Aztar Corporation - Company Profile, Information, Business Description, History, Background Information on Aztar Corporation

2390 East Camelback Road, Suite 400
Phoenix, Arizona 85016-3452

History of Aztar Corporation

Aztar Corporation, a spinoff from the late 1980s restructuring of Ramada Inc., is one of the ten largest casino companies in the United States. Aztar operates three major casino hotels: the Tropicana Resort and Casino in Las Vegas; the Ramada Express Hotel and Casino in Laughlin, Nevada; and the TropWorld Casino and Entertainment Resort in Atlantic City. In the early 1990s, the company began to develop riverboat casino projects in Indiana, Missouri, and elsewhere as more and more states viewed gambling as an attractive addition to their economies.

The late 1980s were difficult years for Ramada Inc. as increased competition in the hotel industry led to declining profits and, ultimately, losses. The company posted profits of $17.2 million in 1985, $10.3 million in 1986, and $4.9 million in 1987. On the way to posting a $5.1 million loss in 1988, the company decided in October of that year to restructure by selling its restaurant and hotel groups and retaining only its gaming operations, deemed by company officials as the Ramada assets with the best future. The restructuring was also undertaken to prevent a hostile takeover that the company felt was "grossly inadequate from a financial standpoint." Ramada sold its 152-restaurant Marie Callender chain early in 1989 to the Wilshire Restaurant Group Inc. for $54.5 million. It then reached agreement with New World Hotel (Holdings) Ltd. of Hong Kong to sell all of its hotel operations, including more than 800 hotels and motor inns worldwide, and the Ramada name for $540 million. New World's price included $280 million to be paid to Ramada shareholders and the assumption of approximately $260 million of Ramada's debt.

Before the New World deal could be consummated, a complicated restructuring had to occur, including a new financing plan, and approvals had to be granted by Ramada's shareholders and the gaming regulators of New Jersey and Nevada. The approval process occurred twice because the initial restructuring arrangement was changed due to a downturn in the junk bond market. The original plan had Aztar raising $400 million through the issuance of $230 million in junk bonds and $170 million in first-mortgage notes backed by the company's TropWorld Casino in Atlantic City. The revised plan dropped the junk bonds altogether. It also reduced the amount paid to Ramada shareholders from $7 per share to $1 (but the shareholders would receive one share of Aztar stock for each share of Ramada stock instead of a half-share) and Aztar's initial debt load from $423 million to $189 million. Experts on gaming companies viewed the revised plan as a much healthier one for the new company since they believed $423 million was too great of an initial debt for the company to handle through casino revenues.

The restructured company was to be run by former senior managers of Ramada and its gaming division, including Richard Snell (who was chairman, president, and chief executive of Ramada and became chairman and chief executive of Aztar), Paul E. Rubeli (executive vice-president and head of Ramada's gaming division, who became president and chief operating officer of Aztar), and Robert M. Haddock (who retained the same title with Aztar that he held with Ramada--executive vice president and chief financial officer). Aztar's board was initially composed of nine former Ramada directors, with Haddock filling in the tenth slot that had been vacated. In December 1989 the revised plan was approved overwhelmingly by Ramada shareholders. The gaming regulators of Nevada and New Jersey also approved the plan that month, leading to the closing of the hotel sale. The new Aztar Corporation was born, with a name coined to play on the word "star" combined with the beginning of the word "Aztec," a reference to the gold- and silver-rich Aztec Empire, whose wealth the new gaming company wished to strive for. Aztar's headquarters remained in Ramada's main office in Phoenix. (The first two initials of the new company name were said to be only coincidentally the same as the two-letter postal abbreviation for Arizona.)

