In the wake of lackluster quarterly earnings, Boyd Gaming last week announced it was selling the South Coast Hotel and Casino to Michael Gaughan, the man who built it.
The 600-room South Coast opened last December at a cost of $583 million, but has suffered from "continued softness," said a Boyd official.
"Clearly, none of us can say that it met our expectations out of the box," said Chief Financial Officer Paul Chakmak.
Gaughan has agreed to pay Boyd the proceeds from the sale of 15.8 million Boyd shares, which represent his entire stake in Boyd Gaming. That translates to about $575 million.
"If you go by what the place cost to build, I’m getting a good deal," quipped Gaughan. "If you go by the (operating results), Boyd’s getting a good deal."
Gaughan is the founder of Coast Casinos, which merged with Boyd Gaming two years ago. When the sale is completed (by the end of the year), Gaughan will "shift his focus" from overseeing Boyd’s Coast Casinos division to managing the day-to-day operations of the South Coast.
"I will straighten this place out," Gaughan said. "I’ve kind of been too far removed from it. I’ve gotten lazy. It’s time to go back to work."
Boyd Gaming appears happy to be out from under the South Coast. "This transaction is a commentary on where we see it over the course of the next few years," Chakmak said.
Nevertheless, Boyd officials believe acquiring Coast Casinos "was one of our most successful transactions ever."
"While I will miss working with Michael on a daily basis, I certainly understand his desire to return to the day-to-day operations of a casino property, something he has done most of his professional life," said William Boyd, chairman and chief executive officer. "In the end, I believe this will be a win-win for both Michael and our company."
Before the sale closes, Gaughan will have to find another name for the hotel/casino, which is located five miles south of the Strip. The "South Coast" name belongs to Boyd Gaming.
In addition, Gaughan can’t subsequently sell the South Coast to anyone other than Boyd Gaming for five years, and Boyd will retain the right of first refusal for three years after that.
Even though it appears the two gaming pioneers are parting company, they vowed to remain friends.
"I have been friends with Bill Boyd for over 40 years and look forward to continuing our friendship in the future," Gaughan said.
Gaughan didn’t give specifics when asked what he would do to improve the South Coast’s earnings.
However, one of the hotel-casino’s glaring problems has been the lack of an off-ramp from I-15. That off-ramp is still more than a year away from completion.
Some critics feel the casino’s 1,200-stall equestrian center has so far failed to attract the hordes of horse lovers necessary to fuel the property’s bars, restaurants and casino games.
However, David Katz of CIBC World Markets said the South Coast’s "challenging location" and position in the market "would improve only gradually."