In an industry of innovators, acquirers and casino financiers, Dan Lee is one of just a few executives who have filled all three roles.
Lee, chief executive of Pinnacle Entertainment Inc., will now apply his skills again in Las Vegas. Pinnacle’s announcement Monday that it is buying Aztar Corp. gives Lee’s company control of the Tropicana.
Lee took the helm of Pinnacle in April 2002. He is credited with doubling casino profits at the company during that time and opening the L’auberge du Lac resort in Lake Charles, La. – a USD 365 million property and the most expensive to date in the region. He also lined up two riverboat casinos, each worth about USD 400 million, in Missouri – one in downtown St. Louis that will open next year and another that will open in 2008 a few miles away.
Pinnacle is expanding two resorts in the Midwest, adding a hotel to its New Orleans riverboat and is attempting to obtain casino licenses in Pennsylvania and Chile. This year, the company will open a casino adjacent to a Four Seasons hotel in the Bahamas.
Lee served as chief financial officer of Steve Wynn’s Mirage Resorts from 1992 to 1999, overseeing the development of the Bellagio and Treasure Island. He also had a stint as chief financial officer of Internet grocery service HomeGrocer.com and owned his own gaming development company.
A graduate of Cornell University’s hotel management school, Lee began his career in 1980 with investment banker Drexel Burnham Lambert and later became a gaming industry analyst at CS First Boston.
Lee is known for his forceful personality and financial acumen. He clashed with Wynn, who irritated Wall Street with his lavish spending plans, and left Mirage right after Bellagio was built. He now takes a seat at the same table with his former boss and other Las Vegas operators including Harrah’s Entertainment Chief Executive Gary Loveman, MGM Mirage Chief Executive Terry Lanni and Boyd Gaming Corp.’s Bill Boyd.
The purchase of Aztar gives the company Tropicana casinos in both Las Vegas and Atlantic City – the No. 1 and No. 2 casino markets and areas in which the company is currently absent. Pinnacle intends to scratch Aztar’s proposed redevelopment plan for the Las Vegas resort and start anew with a bigger, more expensive plan to develop the entire 34-acre site at once.
A new project could open within five years – taking two years to plan and another three years to build. The development could cost up to USD 3 billion and could be marketed to a variety of customers, from the high end to the middle market. Pinnacle expects to fill at least 1,000 to 1,500 hotel rooms per night at the Tropicana with customers who gamble at other Pinnacle properties around the country.
The company expects to spend from USD 10 million to USD 30 million developing a sophisticated gambler rewards system nationwide over the next few years and would have about 10 million customer names, including Aztar’s, to start with.
The acquisition, expected to close by the end of the year, would make Pinnacle about the sixth-largest gaming company in the United States.
You’ve told Wall Street that the desire to create a diversified company with a strong player tracking system, similar to Harrah’s Entertainment’s Total Rewards program, inspired you to look at Aztar. Can you elaborate?
It really came home to me after we opened L’auberge du Lac at Lake Charles. It grew the market and it’s making a lot of money. But we were a little surprised at first that we didn’t hurt Harrah’s (casino in Lake Charles) more.
They had a tired property and before it was destroyed by Hurricane Katrina, it was doing very well. We had a superior property. We talked with their customers and they acknowledged we had the better property but that people like to be able to comped in Las Vegas once a year.
The obvious way to compete with that is to get a property in Las Vegas. The other thing is that with the success of Lake Charles, we could afford to look for something that would be competitive in Las Vegas. It also proved that we could build this. Honestly, Steve (Wynn) had a team and I was just the finance guy. In Lake Charles I headed the team. We built a great place and a very successful place. We know how to do this.That in part allowed us to go to Lehman Brothers and Bear Stearns and (finance) this deal.
Have some in the casino business underestimated Harrah’s and its Total Rewards program?
I admire what they’ve done with their program. They didn’t invent it. Think of what Citicorp sends to customers. If you’re a good enough customer you get a private banker. Some get a platinum card. It’s called database mining. Database storage technology is so cheap these days. If we’ve got a customer in St. Louis and they walk into our casino in Las Vegas I want to be able to send over a waitress with a Jack Daniel’s because they ordered a Jack Daniel’s in St. Louis. It’s a way to learn how to treat your most important customers in a way that’s most important to them. This is old school in a lot of industries. Victoria’s Secret organizes their catalogs according to what you’ve ordered before. My wife shops at Neiman Marcus. In our recycling bin we’ve got 12 pieces of mail from Neiman Marcus and they were tailor made to what she’d bought. I’d once bought a Zegna suit and the computer knew I’d once bought one off ! the rack and they were inviting me in to see a tailor. We can apply all this to the casino industry in a way we haven’t done before.
Pinnacle has never had a presence on the Strip. Is a big part of this deal about the chance to have a property in Las Vegas? Was this your ultimate career goal?
Not particularly. I’d be kidding if I said there wasn’t an emotional side to this. I live and work here. At the end of the day we’re a public company and we do the right thing for shareholders. If we couldn’t get the return on investment in Las Vegas we wouldn’t do this deal.
How long have you been eyeing Aztar as a potential acquisition target?
I worked on Wall Street in the 1980s and I’ve known of Aztar for about 25 years. When I worked at Drexel Burnham I raised about $ 100 million for Ramada (Aztar’s predecessor) to build the Tropicana in Atlantic City. At the time it was the largest high-yield bond offering in history. It was only in the last couple of weeks that we got really serious about (the acquisition) and saw all the value in it.
Why do the deal now? Aztar has been close to redeveloping the Tropicana for a few years now. You might have lost your chance to get your foot in the door had they gone ahead with it.
It’s more of an issue of accelerating the process rather than a delay. Had they moved ahead to develop half of the site, we would have had a lot less interest in acquiring the company. I’ve assembled a lot of sites on the Strip – I assembled where the Bellagio is, where the Monte Carlo is, the CityCenter site. It’s not easy to assemble a good site. And to see a fantastic site get subdivided is a little troubling to me. This is a great site and you just can’t do that. The site has public access on three sites and you can actually walk to it from the airport. Tropicana Avenue is second in the state, after I-15, in traffic counts.
What will differentiate the Tropicana from other developments in Las Vegas?
We just bought the land. You’ve got to have market surveys and focus groups. We’re interviewing architects and designers. Sometimes you start to design something and then you walk away from it. To do it right takes time and a lot of thought. I’ve got a bunch of ideas. I’ve got the background and know-how of what went well at the Mirage properties. We’ve got some people who worked at the Venetian and we know what works there and what didn’t. You have to come up with something that’s new.
Could you have envisioned Pinnacle where it is today?
I wish I could tell you there’s some master plan. Most of the decisions you make each day are very small. We moved the headquarters to Las Vegas about three years ago. We had about four people at the time. Now we take up three floors of a tall building. You hire people one employee at a time. In three years we’ve doubled the cash flow of the existing properties, built L’auberge du Lac, which increased cash flow about 50 percent. You take one step at a time.