Is the Fertitta Business Empire in Trouble?
by Kid Nate on Oct 24, 2008 10:54 AM EDT
65 comments
Zack Arnold puts together the case:
- October 19th - Going private hasn’t saved companies from slump (Las Vegas Review-Journal)
- October 19th - Station Casinos will seek some reprieve from its banks, though the company’s debt costs will likely go up (Las Vegas Sun)
- October 20th - Station Casinos confident business model will best economic worry (online casino advisory)
- October 23rd - Is Station Casinos going out of business? (Fightlinker)
When Dana White announced a while back that Lorenzo Fertitta was making a 100% commitment to UFC and moving away from actively managing Station Casinos, it was heralded as a move that was going to forever change the MMA business. Much to the credit of Fight Opinion Radio lead host (Jeff Thaler), Jeff never bought into the initial explanation given as to why Lorenzo Fertitta would give up such a lucrative position in Las Vegas to go to UFC — a profitable company, but nothing close to the money-making machine that Station Casinos had been over the past decade
Fightlinker has analysis as well and he comes down on the more skeptical side:
The whole thing has to do with loan covenants, and the violation of them. If you’re wondering what the fuck that means, here it is in english:
A loan covenant is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actions, or which possibly restricts certain activities to circumstances when other conditions are met.
Typically, violation of a covenant may result in a default on the loan being declared, penalties being applied, or the loan being called.
So long story short, S&P thinks that Station is going to be violating some of it’s loan covenants by as soon as the end of March. How bad that is really depends on the terms of the deal. We just saw Showtime calling in a 6.5 million loan due to ProElite violating it’s terms, and you saw what happened there. But trying to compare ProElite and Station is like comparing lemons and some kind of solid gold money making fruit. I personally doubt Station is in any real danger of closing shop, but something interesting might be going on behind the scenes. I’ll let you know more when I do.
**UPDATE** Here’s another interesting article on Station Casinos and it’s financial health. The gist: Station is bogged down in debt after ‘buying back’ control of their operations. But is it really buying back when it’s really all on loaned money?
Me personally, I'm a bear on the entire world economy right now and it sure doesn't seem like expensive gambling junkets to Las Vegas are high on the priority list of many people I know these days.
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How would Station Casinos troubles affect the UFC...
…is the question I want to know. I doubt I will ever go gambling in Vegas but I do love me some professionally presented and entertaining MMA.
by iiowyn on Oct 24, 2008 11:09 AM EDT reply actions 0 recs
It doesn't.
Other than having the same shareholders in the Fertittas. If you own 1000 shares in IBM and 1000 Shares in GM, and GM goes out of business, then what do you lose? You lose your share of GM. The bankruptcy of one company has no affect on you as a shareholder or IBM as a corporate entity.
by cyph on Oct 24, 2008 12:49 PM EDT up reply actions 0 recs
Station Casinos is where Lorenzo and Frank get the money
to own the UFC. They UFC is in business terms heavily in debt. What I mean by that is that there are TONS of loans out to pay back by 2010. While the UFC is extremely profitable the Fertittas wont be able to pay those loans back on the UFC’s income alone. Their real income is Station Casinos which is a multi-billion company that owns something like 15 different casinos in Nevada and Indian Casinos in California. There were 5 original partners in Station of which the Fertittas were 2. Controlling interest in the company was sold out to a mega venture capital/gaming real estate speculator in Los Angeles. The Fertittas were trying to buy back controlling interest during the recent boomtimes. Only problem, those times are over. If we go into a recession they will have billions in outstanding loans to payback and no source of income to do it. Unless their creditors were retarded in their contracts, (which is possible), their assets will be seized to cover those debts.
by skwirrl on Oct 24, 2008 11:22 AM EDT reply actions 0 recs
Hilarious that this company in Los Angeles essentially sold part of the company back to them even though the Fertittas are in debt and will lose the company if they fail to re-pay their creditors and will probably lose their company to the same Los Angeles company they bought it back from.
I don’t even know how these people make money doing these kinds of deals. Maybe the Fertittas just do it to extract a monthly salary through their position in their company before eventually declaring bankruptcy, while financing the UFC.
I guess the Ambrose Dictionary was right..
“Corporation
n. An ingenious device for obtaining individual profit without individual responsibility.”
by DirtyML on Oct 24, 2008 11:43 AM EDT up reply actions 0 recs
Two separate corporations...
Why would one affect the other? I highly doubt that the shareholders of Station Casino would be happy that their profits are used to pay Zuffa’s debt.
