokestacks, along the Boulder Highway, a couple of miles to the southeast of the growing Vegas Strip. Houssels, who had come to Las Vegas in the 1930s as gambling was being legalized in Nevada, had already struck his fortune at a blackjack table in Eli, Nevada in the 1920s and would soon become one of the citys most prominent citizens. In 1947, Houssels joined a group of investors, including Joseph Kelly, whose resume included working as a manager of an offshore gambling boat in Southern California, to purchase the citys first casino, the El Cortez Hotel, which had opened in 1941. By 1954, Houssels and Kelly had gained full ownership of that property. Four years earlier, Moe Dalitz, whose career included bootlegging during Prohibition, racketeering, and illegal gambling, had built the Desert Inn; Dalitz and the Desert Inn gang were brought in to run the casino operations of the Showboat, and the hotel itself was managed by Kelly.

The day before the Showboats opening, a storm nearly washed the boat away; but the hotel casino celebrated its grand opening on September 3, 1954, with Minskys Follies of 1955 providing the entertainment. The Showboat fared poorly in its early years, finding it difficult to compete with the larger and flashier casinos on the Strip. In 1959, Houssels and Kelly formed an investor group to purchase the Showboat from the Desert Inn. Incorporating the company as New Hotel Showboat, Inc. and shortening the name of the hotel casino operation to the Showboat, Kelly and Houssels steered the hotel into a new direction. The new Showboat would not compete with the Vegas Strip for big-name, expensive entertainment and would abandon the Vegas tradition of attracting high-rollers with complementary rooms and credit. Instead, the Showboat turned to the local market and to the low-roller and family tourist trade. Key components in the hotels new direction were the institution of a 49-cent breakfast and the construction of a 24-lane bowling center. At the same time, Showboat began its emphasis on high-margin slot machines over gaming tables. While Kelly ran the Showboat, Houssels branched out to manage the Tropicana hotel casino during the 1960s.

The hotels bowling center proved to be a hit with the local crowd; by the early 1960s the bowling center had begun to organize bowling leagues, and in 1962, the Showboat teamed up with the Professional Bowlers Association to host that organizations televised tournaments. The Showboat made its first expansion in 1963, doubling the number of rooms and adding to its casino area. Five years later, the Showboat underwent a more extensive facelift, expanding its bowling center, adding a pool, and constructing an entirely new facade, emphasizing the Mississippi riverboat theme and featuring a two-story paddlewheel. To finance the expansion, Showboat went public, becoming the second Las Vegas casino to do so, and changed its name to Showboat, Inc.

By Las Vegas standards, the Showboat remained a small operation. But it was able to develop a strong core of repeat customers, and its popularity with locals and family tourists, enhanced by the addition of a bingo parlor, helped the hotel chart a steady course of profitability. The next major expansion occurred in 1973 with the addition of a nine-story, 250-room hotel tower. The companys stock began trading on the American Stock Exchange in that year. Two years later, Showboat added nine more stories to its hotel tower. These expansions, which boosted the casino to 40,000 square feet and more than 1,000 slot machines and enlarged the bingo parlor to 850 seats, making it one of the largest in the country, helped raise the companys revenues to $33 million by the end of the 1970s. Showboat had been consistently profitable, paying dividends since 1970.

Sailing to New Horizons in the 1980s and 1990s

Showboat continued to focus on Las Vegas in the early 1980s. The bowling center expanded to 106 lanes, placing it among the largest in the world and solidifying its status as a premiere site for professional tournaments. In 1981, the company added a 33,600-square-foot Sports Pavilion, with 5,500 seats, to provide a venue for boxing, wrestling, and other sports events. Showboat also added a race and sports book; in 1982, Showboat expanded its sports offerings when it purchased, for $2.6 million, an 18-hole championship golf course. These additions helped attract more and more customers to the heart of the companys operations, its casinos and, especially, its slot machines. By the mid-1980s, revenues had grown to nearly $50 million. In 1983, the company began listing on the New York Stock Exchange.

Company Perspectives:

Showboats objective is to provide shareholders with a superior return on their investment; provide customers with an outstanding entertainment experience at our casinos; provide employees with a work environment in which they may reach their full potential; and develop a harmonious relationship with the communities in which we operate.

By then, Showboat was already looking toward a new horizon. The Atlantic City market seemed like a natural for the Showboat formula: with limited airport facilities, most of Atlantic Citys gambling customers were day tourists arriving on buses or in cars. In 1985, the company began building its Ocean Showboat, leasing one of the last available boardwalk sites from Atlantic City pioneer Resorts International. The hotel casino structure, which would resemble an ocean liner, would be Showboats most ambitious project ever, with an initial cost of $200 million (its final cost was $245 million). Unlike its Las Vegas predecessor, however, the new Showboat hotel would rival the largest of the Atlantic City casinos in size, featuring a 60,000-square-foot casino, more than 45,000 square feet of convention and meeting space, a 2,000-car parking garage, 500 hotel rooms, and a 60-lane bowling center. Like the Las Vegas operation, the new Showboat hotel casino would continue the companys policy of avoiding big-name entertainment, limiting credit, and focusing on slot machine players. In addition, the new Showboat was located at the most distant end of the boardwalk, far from the most active casinos.

