Pinnacle Hopes for Jackpot In Stay-at-Home Gamblers Corporate Focus: Pinnacle Entertainment Inc. By MICHAEL HART Staff Reporter Never mind what is likely to be the sixth money-losing quarter out of the last seven, a debt of nearly $600 million or a truckload of critics who say that any business that counts on the disposable income of its customers for revenue is probably bad news. Pinnacle Entertainment Inc. COO Wade Hundley would tell you to simply look at the packed parking lots surrounding its seven casinos and four hotels. “People drive to our casinos,” Hundley said. “As long as people look for ways to entertain themselves close to home, we’re going to be all right.” And Hundley might have a point. It has become a truism that, in the wake of Sept. 11, destination vacation spots like the major gambling casinos in Las Vegas that rely on customers traveling to them by airplane have seen their business drop off. On the other hand, Glendale-based Pinnacle runs mostly riverboat casinos in less glamorous surroundings like Biloxi, Miss.; Bossier City, La.; and Switzerland County, Ind. It’s got another one in the works in Lake Charles, La. and, like Hundley said, none of these are places anybody needs to fly to. Michael Crawford, an analyst with B. Riley and Co., said, “In recent years, the growth has been the greatest in the regional gambling markets, and not the Nevada markets.” Indeed, Pinnacle has seen its stock price, trading at $9.06 on July 19, jump 73 percent since Jan. 1 and 78 percent since Sept. 11. By comparison, stocks on the Dow Jones casinos index have increased 0.6 percent since the beginning of the year and 8.5 percent since last September. Similar stories are the case with other casino companies that serve markets far from the bright lights of the Las Vegas Strip, like Argosy Gaming Co. of Alton, Ill. (with riverboat casinos paddling their way between Cincinnati and St. Louis) or even Station Casinos Inc. (which caters to full-time residents of suburban Las Vegas in fairly modest surroundings). On top of that, former Mirage CFO Daniel Lee took over as Pinnacle CEO in April, bringing with him what Crawford described as “a lot of credibility with investors”; Pinnacle just last week completed a $23.5 million renovation and expansion project in Bossier City; it has gotten final approval to go ahead with what will probably be a $225 million casino resort on Lake Charles; and a second-quarter earnings report expected the week of July 22 should, again according to Crawford, “more than likely exceed guidance” of $17 million to $18 million in earnings before interest, taxes, depreciation and amortization (EBITDA). The arrival of Lee, who replaced former CEO Paul Alanis earlier this year, is seen as a coup by analysts because of his extensive experience with Mirage Resorts (now MGM Mirage) and as casino entrepreneur Steve Wynn’s top development executive. “He and Wynn had something of a magic touch,” Crawford said. Perhaps not a coincidence, Lee worked on a deal for the same property in Lake Charles for a riverboat resort-casino complex for Mirage that Pinnacle is now developing. Mirage eventually dropped out. Earlier this year, before Lee’s arrival, analysts were uncertain Pinnacle could swing the financing necessary for such a large, expensive project on its own and might be on the lookout for a partner. One term of its Louisiana state gaming license is that the entire hotel resort project must be completed before the casino and the abundant cash flow it would bring with it can open. Hundley said last week Pinnacle will do the project on its own and expects to raise the financing necessary in the next two months. He wouldn’t say how much Pinnacle needs for the project. Crawford said, while Pinnacle probably will do the Lake Charles project on its own, “it’s likely they’ll expand the scope, add another hotel-resort and get a partner for that.” In the first quarter of 2002, Pinnacle had a net loss of $59 million on $127.3 million of revenue, compared to a net loss of $2.1 million on $134 million of revenue for the same quarter a year earlier. Company officials are quick to point out EBITDA for the first quarter were $19.7 million, compared to $19.4 million the previous year. Pinnacle, formerly Hollywood Park Inc., began moving out of the horse racing business and completely into casinos in the late 1990s, culminating in the sale of Hollywood Park to Churchill Downs in 1999.
