State Route 2 South
We are optimistic about the prospects for our expansion opportunities , which leverage the Company's expertise in the gaming and racing mar kets and should provide additional long-term value for shareholders.
MTR Gaming Group, Inc. owns and operates thoroughbred and harness rac etracks, casinos, and properties called "racinos," which are racetrac ks offering forms of gambling other than pari-mutuel wagering. The co mpany's flagship property is the Mountaineer Racetrack & Gaming R esort in Chester, West Virginia, 35 miles west of Pittsburgh. The Mou ntaineer property is a year-round thoroughbred racetrack with a 359-r oom hotel, golf course, theater and events center, convention center, and more than 3,000 slot machines. MTR also owns Scioto Downs, a har ness racing facility in Columbus, Ohio; the Ramada Inn in Reno, Nevad a; the Speedway Casino and Binion's Gambling Hall & Hotel in Las Vegas; and a license to build Presque Isle Downs, a thoroughbred race track in Erie, Pennsylvania. MTR holds a 50 percent interest in North Metro Harness Initiative, LLC, which has a license to construct a ha rness racetrack 30 miles north of Minneapolis. The company also has s igned a definitive agreement to acquire a 90 percent stake in Jackson Trotting Association, which owns and operates Jackson Harness Racewa y in Jackson, Michigan.
MTR struggled mightily during its first decade in business, trying in vain for years to find a business model that worked. The company ope rated under several different names and it delved into several differ ent markets, floundering financially and strategically until its path crossed with a former tax accountant named Edson "Ted" Arneault.
The years before Arneault's arrival were pocked by the failings of a rudderless company. MTR was incorporated in March 1988 as Secamur Cor poration, starting out as a wholly owned subsidiary of Buffalo Equiti es, Inc. until Buffalo Equities spun the company off to its sharehold ers in January 1989. Secamur was not on its own for long, gaining a n ew parent company six months later when Pacific International Industr ies, Inc. acquired it. Pacific International, only 11 months older th an Secamur, was attempting to carve a niche for itself in Southern Ca lifornia's contract security guard market. Its name was changed to Ex calibur Security Services, Inc., but the experiment soon failed. Exca libur Security filed a voluntary petition with the U.S. Bankruptcy Co urt for the Central District of California in December 1990, giving i ts management time to develop a new strategy. In May 1991, the compan y sold its moribund security guard business and decided to focus on t he odd business mix of acquiring gambling and oil and gas properties. The bankruptcy court approved the plan in December 1991, an event ma rked by a name change to Excalibur Holding Corporation. It was while the newly named company was beginning its new corporate life as an ac quirer of gambling and oil and gas properties that Arneault entered t he scene. Within a few short years, the company's strategic scope was narrowed and Arneault emerged as the chief architect of its executio n.
Arneault wore many hats during his professional career. Aside from hi s experience as a tax accountant, he ran an oil and gas company at on e point and served as a partner in a jewelry chain, a knife company, and a steel processing plant. In 1992, a friend asked him to assist i n the sale of a thoroughbred racetrack in Chester, West Virginia, nam ed Mountaineer Park. Arneault agreed and served in the capacity of a consultant, helping to sell the property to an interested suitor, Exc alibur Holding. After the sale, Arneault remained a consultant, offer ing advice on the installation of slot machines at the racetrack. Not long afterwards, Excalibur Holding's management decided to shelve pl ans to acquire any additional oil and gas properties and to focus exc lusively on the gaming industry, a sharpening in strategic focus that prompted another name change. In August 1993, Excalibur Holding chan ged its name to Winners Entertainment, Inc., a change in identity tha t occurred at roughly the same time the company was engulfed in contr oversy that threatened its existence.
The deal that allowed the installation of slot machines at Mountainee r Park had been struck with the state lottery commission. It formed t he basis of Winners Entertainment's new business strategy: add casino -style gambling to the racing venue to increase profits and revenue. Unfortunately for Winners Entertainment's management, the lottery dir ector was convicted of insider trading and fraud several weeks after the acquisition of Mountaineer Park was completed. In the investigati on into the director's malfeasance, it was discovered that the testin g of slot machines at Mountaineer Park had no legal standing, which p rompted the state supreme court to order for their removal, significa ntly lessening the value of the property to Winners Entertainment.
