Friday, Nov. 6, 2009 | 3 a.m.
Golden Gaming CEO Blake Sartini spent 15 years learning the ropes of the gaming industry at one of the city’s fastest growing companies.
Now, he’s the one with a fast-growing operation.
Sartini, a UNLV business administration graduate, served as executive vice president, chief operating officer and director of Station Casinos when it had one property with 2,000 employees. When he left, it had eight casinos and about 12,000 workers.
In 1985, he co-founded Southwest Gaming Services, the predecessor of a diverse group of companies that includes Golden Route Operations, a slot route with 2,500 machines in 200 properties; Golden Tavern Group, which operates 40 taverns under eight different brands, including the PT’s Pub franchise; and the Golden Casino Group, which has four casinos, one in Pahrump and three in Black Hawk, Colo. The original pub group just observed its 27th anniversary.
Sartini, who also has several other business interests including a community bank and a frozen dessert company, talked to In Business Las Vegas about issues confronting the gaming industry and the state of the Southern Nevada economy.
IBLV: Most people in Las Vegas know that the Golden Gaming Group is the parent company of the PT’s Pub franchise, but the company is involved in other things. Give me about a two-minute snapshot of the companies that comprise Golden Gaming and what they do.
Sartini: Golden Gaming is actually the holding company for three operating subsidiaries. Those three subsidiaries include the Golden Casino Group, which has three casinos in Black Hawk, Colo., just outside of Denver, and the Pahrump Nugget, which is the largest and most diverse facility in Pahrump. The Golden Tavern Group is what people in Las Vegas are particularly familiar with, which is our PT’s Pubs, which have the Pub brand, the PT’s Place brand, which is our 35-machine locations, the PT’s Gold brand, which is more of our casually upscale locations, and Sierra Gold, which is the highest on the scale of casually upscale taverns. We operate 37 of those in the valley and we’re the largest tavern operator in the state. The third subsidiary is the Golden Route Operations, which really was the root of Golden Gaming. When I first purchased the company, that’s the entity I purchased, the slot machine route. Today, we’re approximately 2,500 machines statewide, the third largest in the state. That continues to be the foundation of the business. So those are the three entities that comprise what people read about, which is Golden Gaming.
Let’s start with the tavern group. How is that group doing in these recessionary times?
Fundamentally, it’s doing well. We’re providing a service people expect. We’re providing the environment and quality of product that people expect. But it is the most challenging business environment I’ve seen since I’ve been in the gaming business, and as you know, I started in 1983, downtown at the El Cortez. Things are very challenging, but it drives us to focus on what is important to our consumer and to our guest. We strive to provide great service, great quality, great environment and even more so in these times than when things were a little easier.
It seems that like the resort industry, the Golden Tavern Group has placed an emphasis on providing a more upscale experience. Explain that strategy and how it affects revenue.
The strategy was developed early on when I bought the company. Initially, once I purchased the route operation, the next acquisition was the original 18 PT’s Pubs around town. That strategy was developed after really going into all of the taverns, our competitors’ and all brands, including ours, around the city and really at that point not finding a casually upscale experience that existed in most other major metropolitan areas around the United States. Not to take anything away from the tavern operations that we purchased or that we were out there looking at, but they were pretty one-dimensional. They tended to be small, they tended to be dark, they tended to be primarily gaming oriented and places in which a large market may be alienated because of the size and location and the general ambience of those properties. As we began to see Las Vegas as a growing metropolitan area, we began to see the opportunity for people to have a neighborhood opportunity that was casually upscale, that was comfortable, that was better lit, that had some design and aesthetic quality to it along with the same types of food and beverage quality that you would see in any local or Strip casino, gaming opportunities that are cutting edge and that people are looking for in this local gaming market. We believed that in the right locations, we would be successful, and we built nine or 10 of those to date, not including Sierra Gold, of which there are four on top of that, so 13 or 14 of these casually upscale facilities. We have done exceptionally well with those. They’re highly visible, in good locations, and they’ve drawn a whole new market into the tavern business that I didn’t see prior to us building them.
How important is the food in the tavern business? Do you consider your operations restaurants that happen to have a little gaming or gaming establishments that happen to have food?
Great question. We clearly see our operations as more of a place … how would I put it? The food part of the operation is secondary to the other activities that may go on — happy hours, gaming. The revenue mix in the properties is clearly directed toward the kind of happy-hour, 24-hour theme. The food — and you’ve referenced the quality of our food — is a necessary and much sought-after component by consumers of what we offer. We brought in Joe Romano, who was the executive chef for Charlie Palmer, who has extensive fine-dining experience. We’ve taken that approach to our food. But it is a restaurant secondary and a casually upscale happy-hour environment is the first impression we want to give.
