Archon Corporation

3993 Howard Hughes Parkway, Suite 630
Las Vegas, Nevada 89109-6750
U.S.A.
Telephone: (702) 732-9120
Fax: (702) 658-4302
Web site: http://www.archoncorporation.com

Public Company
Incorporated: 1983 as Public/Hacienda Resorts, Inc.
Employees: 514
Sales: $45.70 million (2004)
Stock Exchanges: Over the Counter
Ticker Symbol: ARHN
NAIC: 721120 Casino Hotels; 713990 All Other Amusement and Recreation Industries; 551112 Offices of Other Holding Companies

Through its chairman and CEO, Paul W. Lowden, the Archon Corporation holds a more than a 20-year stake in Las Vegas casino history. Formerly known as Santa Fe Corporation and Sahara Gaming Corporation, Archon owned and operated the famous Sahara and Hacienda casino hotels. Those properties were sold in 1995 to former Circus Circus leader William Bennett, but the company remains active in Nevada's casino industry as owner and operator of the Pioneer Hotel and Gambling Hall, located in Laughlin, Nevada. Archon also owns commercial office buildings in Dorchester, Massachusetts, and Gaithersburg, Maryland, and 27 undeveloped acres on Las Vegas Boulevard South.

Rooted in 1950s Vegas

Both the Sahara Hotel & Casino and the Hacienda Resort Hotel and Casino were rooted in the early development of the Las Vegas casino industry in the 1950s. The Sahara, built for $5.5 million by the Del Webb Corporation, was founded by Milton Prell, a Los Angeles jewelry magnate, on the site of the former Club Bingo in 1952. The first high-rise casino in Vegas, and the fifth constructed since Bugsy Siegel's Flamingo, which was also built by Del Webb, the Sahara, and its trademark 100-foot freestanding neon sign, was also the largest at the time, until the Sands opened two weeks later. The following year, the "Jewel of the Desert," as Prell dubbed the hotel, made the first of many expansions, adding 200 rooms to its hotel. In 1961, Prell sold the Sahara to the Del Webb Corporation, although he continued to run its operations until 1964. Del Webb immediately invested some $12 million in renovations. In 1966, the Sahara added a $50 million, 14-story, 200-room tower, making it the city's tallest building. Two years later, the Sahara built again, adding a 400-room, 24-story skyscraper, expanding its casino, and extending its operations into Vegas's growing convention industry by building a 44,000-square-foot convention center. Del Webb, which had grown to become one of the industry's largest casino operators, continued to manage the Sahara through the 1970s. However, when Del Webb ran into financial problems in the late 1970s and early 1980s, it sold the Sahara to Paul Lowden for $50 million in 1982.

By then, Lowden already owned the Hacienda. That hotel, situated at the far southern end of Las Vegas Boulevard from the Sahara, was built in 1956 for $6 million as part of a California-based chain of low-rise motels owned by Judy and Warren "Doc" Bayley. Problems with the Gaming Control Board delayed the Hacienda's casino licensing, but by 1957 the hotel's casino was up and running. Situated far from the main strip, the Hacienda catered especially to families, locals, and "lowrollers," eventually earning the hotel the nickname of "Hayseed Heaven." Nonetheless, the Hacienda—which was imploded on New Year's Eve 1996, an event that was broadcast to a national television audience—was long a popular fixture on the strip and was also the first Vegas hotel to operate an airplane shuttle service, building a fleet of more than 30 airplanes serving a number of major cities. When the Federal Aviation Administration decreed the fleet an airline, that service was discontinued. Doc Bayley died in 1964; Judy Bayley continued to run the hotel casino until her death in 1971. Lowden purchased 15 percent of the Hacienda the following year and became its entertainment director. In 1977, Lowden took full possession of the Hacienda for $20 million.