The two corporate entities have nothing to do with each other. If one fails, the other is still left standing.
by cyph on Oct 24, 2008 11:57 AM EDT up reply actions 0 recs
they're both privately held companies with the same owners
Station Casinos basically financed the UFC’s growth in the dark years — they went more than $40million in the hole at one point.
by Kid Nate on Oct 24, 2008 12:03 PM EDT up reply actions 0 recs
But they're separate corporations...
Private company =/= sole proprietorship. Private companies still issue stocks and are held by investors. They’re just not sold over the market and information are not released to the public. They are not held by a holding company. Having the same owner does not mean shared risk.
by cyph on Oct 24, 2008 12:12 PM EDT up reply actions 0 recs
Read my earlier comment
The Fertitta’s have taken out tons of loans to help grow the UFC – If the Fertitta’s lose Station they will be so far in the hole they will have to declare bankruptcy. They will have absolutely no way to pay back the 10’s (perhaps 100’s) of millions they owe. The UFC will become assets to be seized at that point.
Say hello to Mark Cuban – new owner of the UFC
by skwirrl on Oct 24, 2008 12:26 PM EDT up reply actions 0 recs
You have no idea how this stuff works.
If Station Casinos goes bankrupt, it’s creditors cannot go after Zuffa, since it is a separate corporation.
by Phildo on Oct 24, 2008 12:29 PM EDT up reply actions 0 recs
LOL
OK they can’t seize Zuffa for Station going bankrupt. BUT THE FERTITTA’S WONT BE ABLE TO PAY THEIR LOANS ON THE UFC. Did you not catch that part. If you take a loan out on your house and you can’t pay it you can foreclose. You paid attention to nothing. The Fertitta’s have loans out on UFC due by 2010 in full. They ALSO have loans on Station. They were going to pay their UFC loans with the money they make from Station which will no longer be theirs.
Pay attention
by skwirrl on Oct 24, 2008 12:38 PM EDT up reply actions 0 recs
I highly doubt the Fertita’s have any personal loans out to prop up the UFC.
Zuffa probably has some loans out, but the Fertita’s would be pretty stupid to take out personal loans for one of their businesses.
by Phildo on Oct 24, 2008 12:40 PM EDT up reply actions 0 recs
And the UFC is still consistently making money, I don’t think there will be any problems with them paying off their loans.
by Phildo on Oct 24, 2008 12:41 PM EDT up reply actions 0 recs
They took out a 325 Million dollar loan in June 2007
Thats what the whole Xyience scandal and their violating of covenants was about
by skwirrl on Oct 24, 2008 12:53 PM EDT up reply actions 0 recs
Dude, I don't think you understand how business works.
Corporations OWE money. Individuals don’t. That’s why corporations exist in the first place.
The loans from Station and Zuffa don’t mix. I don’t think business is your area of expertise.
by cyph on Oct 24, 2008 12:41 PM EDT up reply actions 0 recs
This might apply if Station Casinos was a corporation. It hasn’t been public traded since 2007 when Colony Capital LLC bought 75% controlling interest. If the Fertitta’s really took out loans to buy it back THEY ARE BUYING A PRIVATE COMPANY NOT A CORPORATION. You can’t buy stock in the UFC either. Zuffa is a privately owned company
by skwirrl on Oct 24, 2008 12:45 PM EDT up reply actions 0 recs
Your ignorancy is showing...
An LLC = Limited Liability Company. For all intent and purposes, it’s a special type of corporation. “LIMITED LIABILITY” = corporation. The only differences between the two are tax benefits. Many, many corporations are INCORPORATED as an LLC.
by cyph on Oct 24, 2008 12:51 PM EDT up reply actions 0 recs
I know what LLC stands for
But its not Frank and Lorenzo Fertitta LLC taking out loans to buy these LLC’s
by skwirrl on Oct 24, 2008 12:53 PM EDT up reply actions 0 recs
Yet you think LLC is not a corporation...
Your question makes no sense because you have no idea what you’re talking about.
by cyph on Oct 24, 2008 12:55 PM EDT up reply actions 0 recs
LOL
To my understanding its not the LLC getting the loans. Its the Fertittas. NOT under the umbrella of the LLC. They were trying to buy Station Casinos back from Colony Capital with a loan. They don’t own controlling interest in the company so they can’t just use the company as a shield.
by skwirrl on Oct 24, 2008 1:07 PM EDT up reply actions 0 recs
Plus they have the aforementioned
325 million dollar loan against ZUFFA to pay back
by skwirrl on Oct 24, 2008 1:07 PM EDT up reply actions 0 recs
Heres the proof of said 1/3rd of a billion $ loan
http://www.sherdog.com/news/articles/behind-the-curtain-zuffas-finances-come-into-focus-9528
(sorry Bloody Elbow to put that horrible places stuff on here) but they were the only place that popped up with the details on google
by skwirrl on Oct 24, 2008 1:08 PM EDT up reply actions 0 recs
Zuffa borrowed the money to pay dividends to its owner, Fertittas and White. The corporation borrowed that money.