What are the biggest issues facing the tavern market?
There are quite a few. One, I think, in the past, allowing these operations to be within 1,500 feet of one another created a real competitive disadvantage to many who opened, particularly in the market today because the invested capital in the newer properties like we built today is significantly greater than it was in the past. So the distance requirement, in my opinion, is not favorable to continuing to develop these larger facilities that cost more and actually employ more people. I think across the street here (at a tavern next to Golden Gaming’s corporate headquarters at 6595 S. Jones Blvd.), we have 40-plus full-time people working at that tavern. It’s a bit prohibitive knowing that 1,500 feet down the street that one could open for a lot less money, maybe not have the same types of amenities, but still kind of pull people in because of the location. So I think that’s a challenge. The smoking issue has been an extreme challenge. It’s an unlevel playing field that has been put in place out there. It’s proven to be confusing to patrons. Our company has worked with the (Clark County) Health Department and the regulatory agencies to mitigate the impact on our business by providing permanent structures that separate, where required, dining from smoking. But I think it was a poor attempt at informing the public. It’s confusing and it’s a real challenge to the tavern operators out there to make sure the consumers know exactly what the situation is.
How has the smoking ban affected the bottom line?
It was a huge negative effect when it first went into effect, primarily because the law allows for smoking without constraint in the 35-machine locations, of which we have four. That really wasn’t made clear in the public process of getting this referendum passed. So we had to overcome that so people would understand those were not affected. In addition, it took some time for us to physically alter the properties to conform to the smoking requirements. And in that time frame, a lot of our very good customers who were there on a daily, weekly, monthly basis chose to go other places where they could smoke because they were afraid they were breaking the law when in fact they weren’t. So, there was a time frame from the time that we physically outfitted our properties to comply and the time in which those customers didn’t feel comfortable. We’ve since done a very good job in our business through our marketing programs and our media campaigns of getting those people back. But that was a significant hit early on.
Could you quantify the amount?
You know, it’s hard to say because the smoking ban occurred on or about the time this macroeconomic slide really began to hit. So it’s hard really to quantify the smoking ban, but I would say it was more than a 10 percent hit to our revenues.
How much retrofitting did you have to do?
We spent in the millions of dollars to retrofit those properties, which was capital we hadn’t planned on before the referendum and capital that came at the expense of other things maybe we would provide in terms of aesthetics or other things, but it was a significant amount of money.
Do you think the smoking ban gave large casinos an unfair advantage?
I think clearly it’s an unlevel playing field and I think it’s disingenuous for the nonsmoking advocates to tell the public that smoking’s been banned in indoor facilities that have restaurants. All one needs to do is to go into any casino that has a casino floor adjacent to a restaurant or a buffet and you’ll see that that smoke transcends from the casino into those restaurants. It is an unlevel playing field and we’re having to deal with that. I think we’re dealing with that effectively, but I think the public has not really been informed as to that this really didn’t do what it was intended to do.
The state Gaming Control Board recently reprimanded the company for the lax oversight of hiring managers at the taverns. What has the company done to correct this?
We’ve taken significant steps to do that. Sheila Pankas, who is our director of compliance, has extensive experience in that area. One of the challenges that we have is that we are putting together a gaming profile, a gaming footprint of a company that really has not been done before. In that process, we’re working with state authorities to have them approve our organizational structure. Which individuals within that structure need to file for key employee status and which don’t? How many taverns can one of those key employees oversee? In that process, there’s been some challenges for us in terms of getting background checks done quickly, in terms of promoting individuals from a property level to a regional manager level without having the necessary background information quickly enough. We take responsibility and accountability for that. What we’ve done specifically to alleviate problems in the future for this is that Sheila and her operational people have worked with Gaming to establish specific background check information that maybe there was a little variation to our background checks vs. maybe those of the larger properties. We’ve standardized those. We’ve committed to providing enough time between a position and a promotion to do the necessary checks to get the necessary information so that we can provide to Gaming that this person is qualified to be a key person. Internally, we are making sure that we are more cognizant of the effects of moving quickly in an organization that has 36 gaming licenses that are regionally diversified around the city. We’re continuing to work on managing that challenge and doing that with the gaming authorities.
The Golden Casino Group has properties in Pahrump and Black Hawk, Colo. How has the recession affected that group?