Becoming a Vegas Mogul in the 1970s

Lowden was a teenager when, with $7,500 in savings, he journeyed to Nevada in 1961. He joined a band playing in a Reno casino, then moved to Las Vegas, where he worked through the decade as a keyboardist, accompanying, among others, singer Ann-Margret. By 1970, Lowden had become the musical director of the Flamingo. However, Lowden had already set his ambitions higher.

With no formal business training, Lowden began investing in the stock market. These investments proved successful enough that, in 1972, Lowden and a group of partners raised $250,000, half of which came from the Valley Bank of Nevada, to buy 15 percent of the Hacienda. One of Lowden's partners brought in Allen Glick, a land developer from San Diego, to purchase majority control of the Hacienda. Lowden became the hotel casino's entertainment director. Under Lowden, the Hacienda launched its famous "topless" ice skating revues, which ran in various incarnations until 1993. Lowden expanded his casino holdings in 1975, putting up $500,000 for a share of the Tropicana. By then, a fresh scandal was brewing along the Vegas Strip.

In mid-1976, Lowden walked away from his Tropicana investment, discouraged by Mafia figure Joseph Agosto's control over the hotel casino's operation. Lowden first asked the Tropicana's majority owners to buy out his investment; when they declined, Lowden simply walked away rather than jeopardize his casino owner's license through the Tropicana's Mafia association. Lowden did not begin to regain his investment until 1979, after Agosto had pleaded guilty to skimming charges, and the Tropicana's owners were forced out by the state.

Meanwhile, a similar scandal was brewing at the Hacienda. Glick, who at age 29 controlled two other casino hotels, the Stardust and the Fremont, making him Las Vegas's second-largest casino operator, had come under a separate skimming investigation. Glick would later admit that he had been working as a Mafia front. In 1977, facing these charges and financial problems, Glick agreed to sell the Hacienda to Lowden. Paying $21 million, raised through Valley Bank and the First American National Bank of Nashville, Tennessee, Lowden bought out Glick and the other minority owners and took full control of the Hacienda.

Lowden immediately ran into difficulties. The Gaming Control Board, concerned by Lowden's past association with Glick, recommended against allowing Lowden's purchase of the Hacienda. Nevertheless, the Nevada Gaming Commission overturned the recommendation and cleared Lowden of any connection with Glick, giving Lowden a new license to operate the Hacienda. Lowden was joined by William Raggio as corporate counsel, who served at the time as Republican majority leader in the Nevada state senate and who later joined Lowden's company as a director and officer. One year after buying the Hacienda, Lowden began looking to expand his casino holdings by buying Glick's two remaining casino properties. However, the mortgages to the Stardust and Fremont were held by the reputedly mob-tied Teamsters Central States Pension Fund. Because of this connection, Lowden's investment banker refused to handle the financing for the deal, and Lowden backed off on the purchase.

Building Sahara Gaming in the 1980s

Instead, Lowden concentrated on expanding the Hacienda. In 1980, he spent $30 million on a facelift and expansion of the property, revamping the hotel in the style of Old World Spain and adding a convention center and an 11-story, 300-room tower. The Hacienda proved profitable, as did the institution of a side business, that of selling timeshares in the Hacienda hotel rooms, a first in Vegas. By 1982, Lowden had built up a $25 million timeshare portfolio in that and another hotel in Hawaii. The timeshares mortgages gave Lowden valuable collateral for additional financing, and Lowden began looking for a new casino purchase.

The Del Webb Corporation, which had been suffering losses since the late 1970s, put the Sahara on the block in 1982. Leveraging his assets, Lowden put together $50 million to purchase the famed casino. The following year, the Sahara and Hacienda went public, incorporating as Public/Hacienda Resorts, Inc. With the proceeds from the public offering, the company expanded the Hacienda again, adding 400 rooms and more than doubling the size of its casino, hotel, rooms, and restaurants. Next, the company acquired an additional 22 acres behind the Sahara for the hotel's future expansion plans. In the meantime, the highly leveraged company, burdened by interest payments on more than $30 million in debt, was bleeding. Losses began in 1982 and continued into the next year, when the company lost $2.6 million on $92.6 million in revenues. The following year, with revenues of $94 million, the company lost nearly $2 million. It was not until 1986 that the new corporation, by then renamed Sahara Resorts, recorded its first profit, of $411,500 on $101 million in revenues. Meanwhile, the Sahara, which had not had any large renovations in nearly 20 years, was beginning to show its age.

