Pinnacle Entertainment CEO resignation may alter projects

The resignation of Pinnacle Entertainment Chairman and Chief Executive Officer Dan Lee on Monday, a week after Missouri gaming officials said they were investigating his actions at a St. Louis County planning commission meeting, adds a measure of uncertainty to the Las Vegas-based regional casino operator.

Pinnacle was moving forward with a corporate refinancing effort and two casino developments in the company’s biggest market of Louisiana, in Baton Rouge and Lake Charles. That may change now.

“With the company in a leadership transition, the board may halt (or) alter the timing of its Louisiana projects, which could allow the company to be more of a net-free cash flow generator, especially as it seeks to extend its revolver,” JP Morgan gaming analyst Joe Greff told investors.

In the interim, Pinnacle installed two of its board members to handle Lee’s duties while a search for a new CEO is conducted.

Former Aladdin and Harrah’s Entertainment executive Richard Goeglein was named nonexecutive chairman and former Hilton Gaming President John Giovenco was named CEO. Also, former Boyd Gaming Chief Financial Officer Ellis Landeau and Las Vegas attorney Bruce Leslie, both board members, will take on larger roles.

Because of the interim management team’s casino industry experience, CRT Capital Group gaming analyst Steve Ruggiero thought stockholders would find some comfort.

“We believe that the depth of the newly formed executive committee will result in a well-thought-out operational and financial execution of the company’s business plan,” Ruggiero said.

Shares of Pinnacle, traded on the New York Stock Exchange, closed at $9.08 Monday, up 36 cents or 4.13 percent.

Lee, who headed the company since 2002, resigned his positions after he reportedly threatened a St. Louis elected official after a vote that favored rezoning a site for a potential casino and entertainment complex. Lee apologized for his actions but the Missouri Gaming Commission is looking into the matter.

Pinnacle is building the $350 million River City Casino in suburban St. Louis, which would face competition from a casino on the new site.

Pinnacle opened the $507 million Lumiere Place hotel and casino complex in downtown St. Louis in December 2007 and also operates the nearby and aging President riverboat casino.

Deutsche Bank gaming analyst Andrew Zarnett said Missouri is not the easiest state for gaming companies to operate. Station Casinos abandoned projects in the state in 2000 after the company was fined $1 million for bonuses it paid an attorney who helped in its licensing endeavors.

“Given the limited diversification available to many gaming operators, adverse political risks such as the one present in Missouri today may negatively impact a large portion of a company’s (cash flow),” Zarnett told investors.

Lee was the face and driving force of Pinnacle. He took over the company in 2002 when it was known as Hollywood Park Entertainment, moved its corporate headquarters from Glendale, Calif., to Las Vegas, changed the corporate name, and embarked on a massive growth effort that transformed the casino operator’s profile. He released a brief statement Monday, saying the people he worked with at Pinnacle “took this small company and made it into one of the best casino developers and operators in the country. Nevertheless, I’ve decided to move ahead to the next chapter of my career, with new challenges and opportunities.”

Under Lee’s direction, Pinnacle remodeled its then-flagship Belterra Casino in Indiana, but eventually built new flagships. The $365 million L’auberge du Lac casino in Lake Charles opened in May 2005 while Lumiere Place is considered of the top resorts in the Missouri market.

Lee, who was a Wall Street analyst in the 1980s and became Steve Wynn’s chief financial officer at Mirage Resorts in the 1990s, tried to grow the company beyond its regional markets before the economy tanked and credit markets went dry.

Pinnacle bid on the former Aztar Corp. in 2006 but lost out in the process to Columbia Sussex. However, the company purchased the Sands Atlantic City that year, closed the casino and imploded the building with plans for a $5 billion complex on the Boardwalk. But the down economy ended that move.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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