Both of those markets have been affected. Colorado also was a party to a smoking ban that was put in place, I think, in January ’08. That was a significant revenue hit, as it is when that takes place around the country in gaming markets. So that was a challenge in ’08. But again, the macroeconomic environment began its slide about that time. So we’ve been affected in those markets just like we’ve been affected in this market. The Colorado market has tended to be a little more resilient. As you know, the bet limits came off. There was a referendum in which our industry provided support that removed the bet limit, which had been in place in Colorado since 1993. That brought a significant new wave of business to the community there. We instituted table games, which included craps and roulette with blackjack. So that’s been a real positive in what has otherwise been a pretty negative macroeconomic environment.
How much have the new games, new limits and longer hours affected your Colorado revenue?
July was the first month and early on, we saw 12-15 percent increases in revenue. Keep in mind, that was over a period of which revenue had been declining for some time. But it was a positive. In August, the table game revenue stayed pretty static. Slot revenue dropped a little bit. September, table game revenue stayed pretty static, slot revenue dipped a little more. The Colorado Gaming Association just came out and said they would expect, industrywide, about a 10 percent revenue increase as a result of hours and bet limits being raised.
Do you have any ambitions to develop a neighborhood casino in Las Vegas or something bigger like a Strip property?
The short answer to that is yes. We have a management team that is capable of operating facilities small to very large. My operations team — from Steve Arcana, the chief operating officer, to Chris Abraham, vice president of marketing, Joe Romano, our executive chef, Sheila Pankas, our director of human resources, Rod Atamian, who’s my (chief financial officer), Matt Flandermeyer, who’s the Golden Gaming CFO — very, very strong, seasoned people who have been in the industry and have worked for me for a lot of years. So our company, right now, is trying to position itself to emerge with a much stronger footprint and our ability to take advantage of some larger opportunities we hope will be there. So, yes, we have our eye on continuing to grow and I think the size or complexity of the property is within our ability to operate.
There are some companies that are strategizing to buy debt or acquire distressed properties. Is Golden in the picture on any such acquisition strategies?
We’re looking at a pipeline of opportunities and I wouldn’t rule those types of opportunities out. I will tell you that, without question right now, our main focus is to preserve the strength of this existing business in these challenging times. We are spending the overwhelming majority of our time on solidifying this business and making sure that we emerge in a stronger position than we entered into it. Having said that, we are exploring opportunities, but that is secondary to our main objective right now.
Golden Route Operations is the company’s slot-route business. How has the recession impacted that segment?
It’s been affected at the same rate. We, in the slot route business, rely on the ingenuity and creativity of an owner in which they’re marketing their business and we simply have the equipment within their establishment and they’re all being challenged. The route is probably one of the better indicators that we have on the pulse of the state of the economy here in Las Vegas and it’s showing stress. These smaller operations, these smaller taverns, which primarily make up the bulk of our route machines, they’re feeling the stress and we’re seeing that in our numbers. They’re not immune, like most businesses that I know of are not immune, from what’s happening here.
What types of properties are among your 200 locations? Bars? Convenience and grocery stores? And who are your competitors?
They would be all of the above. The majority, and I think it’s something like three-quarters, 75 percent, of the machines that we have on our route are within restricted gaming locations, taverns primarily. The balance of that would be made up of convenience stores, mostly car washes and other things like that. Our competitors are the (Terrible) Herbst ETT and United Coin. Those are two of the larger route operators and that is who we compete with out there on those accounts.
What technological changes, if any, are ahead for the slot route business?
We have been and we are very focused with our capital and our management right now on base technology for our business. Over the last year and a half within our own taverns and then dovetailing into the route, we’ve introduced really cutting-edge player reward programs within our own taverns and we’ve introduced a technology administrative program which allows operators to track their gaming revenues and track their players from which they can develop solid direct marketing plans. We have just a tip of the iceberg out there right now. We are about to roll out in our own taverns one of, I think, one of the most exciting player awards bonusing features that will be introduced into the market. We can talk more about that soon. We’ve just gotten approval by Gaming to go into tests. It’s a module of Golden Rewards. Golden Rewards is kind of the umbrella under which we develop all these programs. As you know, the Golden Jackpot is out there now. We’ve just developed a program for players that allows them to come in and redeem points that have been automatically downloaded to their account once they log in. This new module that is coming out is really exciting. To your point, technology is going to continue to be the foundation that we rely upon for a sustainable competitive advantage in what we do.
What’s the average product life cycle?