Lowden hit on an idea to provide financing not only for a Sahara expansion, but also to help the company reduce its debt. In 1987, he formed publicly traded Sahara Casino Partners L.P., a master limited partnership (MLP), which sold 6.2 million units at $9 per share. A first for Las Vegas, the MLP offering was immediately successful (in fact, it was oversubscribed) and generated $63 million for Sahara Resorts, enabling the company to pay down its debt and to finance a new expansion of the Sahara. Sahara Resorts retained 63 percent of Sahara Casino Partners. Under terms of the MLP, which was executed shortly before federal tax restrictions were created to eliminate tax advantages from non-real estate partnerships, Sahara Resorts agreed to a five-year subordination of its own profit distributions until minimum distributions were made to public investors. These investors, in turn, would take no ownership position in the casinos.

After paying off the $30 million Sahara mortgage, Lowden, whose interest in Sahara Resorts remained at 73 percent, began work on the casino hotel's most ambitious renovation and expansion. In 1988, the Sahara added a third tower, this time reaching 26 stories and adding 575 rooms, bringing the Sahara's total to 1,500 rooms. Two years later, Lowden performed a still more ambitious expansion, adding a new 600-room tower to the Sahara and a 400-room tower to the Hacienda, while doubling the Hacienda's casino area, bringing that hotel's total rooms to 1,200 and its gambling space to nearly 40,000 square feet. By then, however, Lowden had already moved to expand his casino holdings.

The Way to Santa Fe in the 1990s

Las Vegas's 1980 gambling boom had spread beyond the city into other areas of the state, and in 1988 Lowden moved to capitalize on the growing casino demand by purchasing the gambling operations at the Pioneer Hotel and Gambling Hall in Laughlin, Nevada. Built in 1982, the Pioneer was designed as an old-west style gambling hall and saloon, complete with dark wood walls, chandeliers, and antique-style slot machines. The Pioneer's River Rick, a large neon sign of a cowboy waving welcome, is a "first cousin" to Las Vegas's Vegas Vic. The complex sits on 12 acres of land along the Colorado River and consists of three hotel buildings with 400 rooms and a casino. The Pioneer casino features over 800 slot machines, nine blackjack tables, two craps tables, and one roulette wheel. The Laughlin area caters to customers different from those at the Las Vegas casinos, drawing in primarily local residents and the drive-in gambling crowd from Southern California and Arizona. After paying $112.5 million for the Pioneer, Lowden raised $116 million to fund the 1990 expansions of the Sahara and Hacienda as well as to build an entirely new hotel casino and entertainment complex, the Santa Fe.

The Santa Fe Casino Hotel, which opened in 1991, features a 200-room hotel, an 85,000-square-foot casino, a 60-lane bowling center, a National Hockey League regulation-sized ice skating arena with 3,000 seats for spectators, three themed restaurants, and a bingo parlor on its 40-acre site. Located some nine miles north of the main Las Vegas casino strip, the Santa Fe exploited a niche different from that of the company's Strip hotels. Instead of gambling tourists, the Santa Fe, with only 200 rooms, marketed to local residents. Operating without competition for most of the first half of the 1990s, the Santa Fe proved immediately profitable.

Lowden's activity was taking its toll on the company's profits, however. By 1991, the company's debt had soared to $310 million, generating interest payments of some $33 million per year. Despite revenues that reached $179.5 million in 1991 and neared $220 million in 1992, Sahara had returned to the red, posting losses of $9 million and $6.5 million for those years, respectively. These losses would continue through 1995, reaching $15 million in 1994 and $22 million in 1995.

