Meet the CEO
Landry's Takes a Gamble
Houston Chronicle, December 2006 — by Nancy Sarnoff
CEO invests time and money into Golden Nugget, hoping to eventually expand a successful brand into other markets
LAS VEGAS — A shark-filled aquarium, five restaurants, 1,300 blinking slot machines. At the Golden Nugget hotel and casino, Tilman Fertitta is in his element.
Last year, the head of Houston-based Landry's Restaurants engineered the purchase of the downtown Las Vegas property and has already spent nearly $100 million sprucing it up.
A long list of upgrades includes remodeled guest rooms, a larger spa and fitness center and a posh new poker room. But one improvement trumps the others, and it's signature Fertitta — a striking new swimming pool surrounding a 200,000-gallon aquarium with sharks and stingrays. A tubed water slide cuts through the aquarium.
And that's just the beginning.
Fertitta has even bigger plans for the Golden Nugget, which include a new tower with up to 600 guest rooms, a special events center, a casino expansion and a sushi bar. He's already added a Grotto Ristorante and a Vic & Anthony's, two local restaurant concepts.
The 49-year-old Houstonian is betting these changes will attract a younger crowd to the 60-year-old property. And he's not modest about his ability to understand his customer.
"I have a real good feel of what creates energy," he said.
Still, the casino business is a new undertaking for Landry's.
Fertitta built the company on casual seafood restaurants, which he's parlayed into larger real estate developments with hotels and entertainment venues. Locally, he's known for his projects in Kemah, Galveston and Houston, where he boldly put a neon-clad aquarium and Ferris wheel at the edge of downtown. He also owns an aquarium in Denver and manages and operates a 750-foot tower with a revolving restaurant in San Antonio.
Gaming, he said, was the next logical step.
He wants to expand the well-known Golden Nugget brand beyond Nevada. He said he'd like to have one in Biloxi, Miss., Atlantic City, N.J., and Houston or Galveston, if gambling is expanded.
"I felt gaming would eventually come to Texas, so I wanted to have an understanding of it," Fertitta said.
His vision for Landry's includes implementing what he calls the "big box theory," or owning more large developments that can produce as much if not more revenue than multiple smaller ones.
To that end, the publicly traded company recently sold 120 Joe's Crab Shacks to a private equity firm for $192 million.
As a result, Landry's reported a loss from discontinued operations of $33.3 million, or $1.51 a share, leaving it with a reported net loss of $30 million for the third quarter. Revenue for the quarter was $290 million, compared with $221 million in the year earlier quarter.
Fertitta said he's using the proceeds from the Joe's sale to pay down Landry's debt.
Analysts said Fertitta's investment in the nearly 2,000-room downtown casino hotel could reap big returns, but it's too early to tell if the renovations can attract the younger, hipper crowd that typically likes to stay on the Strip in glitzy hotels like the Bellagio, the Venetian and Wynn Las Vegas.
Catering to this demographic, developers on the Las Vegas Strip have spent billions on new hotel and casino properties with luxurious spas, high-end shopping centers and chef-driven restaurants.
MGM Mirage, for example, is developing a multibillion-dollar hotel, casino, condominium and retail development on the Strip.
Historically, downtown brings an older, more value-driven customer, who likes staying in the area because it's smaller and easier to get around.
"You can go other places that are real close by, that are walking distance," said Keith Seaman, a 75-year-old retired trucker from Laughlin, Nev., who was waiting in line to check into the Golden Nugget on a recent Tuesday morning.
But signs of change are appearing.
The Golden Nugget is located at one end of the Fremont Street Experience, a five-block pedestrian area where animations, live video feeds and synchronized music are shown on an overhead canopy longer than five football fields.
John Restrepo of Las Vegas-based Restrepo Consulting Group said downtown's image will improve over time as long as other property owners take part in the renaissance.
"One property in and of itself is not going to change the area," he said. "In order to get a hip crowd, you have to have that complete environment."
Broader changes are in the works.
Since taking office in 1999, Las Vegas Mayor Oscar Goodman has been a champion of downtown revitalization.
In 2000, he facilitated the city's purchase of 61 acres downtown. Developers are now planning projects in the area, including a 50-story jewelry market, a 2-million-square-foot expansion to the World Market Center furniture mart and an Alzheimer's facility designed by renowned architect Frank Gehry.
New bars are starting to open along a three-block entertainment district on Fremont Street. The Beaty Bar, a New York-based bar featured in the HBO series Sex in the City, opened last year.
And more hotels and restaurants are in the works.
Restaurateur Charlie Palmer plans to build a boutique hotel and condominium project on part of the city's 61-acre site with one of his signature restaurants.
Wolfgang Puck will have a presence at the new Alzheimer's facility.
But to some, downtown still has image problems.
"In the past, downtown had the reputation of being a tackier, cheaper area," said Bruce Kederich, a Santa Barbara, Calif., resident who was staying at the Venetian on the Strip with a friend who was attending a conference in the city.
He hadn't heard about any of the improvements or new developments downtown like he has about the Strip.
"This area gets such press," he said.
In its 60-year history, the Golden Nugget has had several high-profile owners, including Steve Wynn and MGM Mirage.
Landry's bought the property from an investment group led by two entrepreneurs who acquired it in 2004 after selling a travel Web site to Expedia. Landry's, which closed the deal in September of last year, acquired the Las Vegas Golden Nugget and a smaller one in Laughlin for $140 million in cash and $155 million in debt.
Dennis Farrell, a gaming analyst with Wachovia High Yield Research, said Landry's has eliminated much of the high-end gambling that caused earnings volatility during the previous ownership.
"He's more focused on getting the steady customer flow than attracting the very high-end customer that can come in and take you for a couple million," Farrell said.
Overall gaming revenues, however, have been falling downtown.
Gaming wins for downtown casinos declined for the fourth straight month in September, falling 8.4 percent to $47.4 million, compared with $51.7 million the previous September, according the state's Gaming Control Board.
Some attribute the decline to the closure of downtown's Lady Luck casino hotel, which is being redeveloped.
Other properties also have been making improvements.
The owner of the Four Queens plans to open a Strip-type nightclub by New Year's Eve. And the El Cortez spent about $7 million last year on upgrades, the mayor said.
Still, when most people hear about the Golden Nugget, they immediately associate it with vintage downtown Las Vegas.
"For downtown, it's the most popular for sure," said Yanni Gardi, a Las Vegas taxi driver. "Everyone knows the Golden Nugget. It's like the Flamingo on the Strip."