Last week, I wrote that, among casino operators, the biggest winners weren’t the big glamor names, but two regional operators—Boyd Gaming at six times appreciation since my base year of 2014 and Churchill Downs at nine times.
But there was another casino operator that beat them all—Eldorado Resorts. Eldorado escaped my attention because the company now trades as Caesars Entertainment. If you use Eldorado’s stock price in the $4s in 2014 and carried through today as Caesars, the stock has been an 11- or 12-bagger.
Interestingly, Eldorado was one of my picks in my now classic (at least to me) note Nevada Triple Play, which highlighted three Nevada-based, family controlled casino operators. The other Triple Play members were Monarch Casino and Golden Entertainment. And, like Eldorado-Caesars, Boyd and Churchill Downs, they have rewarded investors with multifold returns. Full House Resorts, a later addition to the list, has also been a multi-bagger in that time.
More interesting is what these companies share—stable long-term focused management teams that embody a distinct culture and are dedicated to unique business models. They also continue to have very strong family ownership and involvement—the Boyds at Boyd, Caranos at Caesars, Sartinis at Golden and Faharis at Monarch.
There is another company that can be added to this group and that has rewarded shareholders, as well—Red Rock Resorts. The king of the Las Vegas locals business is also family led with Frank Fertitta as CEO and brother Lorenzo a board member.
In some ways, these family-oriented companies are throwbacks to the days before Wall Street became the primary owner of the gaming industry.
There was a time when the vision of entrepreneurs mattered most.
Indeed, it was not all that long ago when Steve Wynn, Sheldon Adelson and Kirk Kerkorian revolutionized the casino industry by making it a resorts and convention industry as well as a gambling industry. They were iconoclastic. In today’s world, would someone spend hundreds of millions of dollars on art like Wynn, create a whole new, convention-oriented model like Adelson or build the world’s biggest hotel like Kerkorian?
I remember being at an investment conference where the CEO and CFO of a Macau hotel company were belittling Adelson’s dream of a Cotai Strip in Macau. He didn’t understand Chinese gamblers, they said dismissively.
No one looking at the palatial mega resorts on Cotai today is dismissive. Adelson did what no one else in the world could or would do because he had the vision—and the ownership stake—to do it.
And so, that gets us back to these companies that have outperformed and, in my estimation, will continue to outperform.
If Golden and Red Rock, for example, own all of their real estate as appreciating assets with lots of monetizing options ahead and focus development in southern Nevada, it is because Blake Sartini and Frank Fertitta, while being respectful of public investors, can put their visions into practice.
If John Farahi eschews the Wall Street pressure to borrow and spend in pursuit of growth when he doesn’t see clear opportunity then there are worse things as a minority investor in Monarch than a quadrupled stock price now supplemented by a cash dividend.
In sum, the most successful businesses aren’t built by mathematical models or by consulting Wall Street for advice. They are built by entrepreneurial leaders with vision, will and sufficiently large shareholder stakes to pursue those visions.