Following the completed restructuring, Aztar's assets consisted of three of the four gaming properties that had been owned by Ramada (in July 1989, in the midst of the restructuring, Ramada closed Eddie's Fabulous 50s Casino, a stand-alone casino in Reno, Nevada, because of declining revenues). In 1989 the TropWorld Casino and Entertainment Resort was the largest casino in Atlantic City with 1,014 rooms. Located on the famous boardwalk, it also boasted 80,000 square feet of exhibit and meeting space and a casino area of 88,000 square feet. Previously called the Tropicana, it had just been reopened in September 1988 after the completion of a two-year, $200 million expansion. As part of a company strategy to develop "megafacilities," the expansion featured the addition of a two-acre indoor entertainment venue called Tivoli Pier, an attraction that aimed to replicate the turn-of-the-century peak of the Atlantic City boardwalk. It included various high-tech attractions and games, strolling performers, and a Ferris wheel four stories high. Other TropWorld amenities included the 1,700-seat TropWorld Showroom (at the time the largest in Atlantic City), 18 restaurants and bars, a health club, a miniature golf course, a comedy club, and retail shops. In the face of this major expansion, Aztar would need to absorb the TropWorld's start-up costs and also await major improvements in Atlantic City's infrastructure that were scheduled to be completed over the next several years, including expansion of highway, rail, and airport access and the construction of a new convention center. Company officials believed that the TropWorld was well positioned to take advantage of the increased tourism and convention business that these improvements promised to bring.

In Las Vegas, Aztar had inherited the Tropicana Resort and Casino, which was located on the southeast corner of Las Vegas Boulevard and Tropicana Avenue. Following the completion of a major expansion in 1986, Ramada had introduced a tropical island theme to the casino, calling it "The Island of Las Vegas." The Tropicana featured 1,910 rooms, 100,000 square feet of exhibit and meeting space, and 45,000 square feet of casino space (with 993 slot machines and 72 table games). The facility also featured several other attractions, including the famous "Folies Bergère" show, more than a dozen restaurants and bars, and a five-acre water park. With water one of its major themes, the Tropicana was the first casino to offer swim-up slot machines and blackjack. While 1988 had been the casino's best year ever, company officials believed it was ready for further growth, in particular with the expected mid-1990 opening of the Excalibur Hotel & Casino directly across Las Vegas Boulevard. They believed the new 4,000-room facility would bring additional people to the southern end of the "Strip," where the Tropicana stood alone, unable to attract the many gamblers who like to move from casino to casino.

The third casino in the original Aztar threesome was the Ramada Express Hotel and Casino in Laughlin, Nevada, a fast-growing gambling mecca located in extreme southeastern Nevada near both the California and Arizona borders. Construction of the Ramada Express, the newest but smallest of the three casinos, was completed in 1988. A Victorian-era railroad theme was established in 406 rooms and 30,000 square feet of casino space, with "The Gambling Train of Laughlin" transporting guests from the parking lot to the front door. Although it featured fewer facilities than the larger Aztar properties, the casino enjoyed a significant share of this much-smaller market and had an ideal location in the middle of Laughlin's gambling district.

The initial few years after the restructuring were difficult ones for Aztar. Revenues fell from $522.3 million in 1989 to $508.2 million in 1990 to $481.3 million in 1991. Following an operating profit of $67.4 million in 1990, Aztar managed only a $61.4 million profit in 1991. Many factors contributed to the company's struggles. In 1990 a breach of contract case, which was originally brought against Ramada in the early 1980s and assumed by Aztar following the restructuring, cost the company $34.3 million. Competition was increased with a casino building boom in 1989 and 1990, which saw the completion of the 3,000-room Mirage and 4,000-room Excalibur in Las Vegas, a 2,000-room Hilton in Laughlin, and Atlantic City's 1,250-room Taj Mahal (which made TropWorld the second-largest casino in Atlantic City). This increased capacity greatly exceeded demand with the onset of economic recession, and in particular when the Persian Gulf crisis of late 1990 and the war in early 1991 greatly decreased travel and tourism traffic. Adding to the difficulties for the Nevada casinos was California's severe recession, while TropWorld felt the impact of the deep recession in the northeastern United States.

