Boyd Gaming chief executive Keith Smith tells eGR NA why a partnership with bwin.party and powerful brands like Borgata leave the casino group well positioned to take the egaming market by storm
After more than 30 years’ experience in the casino industry, Boyd Gaming CEO and president Keith Smith has faced his fair share of daunting challenges but claims the biggest one of all has come during just the last few years. The global financial crisis that began in late 2007 has eaten into land-based resorts’ gaming revenues ever since and caused several high-profile casinos across the US to file for bankruptcy, the latest being Revel in Atlantic City.
Yet with Boyd posting a 6.5% year-on-year increase in its full-year results for 2012, while some of its biggest rivals saw heavy dips, it is fair to say Smith has negotiated these tricky times well. “We not only survived, we thrived,” he begins.
“As with all challenges, when you come out the other end, you come out stronger and smarter. Frankly, we had to reinvent the business and understand how to deliver a similar product, but at less cost to our customers, because they were still coming in great numbers. While revenues were down significantly, customer counts were not.
“The biggest challenge in my career in this business has been dealing with the Great Recession, working our way through that, maintaining our customer base, retaining good relationships with our banks, and staying out of trouble,” he says.
Smith could never have imagined facing such obstacles when he began working for the Ramada hotel chain in 1982. He first joined Boyd in 1990, both he and the company have come a long way since then. Having fought through the worst of the recession, Smith’s next challenge is to make Boyd a powerhouse in online gambling.
Indeed, how Smith is remembered as Boyd CEO could hinge on how he navigates the operator’s maiden online voyage. Much of this will depend on the success of the deal he struck in October 2011, a partnership for Boyd with MGM and bwin.party to offer online poker in regulated states.
The B2C joint venture was officially announced as being 65% owned by bwin.party, with MGM and Boyd owning 25% and 10% respectively, although Smith “would be careful about positioning it that way”, saying that the full deal is “complicated” and “confidential”. Both MGM and Boyd also entered into separate 15-year B2B agreements with bwin.party, allowing them to use the service provider’s poker platform for their own brands.
And given that in Nevada alone, Boyd already has nine brands it could use from its property portfolio – The Orleans, Gold Coast, Suncoast, Sam’s Town, California, Fremont, Main Street, Jokers Wild and Eldorado – there are plenty of attractive names the casino group could take advantage of to entice its customer base online. But Smith does not seem in a hurry to rush the casino’s Nevada strategy, showing cautious pragmatism by keeping all options open, at least for now.
“We’re currently assessing what we think the right brands for us to launch in Nevada would be. We have a number of very strong brands and it could be one of those, or it could be a completely new one that we think would be appropriate to launch. It is likely to be more than one brand.”
Boyd Interactive Gaming, which received its online poker licence for Nevada in October last year, is headed up by Bob Boughner, who having spent more than 35 years working for Boyd manages the impressive feat of having even more experience in gaming than Smith. As the current executive vice president and chief business development officer, Boughner led the development and opening of the Borgata Hotel Casino & Spa in 2003 and is in charge of Boyd’s expansion into any new markets and business opportunities – which right now means he is leading the casino’s first foray into online gambling.
With Atlantic City casinos set to be permitted to offer online gambling by November, it is the property Boyd commissioned in 2003, the Borgata, which looks set to continue to be the crown jewel in its portfolio. Boyd has a 50% stake in the property, with MGM Resorts International’s 50% stake currently held in a trust while it reapplies for licensure in New Jersey.
The Borgata will be an essential launch pad for Boyd’s online offering in New Jersey, as only the 12 Atlantic City casinos are eligible for egaming licences, and Smith is keen to make the Borgata as famous online as it is offline. “The Borgata is a dominant brand in Atlantic City and the dominant poker brand in Atlantic City, capturing the majority of the market there,” he argues. “It will clearly be a brand that we will look to use and to leverage when we launch that site. There could also be other brands that are launched as part of that as well.”
Boyd’s share price was buoyed by February’s legalisation of egaming in New Jersey, rising 6.8% to US$6.94, and this was followed a few weeks later by confirmation that its land-based business was performing well, reporting net revenues of $2.49bn in the 2012 financial year, a 6.5% year-on-year increase. With the potential of the New Jersey market generating excitement in recent weeks due to its wider range of permitted games and higher population compared to Nevada, bwin.party CEO Norbert Teufelberger told investors last month the operator was prioritising New Jersey over Nevada.
It is a stance Smith appears to sympathise with. “You have to focus as a publically-owned company and as a business person on where those opportunities are greatest,” Smith argues. “I’m sure bwin.party is focused on New Jersey because that is where the greatest opportunity is. I think we’re both evaluating the opportunities, and the size of them, here in Nevada, and trying to assess where the greatest opportunity is to launch a business and be profitable.
“We’re assessing what makes sense to do, how it makes sense to roll out and so we don’t have as clear a direction in Nevada today, because of the different opportunities and the fact that they are smaller given the population of the state. We all have limited resources and we have to allocate them to the proper places.”
As the years have passed, so Smith’s priorities have had to evolve. When he first started working for the Ramada hotel group in the early 80s, gambling was only legal in two parts of the US – Atlantic City and Las Vegas. The concept of egaming was not even in existence when Smith joined Boyd as a corporate controller in 1990, and the casino group’s portfolio consisted of just four Las Vegas properties.