Adding to the company's troubles were its ill-fated attempts to expand its operations beyond Nevada. Gambling fever had been spreading throughout the country in the first years of the 1990s, with more and more states legalizing gambling and a new trend, riverboat casinos, filling the docks of more and more river communities. Sahara's first target was Parkville, Missouri, located near Kansas City. In 1993, the company, now renamed Sahara Gaming Corp. after merging the Sahara Resorts and Sahara Casino Partners operations, purchased the Spirit of America riverboat casino complex for $7.8 million and paid to have it towed to Parkville. That community, meanwhile, was engaged in a drawn-out battle over whether to allow casino operations, a process that required three elections and would not be decided until November 1994. By the time Sahara received the go-ahead for its casino, the Parkville operation was losing money, to the tune of $50 million. A second investment outside of Nevada, into the Treasure Bay riverboat complex near Biloxi, Mississippi, also ground to a halt, costing the company a $12.6 million writeoff charge. By then, too, the Hacienda was faltering, draining the company's revenues. The Laughlin market was also leveling off; meanwhile, the Santa Fe was forced to greet new competition in its area.

In 1995, Lowden retrenched his operations. His first step was to sell off the Hacienda for $80 million to former Circus Circus chairman and CEO William Bennett. By June 1995, Lowden and Bennett had struck a new deal. Bennett bought the Sahara for $193 million; under terms of the deal, Lowden took possession of an undeveloped, 27-acre parcel on the Vegas Strip. By the time Bennett imploded the Hacienda on New Year's Eve 1996, in order to make room for an $800 million hotel-casino megacomplex, Lowden had renamed his company to reflect its new focus. The stripped-down company, now named Santa Fe Gaming Corporation, completed its first year of operations with revenues of $148.4 million. A $40 million gain from the Sahara sale helped the company achieve its first profitable year, with a profit of $9.7 million, of the decade.

Sales were down to $105 million in 1997, primarily because of a drop in casino revenues from the Pioneer, and the company showed a loss of $13 million. The Santa Fe subsidiary Pioneer Finance Corp. had financial troubles in 1998 when it was unable to pay $60 million in principal due on mortgage notes. The subsidiary was forced to reorganize, filing for Chapter 11 bankruptcy in February 1999. Because of this circumstance, Santa Fe had a net loss for 1998 of $62.3 million.

In 1999, Santa Fe's subsidiary Sahara Las Vegas Corp. sold a 40-acre parcel of property in Henderson, Nevada, to Station Casinos, Inc. for $37.25 million. The company's financial outlook improved somewhat in that year, with sales of $125 million and a net loss of only $19.9 million. The year 2000 saw the company sell the Santa Fe Hotel and Casino for $205 million to Station Casinos. Net sales for 2000 were $131 million, with a profit of $12.8 million.

Company Becomes Archon Corporation

On May 11, 2001, Santa Fe Gaming Corporation changed its name to Archon Corporation. That same year the company acquired investment properties in Dorchester, Massachusetts, and Gaithersburg, Maryland, for a total cost of $145 million. The 12-acre Dorchester property consists of several buildings with about 425,000 square feet of commercial office space. The 55-acre Gaithersburg property includes one building with about 342,000 square feet of office space. The buildings on both properties are leased out under long-term agreements.

Sales for 2001 were considerably lower, by almost 63 percent, than for 2000 because of the sale of the Santa Fe Hotel and the resulting loss of its gambling revenues. The $48 million in sales for the year, however, was augmented by the profit from the hotel sale, giving Archon a net profit for the year of $87.2 million. The company showed a loss of $9.3 million in 2002. Much of the loss was due to a decrease in gambling revenues at the Pioneer. Archon management blamed this revenue decline on the growth of Native American casinos in Southern California, Arizona, and New Mexico, which was hurting the Laughlin casino business generally. The year 2003 saw a further decline in revenues to $46.1 million and a net loss of $8.9 million.