Aztar's management adopted several strategies to address the difficult environment. While many casinos battled each other for customers through such bargains as reduced room rates, package deals that included transportation, and cheap buffet-style meals, Aztar decided not to chase after people lured by these bargains since they did not tend to spend much money gambling. Rather than trying to attract all potential gamblers, the company decided to take a niche approach to its marketing by concentrating on what they called the "high end of the middle market." Such customers spend between $100 and $400 gambling during an average day. In Las Vegas, for example, this placed the Tropicana between such lower-end casinos as Circus Circus, whose guests spend less than $100 per day, and upscale casinos such as Caesars Palace, a facility for high rollers. In essence, the company sought to attract fewer people who would spend more in their casinos than to seek a high volume of gamblers. To this end, Aztar eliminated many of the bargains it offered. One strategy to reach its desired clientele and to encourage repeat visitors was the initiation of a program modeled after airline frequent-flier programs. Another tactic was to de-emphasize baccarat, favored by high rollers, and concentrate on slot machines.

While the company pursued its new marketing strategy in Atlantic City and Las Vegas, it decided in 1991 to expand its Ramada Express casino in Laughlin. Laughlin had also seen a huge increase in hotel rooms in 1990-1991 (nearly doubling to more than 8,000 rooms), but Aztar management saw a window of opportunity for expansion during the next two years based on the limited capacity of Laughlin's water and sewer system. Since the Ramada Express had been designed to accommodate 1,200 rooms (at the time it was built, Ramada lacked sufficient capital to build it to its capacity), it could be expanded with its current water and sewer allocations. Aztar calculated that other casinos could only add an additional 1,500 rooms in Laughlin based on their water and sewer capacities. In late 1992, the $75 million expansion began. Upon its completion in September 1993, Aztar had increased the hotel space of the Ramada Express to 1,500 rooms with the addition of a 1,100-room tower, and also added 20,000 square feet of additional casino space (for a total of 50,000 square feet), a new parking garage, and additional meeting space and restaurants.

The company's strategies began to pay off with revenues beginning to turn around in 1992. That year Aztar realized a six percent increase in revenues over the previous year, from $481.3 million to $512 million. The slow but steady growth continued the next two years with revenues of $518.8 million in 1993 and $541.4 million in 1994. Evidence that the company's marketing strategy was working came in the form of increased revenue from slot machines, up 19 percent in 1992. Aztar was also able to solidify its financial position during this period. Late in 1992 the company refinanced $171 million in highyield notes, reducing its debt payments in the process. In 1993 it bought out the limited partners that had owned a majority interest in the TropWorld property for approximately $62 million in cash, gaining complete control over Aztar's largest asset.

Having cleaned up its finances and showing improved results, in the mid-1990s Aztar management turned its attention to expansion, while continuing to vigilantly protect its solid trio of original casinos. With the Tropicana in the weakest position in the increasingly competitive Las Vegas market, the company undertook a minor renovation project in 1993. Where it once stood alone on the southern end of the Strip, the Tropicana now shared a corner with both the 4,000-room Excalibur and the newly opened 5,000-room MGM Grand, with another new neighbor, the 2,500-room Luxor, nearby. While this boom in what became known as "The New Four Corners of Las Vegas" promised to bring increasing numbers of people to the vicinity of the Tropicana, company officials felt they needed to redesign the casino's front entrance and facade to entice additional walk-in business from the surrounding resorts. With a "Caribbean Island" theme highlighting the design, the renovations were completed in early 1994. These included new stores accessible from the street, a "Wildlife Walk" connecting the casino's two towers and featuring natural displays of live birds and other tropical wildlife, and other improvements. At about the same time, the state of Nevada completed construction of a skywalk system connecting "The New Four Corners of Las Vegas," an improvement that promised to increase traffic among the Tropicana and its neighboring casinos.