Arneault, still serving as a consultant, decided to fight for Winners Entertainment's cause. He dug in, renting a room in the state capita l at the Charleston Marriott, and began lobbying for state approval o f slot machines. He spent three months working out of his hotel room, first asking the court for a stay on the initial agreement before pe titioning state representatives to legalize slot machines. He asked t hat slot machines be allowed at all four racetracks in West Virginia, arguing that establishment of slot machines would create new jobs an d improve the local economy. As the October 29, 2001 issue of Forb es noted, "The odds could hardly have been worse: Get a Bible Bel t state to support gaming legislation in the wake of a lottery scanda l." Despite the negative publicity surrounding his lobbying efforts, Arneault prevailed in March 1994, when the state legislature passed t he bill by a narrow margin.
Arneault Taking the Helm in 1995
Arneault's troubles did not end after he fought for the passage of ga ming legislation. Winners Entertainment had hired a management firm, American Gaming, to oversee the operation of Mountaineer Park, but af ter American Gaming chewed through a $10 million loan with not mu ch to show for the expenditure, Winners Entertainment cut its ties to the management firm. For a replacement, Winners Entertainment's mana gement turned to Arneault, who accepted the titles of chairman and ch ief executive officer in April 1995. The company lost $5.3 millio n during Arneault's first year as a senior executive, but he had a pl an for reversing the company's financial fortunes. Arneault wanted to build a casino near the racetrack to lure more serious gamblers, the first part of an overall plan to turn Mountaineer Park into a full-s cale entertainment resort. Arneault's vision led to another name chan ge in October 1996, when Winners Entertainment, Inc. became MTR Gamin g Group, Inc.
Arneault succeeded in turning MTR into a profitable company soon afte r focusing its efforts on racing, gaming, and entertainment. In 1996, revenues increased 61 percent to $40 million, but the most impre ssive financial result was the $1.1 million the company recorded in net income, a figure that offered evidence Arneault was steering M TR in the right direction. Arneault was beginning the process of turn ing Mountaineer Park into the "Mountaineer Race Track & Gaming Re sort," a project that entailed adding scores of new slot machines, th e primary reason for the encouraging financial results in 1996, and a host of other attractions. The expansion project took years to compl ete, as Arneault built the company's signature property on 2,600 acre s of land on the banks of the Ohio River, intending to lure customers from neighboring Ohio and Pennsylvania to MTR's gaming and entertain ment complex in Chester. While the mammoth construction project was u nderway, Arneault began acquiring other properties for MTR, shaping t he company into a geographically diversified company. First, he sold the last of the company's remaining oil and gas properties in 1998, t he same year he established a presence in Nevada. Through two subsidi aries, Speakeasy Gaming of Las Vegas, Inc. and Speakeasy Gaming of Re no, Inc., MTR acquired the Cheyenne Hotel & Casino in Las Vegas f or $5.5 million and the Reno Ramada in Reno for $8 million. T he Cheyenne Hotel & Casino property included a 131-room hotel and casino that Arneault intended to expand and to design with a motor-r acing theme to attract patrons from the Las Vegas Motor Speedway, loc ated five miles away from the Cheyenne property. The Reno Ramada was a 262-room hotel with an adjoining casino earmarked for a $500,00 0 expansion project. After the expansion of the hotel and casino, the property was renamed the "Speakeasy Hotel & Casino."
Arneault's decision to establish a presence in Nevada yielded mixed r esults, but his efforts to turn the Mountaineer property into a full- fledged resort mitigated the difficulties experienced in Reno and Las Vegas. By 2001, the Mountaineer property had been developed into a s prawling complex with a 140,000-square-foot slots casino, seven bars, a 70,000-square-foot arena for live entertainment, and a 100-room ho tel. In August 2001, a 28,000-square-foot convention center and a spa and fitness center opened, while the expansion of the hotel, expecte d to be completed in April 2002, was underway, adding 260 rooms. The property was driving the company's revenue growth, helping push reven ues to $218 million by the end of 2001, nearly ten times the tota l recorded during Arneault's first year as the company's leader. "The scene is more NASCAR than diamond pinkie rings," an analyst remarked in a June 22, 2001 interview with Investor's Business Daily, offering his impression of the Mountaineer property. Arneault, in the same article, offered his description of MTR's signature property. " I like to consider us a middle-class outfit," he said. "We're not loo king for the Las Vegas whales. Our whales would probably be keeper ba ss."
