Building a casino empire

A company that started out running a Days Inn in Richwood has grown into a major player in the multibillion-dollar casino business and in the nation’s hotel industry.

Columbia Sussex Corp., based in Fort Mitchell, is buying Aztar Corp., a USD 2.75 billion cash purchase that, when final, will give it 13 casinos across the United States, Canada and the Caribbean, and place it squarely in the heart of the nation’s gambling capital, the storied Las Vegas Strip.

It’s quite an evolution from 1972, when William J. Yung, a former industrial engineer at Cincinnati soapmaker Andrew Jergens Co., built the 60-room motel in Richwood.

Columbia Sussex is now one of the largest privately owned hotel and casino companies in the country, so large that it has outgrown its Fort Mitchell headquarters and plans to build a USD 15 million signature corporate base in Crestview Hills.

Yung called the purchase of Phoenix-based Aztar a „breakthrough transaction,“ one that will boost Columbia’s revenue by 50 percent.

The deal comes not long after a similar-size bid for the Wyndham International hotel and resort chain a year ago. Although Columbia was outbid on Wyndham, which went to the Blackstone Group for USD 3.2 billion, it bought 14 of its major-market hotels from Blackstone for USD 1.4 billion.

When it finalizes the acquisition of Aztar and a recently announced USD 200 million purchase of the Casino Queen riverboat near St. Louis’s Gateway Arch, Columbia will own and run more than 80 full-service hotels and resorts, comprising 33,000 guest rooms, and 13 casinos in North America. Another resort and casino is under construction on the island of St. Maarten.

The purchase will also bring it the fabled Tropicana casino that occupies 34 potentially lucrative acres at the busiest intersection on the four-mile Las Vegas Strip and puts it into brand new territory in the gambling mecca of Atlantic City, N.J.

The company is already the largest licensee of full-service Marriott hotels in the country and also operates properties under other major hotel brand names, including Hilton, Westin and Sheraton. Its only property in Greater Cincinnati is the Sheraton Cincinnati Airport hotel.

Columbia has „emerged from nowhere to become, apparently, a fairly formidable contender in the industry,“ said Mike Pollock, a New Jersey-based gaming industry analyst.

The Las Vegas Tropicana property „could be one of the 10 best sites in the world,“ the usually understated Yung said. That may be one reason why he upped his offer for Aztar from USD 47 a share, or USD 1.7 billion, to USD 54 a share, or USD 2.75 billion. In doing so, Yung and his company outbid rival Pinnacle Entertainment Inc., owner of Belterra Casino in southeast Indiana.

The price has led some to question whether Yung paid too much.

„The big question is, can they still generate a decent return?“ said Sanjay Ayer, a gaming analyst with

But Yung said when he considers a property, he sees more profit potential than others do – and his company has a history of substantially higher operating margins to back it up.

„That’s why we can afford to pay more than anybody else,“ he said, sounding more matter-of-fact than boastful.

The company maintains an in-house construction, supervision and design department that allows it to act as its own general contractor on renovations and new properties.

Yung said the family-owned company is ready for a pause in that regard while it digests Aztar and other recent additions to its property portfolio.

„The growth strategy, after this, is just about absorbing what we’ve got,“ he said.

Wall Street analysts calculated that the price paid for Aztar after a two-month bidding war placed an implied value of about USD 1 billion on the underdeveloped Tropicana site. They figured that whoever bought it would need to invest another USD 2 billion to reach its maximum potential.

„Aztar’s unique assets are a perfect fit with our existing hotel and gaming properties, and we see many opportunities to improve financial performance by expanding the Tropicana brand, finishing the building projects in Indiana and Atlantic City and developing the Las Vega property,“ Yung said in company statement after signing a merger agreement with Aztar.

Pollock said both Tropicana casinos in Las Vegas and Atlantic City could support considerable additional investment.

„The potential returns are enormous,“ he said.

Yung’s company knows the territory in Nevada, where it acquired its first casino in 1990 when it bought an adjoining hotel on Lake Tahoe. The Tropicana is about a mile from Columbia’s 880-room Westin Casuarina hotel and casino, which is a couple blocks off the Las Vegas strip. It bought it in 2002 for $ 38 million and has since renovated it.

Aztar also operates a hotel and casino in Laughlin, Nev., right across the street from Columbia’s 1,000-room River Palms resort casino. Laughlin is 75 miles south of Las Vegas in the southeastern tip of the state. Columbia also owns two resort casinos on Lake Tahoe in Stateline, Nev., 300 miles to the northwest.

In addition to its Nevada properties, Aztar operates two riverboat casinos in Evansville, Ind., and Caruthersville, Mo. Yung said it will work with Aztar to sell the latter before Columbia completes the acquisition.

The Evansville casino complements Columbia’s riverboat casinos downstream in Mississippi and Louisiana and also the Casino Queen it’s buying 150 miles away in East St. Louis. Columbia said it plans to convert the Casino Queen to a land-based gambling facility with a larger „floating“ casino floor – 700 feet inland.

Aztar’s casino in Evansville was the first Indiana riverboat casino to open in the 1990s and generates the least gambling revenue and admissions of the five Indiana casinos on the Ohio River. It already has an expansion project under way, and it faces some fresh competition when a new casino opens in French Lick, Ind., later this year. Columbia owns a Marriott hotel in Evansville.

The Aztar deal also puts it in the running for a casino license in Allentown, Pa., where Aztar has proposed a USD 500 million Tropicana hotel and slot machine resort. It faces competition for the license from a rival project proposal in neighboring Bethlehem, Pa., from Las Vegas Sands.

Yung attributes much of Columbia’s success as a hotel company to its ability to produce much-higher operating margins than its competitors. If the others get 25 percent, his hotels get 35 percent, he said. The same applies to the casino business, he said.

Pollock noted that the casino industry pits Columbia up against some big operators that are able to spread fixed costs over a much-larger base of operations.

Ayer said private investors have been attracted to the casino industry by its ability to generate steady streams of cash, something Yung has cited previously as a reason for his desire to diversify his hotels operations by acquiring more casinos.

„These are pretty cash-flow stable operations. It’s a great cash flow business,“ Ayer said.

Despite rising interest rates, affordable financing for casinos is apparently not hard to get, and the new owner of the Tropicana in Las Vegas will need plenty more – at least USD 2 billion – Ayer said.

Yung apparently likes his chances.