Analysts were skeptical about Showboats chances for success. Their gloom was fueled in part by a disappointing market, as Atlantic Citys casino revenues slumped in the mid-1980s. Original plans to construct the new convention center next to the Showboat fell through; however, Showboat was soon joined by the even larger Taj Mahal, and the two casinos were linked by an aerial walkway. But Showboat also faced resistance from the New Jersey Division of Gaming Enforcement, which attempted to deny the company licensing to operate in the state. The divisions chief source of concern was the presence of John Gaughan as a company director. Gaughan had admitted taking part in his familys illegal gambling operations as a teenager and also had held a three percent ownership in the Flamingo in Las Vegas during the mid-1960s, when that casinos profit-skimming activity was exposed. Nevertheless, the Casino Control Commission cleared Gaughan and granted Showboat the license. The opening of the Atlantic City Showboat in April 1987 helped the company more than double its sales, to $118 million, and by the end of the decade, the Atlantic City operation was producing some 80 percent of total company revenues.

It was not all smooth sailing for the company, however. To attract customers, the Atlantic City Showboat had begun to compete with the other casinos by booking top-name entertainment, extending credit, and giving away rooms and other perks to lure in the high-roller crowd. Revenues continued to soar, reaching $294 million in 1988. But the companys margins were thinning, dragging Showboat into the red, while the debt taken on to build the Atlantic City complex helped sink the companys stock. In 1988, Joe Kelly retired from the company and was replaced as chairman by Houssels.

Showboat refocused and returned to its roots: the local and low-roller crowd. The company stopped booking big-name entertainment and eliminated credit, while heightening the emphasis on slot machine revenues. The turnaround was swift. By 1989, company revenues swelled to $342 million and net income, aided by the $4.9 million sale of the Las Vegas golf course, topped $7 million. In 1990, the company completed a $28 million renovation of the Las Vegas Showboat, adding a parking garage, two new restaurants, a new, 1,500-seat bingo parlor, and expanding the casino area by some 78 percent, to 80,000 square feet.

Meanwhile, Showboat began looking to expand its gaming empire beyond the Vegas and Atlantic City markets. Riverboat gambling was beginning to spread across the United States, and Showboat entered the fray with a 1993 agreement to manage a new $42 million gambling boat, dubbed the Star Casino, to operate outside of New Orleans. By the end of 1993, Showboat had increased its participation in the Star Casino to 50 percent. The casinos revenues were disappointing, however, and the floating casino complex ran afoul of state gambling legislation that required gambling boats to cruise while conducting gaming operations. The Star Casino had ceased cruising after striking an obstruction in the waterway during the first month of operation. In late 1994, however, the state district attorney raised the threat of an indictment against the Star for violating the states cruising requirement. Rather than face the possibility of an indictment, which would have led to a misdemeanor charge, Showboat sold the riverboat to Players International in January 1995. Indeed, Showboat was eager to avoid the taint of an indictment, even on a technicality, because it was already planning a far more ambitious move.

In May 1994, Showboat, together with the Australian construction group Leighton Holdings Ltd., won the right to develop Sydneys first casino operation. With the final structure slated at $1.2 billion and scheduled to open in 1998, the partnership opened an interim Sydney Harbor Casino in September 1995. Apart from its ownership interest, Showboat also took on management of the hotel casino. But revenues proved disappointing, in part because the Australian and Pacific Rim customers favored gaming tables over slot machines. In early 1997, Showboat agreed to sell its controlling interest in the casino complex to PBL.

Showboat once again focused on the domestic market. The Las Vegas Showboat underwent a new expansion in 1995, designed to help it compete against a number of new casino hotel complexes bent on attracting that Showboats core local customer base. The Atlantic City Showboat also began a $53 million renovation and expansion. Meanwhile, Showboats latest venture, a new, $200 million riverboat gambling complex, began operations in April 1997 in East Chicago, Indiana, tapping into the regions 6.9 million customer base. With J. Kell Houssels III taking over as president and CEO of the company in 1994, Showboat continued to chart its small but steady course in the gaming waters. Net revenues rose from $428 million in 1995 to $433 million in 1996.

Further Reading

Casino Licensed Over State Objections, The Record, February 12, 1987, p. A39.

Chiang, Melissa, Showboat Sets Up New Games on Both Sides of the Line, Investors Business Daily, July 16, 1996, p. A27.

Franchine, Philip, New East Chicago Boat Ups Gaming Ante, Chicago Sun Times, April 15, 1997, p. 10.

Wayne, Leslie, Low Rollers High Stakes Bet, New York Times, October 15, 1985, p. D1.

, Showboat Finds Winning Formula, New York Times, June 18, 1991, p. D10.

Wickham, Shawne K., Showboat Gambles on NH, Folds in Louisiana, New Hampshire Sunday News, January 22, 1995, p. A1.

M. L. Cohen