In late 2003, the company ceased to operate Duke's Casino in Sparks, Nevada, through its Archon Sparks Management Company subsidiary. That casino's furniture, fixtures, gaming and non-gaming equipment were transferred to the Pioneer. In January 2004, Archon purchased the fee ownership of the Pioneer for $36 million from an affiliate of GE Capital. In this deal, the company purchased outright the Pioneer's real estate, buildings, and equipment. Lowden commented in a press release: "We are excited about this asset acquisition, and we will continue our efforts to provide an entertaining experience to our Pioneer customers."

Sales for 2004 were $45.6 million, down from 2003, with a loss of $3.4 million. Revenues for the Pioneer were down 10 percent from 2003, due to a decrease in the number of casino patrons, according to Archon management. In the first six months of 2005, this decline continued. Revenues from the Pioneer slid 13.8 percent from the same period in 2004, and Archon reported a loss of $2 million.

Despite its losses in the early 2000s, the future looked bright for Archon. In December 2003, the company announced that it planned to develop the 27-acre property on Las Vegas Boulevard acquired during the sale of the Sahara. It also planned to construct the Palace of the Sea hotel and casino on the site. The complex would be Australian-themed with a 3,000-room hotel, high-roller suites designed to look like yachts, and a casino based on the Sydney Opera House. Architect Veldon Simpson would design the hotel, which would include a 600-foot tall observation wheel to lift guests high above the Las Vegas Strip and give them a view of the entire Las Vegas Valley. The company has filed use permits with the city of Las Vegas but still needs to obtain further approvals and permits, and the necessary financing, before the project can begin.

Principal Subsidiaries

Archon Sparks Management Company; Pioneer Hotel Inc.; Sahara Las Vegas Corp.

Principal Operating Units

Pioneer Hotel and Gambling Hall.

Further Reading

"Archon Corporation Reports Fiscal Year End Financial Results," PR Newswire , December 28, 2001.

"Archon Corporation Reports Second Fiscal Quarter 2005 Financial Results," PR Newswire , May 17, 2005.

Benston, Liz, "Stockholder: Archon Options Unfairly Enrich Owner's Family," Las Vegas Sun , June 20, 2005.

Cook, James, "Heads I Win, Tails I Also Win," Forbes , July 6, 1992,p. 51.

——, "Rolling the Dice on Gambling and Retail," Chain Store Age Executive , May, 1997, p. 106.

Delugach, Al, "Casino Owner Beats the Odds," Los Angeles Times , March 13, 1988, Sec. 4, p. 1.

McKee, Jamie, "Analysts: Hacienda Sale a Good First Step for Sahara Gaming," Las Vegas Business , February 27, 1995, p. 1.

Moore, Thomas, "When Will Green Valley See Gamblers' Green?" Las Vegas Business Press , March 27, 1995, p. 3.

Morrison, Jane Ann, "Implosion Bittersweet for Those Close to Hacienda," Las Vegas Review-Journal , January 1, 1997, p. 3A.

Morrissey, John, "Sahara Resorts Markets Unique MLP Offering," Las Vegas Business Press , July 1, 1987, p. 12.

Post, Theresa, "Sahara Partners to Expand Hotel Operation in Vegas," Travel Weekly , August 16, 1990, p. 20.

"Santa Fe Gaming Corp. and Pioneer Finance Corp. Announce Filing of Involuntary Bankruptcy Petitions in Connection with 13 1/2% First Mortgage Notes," PR Newswire , January 18, 1999.

"Santa Fe Gaming Corporation Announces 1997 Fiscal Year End Results," PR Newswire , December 24, 1997.

"Santa Fe Gaming Corporation Announces Sale of Henderson Property," PR Newswire , November 17, 1999.

Wood, Tara, "Focuses on the Ultimate Jackpot: A Cure," Quest , March-April, 2005.

—M.L. Cohen —update: Thomas Wiloch