The resort in Chester stood as a remarkable success story for MTR, en abling the company to accomplish what it had been unable to accomplis h in the pre-Arneault years: record significant revenue growth and po st steady profits. The foray into Nevada had been made because of unc ertainty about how the expansion effort in Chester would evolve, but during the first years of the new decade the operations in Nevada pre sented their own uncertainty. The company closed the casino in Reno i n May 2001 after it and the hotel lost $1.4 million during the fi rst half of the year, a blemish on its otherwise impressive earnings record. Aside from correcting the lackluster operations in Nevada, Ar neault's greatest challenge was protecting Mountaineer Race Track &am p; Gaming Resort from a new threat on the horizon. Both Pennsylvania and Ohio were discussing legislation to legalize gaming, the promulga tion of which promised to take business away from the company's compl ex in Chester. "The biggest threat for this company," an analyst said in a February 8, 2002 interview with Investor's Business Daily, "is the potential for legalized gaming in Pennsylvania and Ohio." Arneault responded to the threat by preparing for entry into Pennsylv ania and Ohio, one phase of an expansion strategy that saw MTR greatl y broaden its geographic scope of operations during the first half of the decade.
Expansion in the 21st Century
By early 2002, Arneault was preparing to take MTR to far greater heig hts. He had filed an application with Pennsylvania's racing commissio n for approval to build a new thoroughbred racetrack. MTR received ap proval to build a racetrack in Erie, Pennsylvania, a facility it anti cipated naming Presque Isle Downs, but the scope of the project incre ased after Pennsylvania passed a law legalizing slot machines in July 2004. Arneault filed to gain a gaming license from the Pennsylvania Gaming Control Board, holding off construction of Presque Isle Downs until he received a gaming license. Meanwhile, Arneault made a move i nto Ohio, purchasing Scioto Downs in Columbus in July 2003. A harness horse racing facility, Scioto Downs featured pari-mutuel wagering. N ext, Arneault increased MTR's presence in Nevada, undaunted by the tr oubles experienced after the acquisition of the Cheyenne Hotel & Casino and Reno Ramada in 1998. In March 2004, MTR acquired Binion's Horseshoe, a hotel and casino located in downtown Las Vegas, for $ ;20 million. One year later, the company began independently operatin g the property, renamed "Binion's Gambling Hall & Hotel," after c oncluding its joint operating agreement with an affiliate of Harrah's . Several months after making his initial investment in the Binion's property, Arneault added Minnesota to MTR's ever expanding geographic profile by acquiring a 50 percent interest in North Metro Harness In itiative in June 2004. In January 2005, the Minnesota Racing Commissi on awarded North Metro a license to build, pending judicial review, a harness racetrack in Anoka County, 30 miles north of Minneapolis. Wh ile plans were being developed to build a racetrack and card-room ope rations in Minnesota, Arneault expanded further, signing a definitive agreement to acquire a 90 percent stake in Jackson Trotting Associat ion, LLC. Jackson Trotting operated the Jackson Harness Raceway in Ja ckson, Michigan, 70 miles away from Detroit.
After a decade of leading MTR, Arneault achieved much, inheriting a f loundering company and giving it a precise strategic direction to pur sue. The company's financial gains during his first decade of leaders hip were enormous, with annual revenues increasing from $25 milli on to $315 million. Profitability, once a perennial struggle for the company, was achieved with regularity, averaging roughly $15 million per year between 2000 and 2004. The second half of the decade promised to be a busy period for the company, with properties in Pen nsylvania, Minnesota, and Michigan slated to debut. As Arneault worke d toward adding these properties to MTR's fold, his success in Cheste r offered a blueprint for expansion in the years ahead.
Principal Subsidiaries: Mountaineer Park, Inc.; Speakeasy Gami ng of Las Vegas, Inc.; Speakeasy Gaming of Freemont, Inc.; Speakeasy Freemont Street Experience Operating Company; Scioto Downs, Inc.; Pre sque Isle Downs, Inc.; MTRCHarness, Inc.; Jackson Racing, Inc.
Principal Competitors: Colonial Holdings, Inc.; Magna Entertai nment Corp.; Penn National Gaming, Inc.