Now it is 22, across eight states – Nevada, Kansas, Louisiana, Illinois, Indiana, Iowa, Mississippi and New Jersey. Now in his 23rd year at Boyd, Smith has fulfilled a variety of roles, including chief operating officer between 2001 and 2007.
He also enjoyed a spell as chairman of the American Gaming Association Board between 2010 and 2011. “It’s nothing that I set out to do when I was growing up, but I’ve been very fortunate to be part of the tremendous growth that’s happened in this business over the last 20 years,” he reflects.
“It’s a very exciting, dynamic business and I ended up staying and never getting out. I have been fortunate to be able to grow with the industry over the years, and frankly to grow with Boyd Gaming over the years, and take advantage of the growth in the industry.”
His colleagues cite his impressive command of data and facts around every issue he faces as one of the reasons behind Smith’s success. His shrewd stewardship of Boyd throughout the recession arguably demonstrated his strong and quick understanding of the difficult economic conditions facing not just the casino, but other businesses too – he also became chairman of the Los Angeles branch of the Federal Reserve Bank of San Francisco last year.
Decisive and unafraid to make difficult decisions, he suspended construction of the $4bn Echelon site on the Strip in 2008 as the recession began to bite – a move since praised by analysts – and last month Boyd sold it to the Genting Group.
The bwin.party deal, struck early while other operators waited for regulatory progress, is another bold decision made by Smith. Few have questioned the partnership, but unhelpful headlines were generated in November last year when Teufelberger was questioned by Belgian police in Brussels. Teufelberger was asked about the operator’s activities in the country, where two of bwin.party’s dot.com domains had been blacklisted.
But the company finally received its Belgium licence last month for a dot.be domain, after agreeing a partnership with Groupe Partouche – a potentially crucial development with bwin.party’s Nevada licence hearing sure to be on the Gaming Control Board (GCB) agenda soon. However, the bad publicity never fazed Smith, whose meticulous research around bwin.party meant that the incident never alarmed him:
“Before we entered into our partnership with bwin.party, both companies spent a tremendous amount of time doing some due diligence and getting comfortable with each other. We determined that the management team, which included at the time Jim Ryan and Norbert [as co-CEOs], has operated with tremendous integrity.
“We are aware of the conversations that took place [in Belgium] as our partner properly updated us and we have no concerns about it. We have complete confidence in the direction their management team is headed with the company and the fact that they operate with a very very very high degree of integrity,” he adds.
Just as Smith is currently taking his time to weigh up Boyd’s online venture in Nevada, he was careful not to jump into the partnership with bwin.party two years ago. “We certainly scoured the universe and looked at lots of opportunities,” he says. “We made a determination that we wanted to partner with one of the top providers, so I think we were very fortunate to have been able to execute that agreement with bwin.party. We did a lot of research and talked to a lot of companies before we were lucky enough to engage in this partnership.”
To underline the benefit of Smith’s caution, a contrast can be drawn with the strategy taken in 2011 by rival casino group Wynn. In March that year, the operator partnered with PokerStars – less than a month later, Stars founder Isai Scheinberg was indicted as part of Black Friday for violations against the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), and the deal was terminated.
But PartyGaming, which merged with bwin in 2011, withdrew from the US market after the passage of UIGEA, a decision which Smith says was vital: “That was a key element in choosing bwin.party, as we knew that they had made the right decision, which spoke to their integrity of management. That was one of the key reasons we went with them.”
With PokerStars set to enter New Jersey if state regulators approve its acquisition of the struggling Atlantic Club Casino in Atlantic City, the operator poses a serious threat to the market share the other casinos hope to achieve, although Smith has reason to be confident in the Borgata brand. When asked for his opinion as to whether Stars should be allowed to re-enter the US, he is naturally unwilling to offer a verdict one way or the other, although one can read between the lines.
“People who generally have flaunted US law or have operated in violation or in contradiction of US law generally are not found of good character to receive a licence,” argues Smith. “But it’s not my decision and it’s not for me to comment on, it’s up to the regulators and I certainly am comfortable relying on their good judgement and their discretion as over the years they’ve done the right thing by gaming.”
Despite the recession, Boyd is in such a strong position that in November last year, the operator bought Peninsula Gaming for $745m, acquiring five resorts in Kansas, Iowa and Louisiana, and significantly increasing Boyd’s presence in the Midwest and South US as a result.
“Over the last four or five years we didn’t just survive, and that would have been remarkable in itself, as not all of our competitors did, but we ended up managing to grow,” he explains, adding: “It would be wonderful to see states compact with each other to allow internet gaming to take place, obviously with the properties we have across a number of states, and be able to introduce all of our brands on one platform. It will be a real benefit.”
The US expansion doesn’t stop there either. Last year Boyd struck a deal with Sunrise Sports Entertainment with a view to opening a casino in Florida, and last month reached an agreement with the Wilton Rancheria tribe to work together to build a resort in California.
Online gambling regulation permitting, entering these states could provide huge rewards, given their populations of approximately 19.3 million and 37.7 million respectively. Now Smith has expanded the company’s bricks and mortar footprint in the US, it is time to start taking Boyd’s brands online.
Given the care Smith has shown so far laying the groundwork for the casino’s egaming strategy, it is unlikely he will make any bold predictions about how successful Boyd’s offering will be. However, with the brands it owns and the online expertise of bwin.party on board, it is also unlikely Smith will struggle to reap the rewards as he takes on his latest challenge.