I’m curious, what’s your background regarding business and finance?
by cyph on Oct 24, 2008 1:12 PM EDT up reply actions 0 recs
Just my college background
and lending experience. Its been a while on the first one dealing with LLC’s but I have plenty of experience being on the lending side and NOT having people default on me. These loans were made in the era of easy credit, but there is no way i’m loaning the amount of money to buy controlling interest in Station Casinos and reprivatize it without alot of leverage.
by skwirrl on Oct 24, 2008 1:20 PM EDT up reply actions 0 recs
Ok I read up on Colony Capital LLC
They were partnered with the Fertittas in the buyout. So the Fertittas are covered by Colony Capital. You got me.
by skwirrl on Oct 24, 2008 1:24 PM EDT up reply actions 0 recs
Glad you finally figured that out after all of that. For someone touting their knowledge and education it really doesn’t make your opinion sound trustworthy when you can’t even get the basics right.
by who me on Oct 24, 2008 2:25 PM EDT up reply actions 0 recs
A Refresher
Here’s how corporations work:
Fertittas form Zuffa, LLC. They are wealthy people, so they can invest some of their own personal money. Zuffa buys the UFC. Zuffa, LLC takes on loans. This debt has no effect on the Fertitta’s personal wealth.
Fertittas are partners in Station Casinos. Station sells out control to a private equity firm. Station takes on loans to buy out private equity. This debt has no effect on the Fertitta’s personal wealth.
So in the end, neither of these debts can affect the Fertitta’s personally. If Station goes bankrupt, I’m sure it will hurt their portfolio, but they are still wealthy people. If they wanted to reinvest in Zuffa to help pay down the UFC’s debt, they certainly could.
by AnnieAgee on Oct 24, 2008 1:14 PM EDT up reply actions 0 recs
As I understood its not Station
taking out loans to buy out Private equity
Its the Fertittas
by skwirrl on Oct 24, 2008 1:16 PM EDT up reply actions 0 recs
As posted above
Fertittas will be covered by Colony Capital LLC. I thought this was a buyback from Colony Capital but this stems all the way from the original buyout. You all got me
by skwirrl on Oct 24, 2008 1:26 PM EDT up reply actions 0 recs
All this being said
Here is what was just updated on it::: Which says the Fertittas might be coming out of pocket
"In terms of the covenants, we really just don’t know," Friel said. "We’re just going to have to wait and see how the property opens."
However, the nearly $400 million in debt that Aliante Station will open with will be leveraged against the property and not added to Station Casinos’ current $5.3 billion debt load.
If the property’s cash flow is unable to meet banking covenants, the partnership could contribute cash to cover any shortfall, Friel said.
Station Casinos declined to disclose projections for revenue and cash flow for the new property.
by skwirrl on Oct 24, 2008 1:29 PM EDT up reply actions 0 recs
The covenant sounds like a minimum cash reserve required. If it falls below that, they need to come up with money meet the minimum.
If not, the bank takes the casino since it’s collateral. That’s how I read it.
by cyph on Oct 24, 2008 1:47 PM EDT up reply actions 0 recs
Yep, it’s only a problem if they don’t cover the covenant money or get the covenant amount lowered, both of which are quite probable outcomes.
by who me on Oct 24, 2008 2:28 PM EDT up reply actions 0 recs
Technically....
The loss would affect the Fertita’s because their interest in Station Casino’s is an asset they could have used to borrow money. Losing station casinos would affect their income (because they are not only owners but also employees) and their net worth for whatever value they own in the company. Not that it’s a gamebreaker though.
by zeroword on Oct 25, 2008 8:50 PM EDT up reply actions 0 recs
“If you’re wondering what the fuck that means, here it is in english:”
I think they stole this line from CNBC, lol.