Aztar was beginning to feel the effects of competition from outside the cities in which its casinos operated, and decided that its first new developments should occur in these nascent gambling areas. By 1993, 14 states had legalized casino gambling and additional states had approved or were considering legalized gambling on riverboats or Indian reservations. The company's first target would be riverboat gambling operations in the Midwest. The riverboat strategy followed closely Aztar's increasing emphasis on slot machine players, since this type of gambling venue is typically dominated by slot machines. In early 1995 the Indiana Gaming Commission approved Aztar's plan for a riverboat casino in downtown Evansville. The $100 million project would include a 310-foot, 2,500-passenger riverboat, a casino on board with 1,250 slot machines and 70 gaming tables, a hotel with 250 rooms, a pavilion entertainment complex, and parking for 1,600 vehicles. The company estimated that the casino could draw 2.3 million visitors each year, provided competition did not arise within nearby Louisville.

Meanwhile, a smaller $55 million riverboat project opened in the spring of 1995 in Caruthersville, Missouri, a town in southeastern Missouri on the Mississippi River about 90 miles north of Memphis, Tennessee. This facility featured a 600-passenger riverboat with a casino of 500 slot machines and 30 gaming tables, an entertainment and ticketing pavilion, parking for 1,000 vehicles, and a recreational vehicle park. At the same time, Aztar was also pursuing several other riverboat facilities. In early 1995 Newport News, Virginia, selected the company to develop a riverboat casino, but Aztar had to await legislative consideration of the legalization of gambling in the state before proceeding. For these and future operations, Aztar decided to use a brand-name marketing strategy to connect the riverboat casinos. "Casino Aztar" was tied to the particular site, as in "Casino Aztar Caruthersville."

The company also undertook a major addition to the TropWorld casino in Atlantic City, including a new hotel tower with 628 rooms, additional restaurants, and other new facilities. Following completion of the project, scheduled for the summer of 1996, the casino would include more than 1,600 hotel rooms, making it the largest hotel in New Jersey. The budget for the project was $75 million. In order to finance the TropWorld addition and the new riverboat casinos, Aztar secured a financing package from a group of ten banks late in 1994. The package totaled $280 million, the fourth-largest such package ever made within the gambling industry, with $73 million to refinance debt on the Tropicana and $207 million in revolving credit secured by the TropWorld and Ramada Express properties.

With this financing in place, Aztar had sufficient capital to embark on its expansion plan for the mid- to late-1990s. Analysts considered the company's position in Atlantic City to be particularly strong with the expansion of the TropWorld. The completed expansion of the Ramada Express was beginning to pay dividends even with the tremendous growth of Laughlin casinos. The Tropicana continued to face an uncertain future as the addition of several nearby mega-resorts could either hurt or help the Aztar property in Las Vegas. The company's plans for expansion outside Atlantic City and Nevada through riverboat casinos were an ambitious, though unproven, undertaking. As states and cities throughout the United States and Canada expanded or added gambling to their local economies, many observers were wondering when the market would be become glutted with gambling properties and how this would affect such major operators as Aztar.

Principal Subsidiaries: Adamar of Nevada; New Jersey Holdings Corporation.

Additional Details

Further Reference

Giblin, Paul, "Aztar Dives into Three Riverboat Casino Ventures," Business Journal: Serving Phoenix & the Valley of the Sun, December 3, 1993, p. 3.Gilbertson, Dawn, "Improving Its Hand: Phoenix Casino Operator Poised for Rebound," Phoenix Gazette, May 14, 1992.Jarman, Max, "Aztar's Fortunes Coming Up 7s," Arizona Business Gazette, July 15, 1993, p. 5.Novotny, Jean, "Ramada to be 'Aztar' after Hotel Sale," Arizona Republic, July 4, 1989.Reich, Peter, "Aztar Is Born: Ramada to Give Up Hotel Biz, Phoenix Gazette, December 13, 1989.------, "Ramada's New Name Reflects Changes," Phoenix Gazette, July 4, 1989."$280 Million Package for Gaming Company," Arizona Republic, October 7, 1994, p. E1.Whaley, Sean, "Gamers OK Ramada Restructuring," Las Vegas Review Journal, December 13, 1989.

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