Another great question. The video poker platform has been a staple. It’s been out there for 10 or 15 years, I think, as the standard, if you will, in the restricted gaming locations. Those games have morphed from just a video poker opportunity — there were various games within the video poker format — into the multiline-, multicoin-type games that are more popular in some of the stand-up locations around town, some of the casino locations around town. So the box itself has a long life. They’ve developed these boxes now so that you can put the technology within them and that technology has a shorter life. I think the poker programs will continue to sustain out there without much change. But these newer programs that are coming out have a one-to-three-year lifecycle that requires us to be on the cutting edge of changing those out.
It must be challenging to keep up with knowing what the customer wants.
Very much so. We’re pretty sophisticated with our backgrounds in understanding what our customers like to play, where the propensity of their play goes, to which games. We review that frequently within our business. So we’re out there. Where the challenge comes is the capital requirement to keep those fresh and keep those in front of the players, particularly in this environment.
And I’m sure you don’t want to remove good-performing games, just because they might be old, if you have players who really like them.
To illustrate that, all of these boxes, this new technology that these manufacturers are producing that we use, the platform that is a staple for us is the video poker platform. That’s not going away. That’s going to stay in these machines. But what’s changing is that there are 12 to 15 games that can be offered within one box. Outside the five or six video poker games, the balance of those 10 or 11 games that are remaining are what’s really changing on a pretty aggressive basis.
How should the state revamp its tax structure? Should the gaming industry be paying more?
Speaking for myself, I’m a broad-based tax proponent. Generally speaking, I’m an opponent to any increased taxes, particularly right now. It’s not a zero-sum game, meaning that if the state chooses to increase taxes wherever they choose to increase, there’s going to be reactions that are going to continue to put pressure on the consumer. Most taxes are passed along directly to the consumer, so they’re stressed right now. If there is going to be some consideration by the state for revenue enhancement, I’m a proponent of a broad-based proposal. I am not a proponent of targeting any specific industry for that.
You’re on the board of directors of Service1st Bank. How is the bank doing in these troubled times?
Local community banks, as you’ve reported on and have seen, they’re being very challenged. It’s no secret as to the community banks that have not made it already in this stressed environment. Our particular bank is very strong with liquidity. I humbly think that it has the best board in town. Bill Martin, John Gaynor and Richard Deglman are the best bankers in the business. So the attraction to me with that investment and diversifying through that investment was management and buying into their history. I think Bill Martin, in particular, is an icon in Nevada banking. Our bank is doing very well considering what’s happening in the market.
Why is Service1st up for sale?
I think the structure of what we’ve entered into was attractive to us as a bank because of the ability to bring in significant amounts of capital. Any bank right now would like to have the ability to bring in more capital to sustain in this environment and withstand some impending problems that are probably coming down the road. So we were attracted to the opportunity to merge and they were attracted to our bank. There are many banks in the city, but they were attracted specifically because of our management, specifically because of our board, they felt that we were the right platform to infuse this additional capital. With substantially more capital, with the management and platform that our bank currently has within the city, we see a lot of opportunities that are certainly going to present themselves.
The last time we talked, you were getting excited about MolliCoolz, a frozen dessert product that you said might be showing up at bars and on the Las Vegas pool party scene. How’s the progress on MolliCoolz and how is the product doing in Southern Nevada and nationwide?
Everything’s challenged in this macroenvironment, but the technology that we showed you last time continues to be well-accepted. The yogurt smoothie is next on the horizon. Schwann’s is a big distributor of those at the moment. I believe in the technology. Frankly, the business has been challenged from a retail standpoint, so we believe with that challenge that the technology provides a platform to continue. You saw the technology that we owned. We think that still has legs, but like everything else right now, it’s challenged.
Have you made any inroads to the bars and the pool parties like you were planning?
We just did a Shakers promotion at our casinos in Colorado. We did a Shakers promotion the week before last at our casino in Pahrump.They were wildly received, positively received. The demonstrations were given and the products were given to the customers, they liked them. So we’re continuing to try to promote within our wholly owned entities and every time we do, we get good response.
You used to be an executive with Station Casinos, which is now in bankruptcy. You have a number of friends and family members still there. Are you still invested in Station? What’s your perception of what’s happening there?
The first answer is yes, I have a significant investment remaining in Station today. I have a lot of positive feelings about that and a lot of affinity for Station Casinos. I think they are the best in the business at what they do. I can’t comment on what’s going on currently because, honestly, I am removed enough from the process that I don’t have any knowledge as to what’s transpiring. It’s a great company and I have a lot of affinity for that company.
How did they get into bankruptcy and how do you expect it to play out?
Again, I’m not close enough to answer that.