Seriously, I think this is just the state of the economy right now. It has been well publicized that travel and destinations are suffering greatly. I would think going someplace like Vegas and then gambling, would be amongst the hardest hit.
http://eliotmarshall.com/
by BJJDenver on Oct 24, 2008 11:34 AM EDT reply actions 0 recs
Fertitta's were playing the margin game
and it might bite them squarely in the ass. They have loans out on both the UFC and Station with nothing to back it except the UFC and Station. And Station (the big moneymaker till now) is gonna default.
by skwirrl on Oct 24, 2008 12:41 PM EDT reply actions 0 recs
Do you honestly think the banks want Station Casino to default? Yes Station has a lot of debt(most companies do) and yes profits are down but that doesn’t mean that they aren’t still generating a ton of money, a bank seizing assets or forcing them into bankruptcy is the absolute last thing any of them want, including the banks. If they adjust the covenant money and change the payments then the whole system keeps on going with huge amounts of money moving back and forth. This isn’t even remotely like a guy not being able to pay his mortgage this is corporate level finance.
by who me on Oct 24, 2008 2:36 PM EDT up reply actions 0 recs
Their business model
Of catering to Las Vegas locals is not economically viable in one of the hardest hit parts in the country. Las Vegas has been hurting for months, and Station’s profits are down even more than their competitors. They just opened a new casino in North Vegas amongst a ton of foreclosed homes… The bank will probably do everything in their power to help – but if the locals cant afford to play there will be big problems
by skwirrl on Oct 24, 2008 2:55 PM EDT up reply actions 0 recs
They opened a new casino/hotel that caters to value shoppers and people who actually go to Vegas to gamble instead of the spectacle of the strip. http://www.lvrj.com/business/31247004.html
http://www.lvrj.com/business/30674834.html
by who me on Oct 24, 2008 3:42 PM EDT up reply actions 0 recs
CUBAN
this whole conversation was a little over my head, but you posting “say hello to the new owner of the ufc-mark cuban”, as if it were a good thing, made me chuckle. cuban as the new owner of the ufc would be a disaster(think calvin ayre with less time to devote to the sport of mma) unless he hired dana white and the fertittas to keep running the org like they have been. cuban is not a “mma guy” just like ayre wasnt and trump isnt.
by bdw on Oct 24, 2008 1:40 PM EDT reply actions 0 recs
Cuban is however
A very experienced and profitable owner of a major sports franchise. Generally considered to be one of the best owners in sports and somebody that takes excellent care of his employees. Ayre runs an online casino and Trump owns office space. Pretty big divide there.
Cuban also has a built-in way to distribute the product. Having the UFC on HDNet would put massive market demand on cable companies across the country to begin carrying it – which would in turn skyrocket the amount of advertising revenue he could charge for the channel. From what i’ve heard he had talks with Ed Fishman prior to getting into the business in the first place. Fishman certainly is an “MMA guy”
by skwirrl on Oct 24, 2008 2:05 PM EDT up reply actions 0 recs
Here is What Zack Arnold Wrote:
"If UFC continues making money like it has, there won’t be any problems.
However, we know that Zuffa has that huge line of credit & loan they took out a couple of years ago that they need to pay off by 2013. Combine that with what’s happening with Station Casinos and the hope (if you’re a UFC fan) is that the Fertittas don’t have to start pumping their own cash to finance some of the operations or, worse case scenario, sell off UFC or any sort of business assets they have."
by MMASuPreMaCy on Oct 24, 2008 1:54 PM EDT reply actions 0 recs
A Posters Reply to Zack
“My guess is that Colony ends up buying out their share somewhere down the line. Things are bad if you’re on the strip, and bordering on apocalyptic if you’re downtown/Fremont. Now imagine being 10 miles away with no steady transportation to/from the tourist centers.”
by MMASuPreMaCy on Oct 24, 2008 1:57 PM EDT up reply actions 0 recs
Before the Previous
“What you have is a company that, like everyone in Nevada, started seeing quite serious attendance drops and seems utterly baffled as to what to do. The Fertittas don’t own it and Colony, the private capital firm, holds the controlling share of the company since it went private. They’re obviously gonna demand results and Lorenzo leaving to go run Zuffa was a likely a great out. Don’t be shocked to see Frank out of there in a year or so either. The location of all their hotels well off strip or out of city limits in Henderson and the like means that they’re gonna have to come up with something drastic to draw in tourists accustomed to South Strip if they want to survive.”
by MMASuPreMaCy on Oct 24, 2008 1:58 PM EDT up reply actions 0 recs
Station's niche
was as a “local’s” gaming place. There is pending litegation against them currently for presenting themselves as though they had better odds than the on strip casinos.
by skwirrl on Oct 24, 2008 2:00 PM EDT up reply actions 0 recs
Loan = refinance.
Line of Credit = revolving.
