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Station Casinos SEC Filing Shows Sharp Decline in Value of
Maloofs' Palms Casino Resort, Las Vegas

By Dale Kasler, The Sacramento Bee, Calif.McClatchy-Tribune Regional News

May 22, 2009--The Maloofs' ultra-trendy Las Vegas casino has suffered a substantial drop in value in the past year, a minority investment partner says, suggesting more problems for the family that owns the Kings.

The partner, Station Casinos Inc. of Las Vegas, said its stake in the Maloofs' Palms Casino Resort has dropped 87 percent since January 2008. Based on Station's declaration, filed with the Securities and Exchange Commission, the value of the Palms fell to an estimated $50 million March 31, from $386 million 15 months earlier.

Two outside experts said they believe the Palms remains financially strong. George Maloof Jr., who runs the resort, called Station's estimate "ridiculous." He said the resort is doing well in spite of a weak economy that has battered the casino industry.

"I know that we're doing much better than the market has done," he said. "Nobody's been immune to what's happened in Las Vegas, but, you know, our brand has stayed very strong. -- We've had nowhere near that decline."

A source familiar with the Palms' finances said its cash flow -- a measure of profit before certain expenses are deducted -- fell 19 percent last year, to $51 million. The source declined to be named. Maloof wouldn't discuss the Palms' finances, other than to say it is profitable.

Maloof said the third major pillar of the family business, its New Mexico beer distributorship, has had "huge success" in the past year. And a major new condominium tower near the Palms is doing well, he said, despite a poor market and a lawsuit by some buyers trying to back out of their purchases.

The Kings and the Palms remain the Maloofs' most visible enterprises, and the two have built a symbiotic marketing relationship, feeding off each others' cachet. Now both are dealing with the worst recession in decades. Both have reduced employment lately, although Maloof said the Palms' reduction has been minor.

"The whole city has cut back," he said.

Bill Lerner, an industry consultant in Las Vegas, said the Palms would be worth well over $50 million if it were to go up for sale. But he said Station's valuation represents a snapshot in time -- a conservative estimate of the current level of profit the Palms can produce. The decline in value is consistent with write-downs taken by other casino companies on their assets, he said.

"What that's taking into account is the bottom-of-the-cycle cash flows generated by the Palms," said Lerner, a former investment analyst who runs a research firm called Union Gaming. The estimate ignores the near certainty that the Palms will do much better when the economy recovers, he said.

Station, which owns 6.7 percent of the Palms, said its investment dropped to $3.3 million on March 31 from $25.9 million in January 2008. A spokeswoman for Station said the company wouldn't comment on the SEC filing.

Another minority partner, Las Vegas' wealthy Greenspun family, which owns 6.8 percent of the Palms, couldn't be reached for comment.

Station's filing offers a rare peek inside the Maloofs' privately owned business empire -- estimated by Forbes magazine in 2003 to be worth $1 billion -- at the same time the Kings are struggling.

The team had the worst record and the worst attendance in the National Basketball Association this season and was among a dozen franchises borrowing between $13 million and $20 million through a line of credit arranged by the league. The Maloof Sports and Entertainment organization laid off a dozen employees last week, including broadcaster Jim Kozimor.

The Bee has reported the Kings were on track to lose $25 million to $28 million this year before trading some high-salary players.

Maloof called that report inaccurate, saying the likely loss will be "in the teens." He said the Kings' finances aren't affected by the profitability of the Palms because the two have separate ownership structures.

Yet the two have been joined at the hip since the Palms opened in 2001. The casino has been a Kings corporate sponsor and has offered hotel package deals to season-ticket holders. The Kings have been a source of entertainment for the casino; a few years ago the Palms flew high rollers to Sacramento for a game against Michael Jordan and the Washington Wizards.

The Kings connection -- plus other shrewd tie-ins, including a Playboy Club -- helped turned the Palms into one of Vegas' hottest destinations for rock stars, athletes and other celebrities. The hotel built suites with extra-long beds to accommodate guests like NBA star Shaquille O'Neal. The Maloofs persuaded the league to stage the 2007 All-Star Game in Las Vegas.

The recession, though, has badly hurt the casino industry in Vegas and elsewhere. Thunder Valley Casino in Lincoln, managed by Station and long considered one of America's most successful casinos, just laid off nearly 100 workers.

In Las Vegas, gaming revenue fell 9.8 percent in March and is off 14.6 percent since last July, according to the Nevada Gaming Control Board.

More than most of the elite Las Vegas casinos, the Palms does a strong business with local customers, and the region's weak economy is likely taking a toll, said William Thompson, a gaming expert at the University of Nevada, Las Vegas. Unemployment is at 10.4 percent, and Vegas is among the worst places in the nation for foreclosures.

Still, he said the Palms is essentially healthy. "They have a good niche, very strong marketing, a good reputation," Thompson said.

Last year the Maloofs opened a nearby condominium tower called Palms Place, and celebrities such as Jessica Simpson and Eminem have reportedly purchased units. Palms Place is a separate corporation from the casino and hotel.

Home Builders Research, a Las Vegas market research firm, said buyers have closed on 349 units at an average price of $738,040. That leaves 250 units yet to close, Home Builders said.

Maloof said there are only about 200 units that haven't yet closed, and the project "has done extremely well."

Five buyers sued the project last month, seeking return of their down payments. The buyers are seeking class action status on behalf of "dozens" of people in the same position, the suit said.

Maloof said only a few buyers are trying to back out.

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Call The Bee's Dale Kasler at (916) 321-1066. Read his blog on the economy, Home Front, at www.sacbee.com/blogs.

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To see more of The Sacramento Bee, or to subscribe to the newspaper, go to http://www.sacbee.com/.

Copyright (c) 2009, The Sacramento Bee, Calif.

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