As long as the UFC stays profitable, there’s no worries about 2013.
by cyph on Oct 24, 2008 2:00 PM EDT up reply actions 0 recs
Normally I post with a bit of trolling involved - I was serious here
I went back through this and realized I was jacked up when I said the assets could be seized, simply because they are LLC’s and you can’t just seize that. However, were Station to go bankrupt where would the money to cover UFC’s loans come from? The Fertitta’s due to the limited liability won’t go to the poorhouse but ZUFFA will be all they have left and that will still be heavily in debt.
by skwirrl on Oct 24, 2008 1:58 PM EDT reply actions 0 recs
You're still confused...
Station go bankrupt has nothing to do with the UFC’s loan. It’s actually Zuffa’s loan. Zuffa covers Zuffa’s loan. Yes, if Zuffa default, then bankruptcy could will auction off their assets to pay the loan.
However, that goes for every business. Zuffa is profitable.
by cyph on Oct 24, 2008 2:15 PM EDT up reply actions 0 recs
But
Are they THAT profitable in this economy? I think the casual fan will find $675.00 a year in PPV’s (15 @ 44.95) a steep price to pay. As I posted at FightOpinion – I think you’ll see the casual fan going to suck down drinks at the local bar and watching it there – or stealing it online.
by skwirrl on Oct 24, 2008 2:34 PM EDT up reply actions 0 recs
It’s loans due by 2013, lets not get too ahead of ourself that’s another presidential election away even. The UFC is only 15 years old and 5 years ago everyone thought they were close to dying too, wonder where they will be in 5 years when this loan does comes to term?
by who me on Oct 24, 2008 2:45 PM EDT up reply actions 0 recs
they’ll refinance the loan long before 2013.
by cyph on Oct 24, 2008 2:53 PM EDT up reply actions 0 recs
Their options are gonna be a little more limited soon I think
S&P has rated them BB and their credit rating is negative. Previously this wouldn’t have been any problem… Now I wonder. Like D. Capitated was saying – The slightest hiccup could spell disaster for them
by skwirrl on Oct 24, 2008 3:02 PM EDT up reply actions 0 recs
They actually are back as “stable” as of this July.
They went down because they were throwing lots of money into Europe without getting it much of it back, but things have turned around in Europe so the profit margins are better.
I really don’t think Zuffa is in any trouble at all, they don’t need Station to pay the bills anymore, they can do it on their own.
by Phildo on Oct 24, 2008 3:05 PM EDT up reply actions 0 recs
Thanks
For the correction – I didn’t see anything saying that.
by skwirrl on Oct 24, 2008 3:07 PM EDT up reply actions 0 recs
http://www.alacrastore.com/storecontent/spcred/660370
Here’s the summary of something you have to pay for that says it.
by Phildo on Oct 24, 2008 3:15 PM EDT up reply actions 0 recs
"NEW YORK Oct. 20, 2008–Standard & Poor’s Ratings Services today placed its ratings, including its ‘B-’ corporate credit rating, on Las Vegas-based Station Casinos Inc. on CreditWatch with negative implications.
"The CreditWatch listing reflects our concerns around the company’s progress toward amending its bank covenants," explained Standard & Poor’s credit analyst Ben Bubeck."
by MMASuPreMaCy on Oct 24, 2008 3:38 PM EDT up reply actions 0 recs
That’s Station Casinos not Zuffa, Zuffa is back at stable.
by who me on Oct 24, 2008 3:46 PM EDT up reply actions 0 recs
We’re not talking about station right now, thank you.
by Phildo on Oct 24, 2008 3:47 PM EDT up reply actions 0 recs
So my point essentially remains
If ZUFFA LLC can’t pay its loans where are the Fertitta’s at then? Pay them out of their checkbook which no longer has a casino behind it or sell ZUFFA to the highest bidder?
by skwirrl on Oct 24, 2008 2:10 PM EDT reply actions 0 recs
If Zuffa can’t pay it’s loans five years from now in 2013 then they probably have bigger problems facing them than what happened at Station Casinos in 2008. Heck if we are still under economic depression conditions in 2013 we will all have a lot more to worry about than what Zuffa is up to.
by who me on Oct 24, 2008 3:54 PM EDT up reply actions 0 recs
Station Casinos and Locals
“However, the area suffers from high foreclosures, with 10 houses in the hotel-casino’s 89084 ZIP code foreclosed between Oct. 3 and Oct. 8, according to Blockshopper.com, a Chicago-based real estate data service.”
by MMASuPreMaCy on Oct 24, 2008 2:12 PM EDT reply actions 0 recs
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