Harveys Casino Resorts

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Harveys Casino Resorts

P.O. Box 128
Lake Tahoe, Nevada 89449
U.S.A.
(702) 588-2411
(800) 553-1022
Fax: (702) 588-2411
Web site: http://www.harveys.com

Public Company
Incorporated: 1955
Employees: 4,010
Sales: $283.6 million (1997)
Stock Exchanges: New York
Ticker Symbol: HVY
SICs: 7999 Amusement & Recreational Services, Not Elsewhere Classified; 5812 Eating Places

Founded in 1944, Harveys Casino Resorts is an established owner, operator, and developer of high quality hotel/casinos in Nevada and new gaming jurisdictions. Through its subsidiaries, the company owns and operates Harveys Resort/Casino, the largest hotel/casino in Lake Tahoe, Nevada; Harveys Wagon Wheel/Casino in Central City, Colorado, the first major hotel/casino in the Denver area; and Harveys Casino Hotel, a river-boat casino and hotel/convention center in Council Bluffs, Iowa. In 1999 the company merged with an affiliate of Colony Capital, Inc., a real estate investment firm.

A Family-Run Business in the 1940s

When Harvey Gross, a successful meat retailer from Sacramento, and his wife, Llewellyn Gross, moved to South Lake Tahoe, there were no phones, water, sewer, or power lines in the area. There was no highway maintenance and as soon as a significant amount of snow fell on Echo Summit, the road closed. Gross worked delivering meat and running a summer market for a few years before he and Llewellyn opened Harvey’s Wagon Wheel Saloon & Gambling Hall in 1944 on seven acres of land near Stateline on Highway 50. The one-room, log cabin resort housed a six-stool lunch counter, three slot machines, two blackjack tables, and the only gas pump open 24 hours a day between Placerville, California and Carson City, Nevada. Harvey and Llewellyn worked 16-hour days preparing food, pumping gas, and dealing cards.

The Grosses were a devoted couple—partners from the start. It was Llewellyn’s idea to give the club a western theme with its trademark wagon wheel and longhorn skull. William Ledbetter, who married the couple’s only daughter, became Harveys’ vice-chairman in 1983 and has described the two as “complementing each other.” She was a “woman of action” he had a “plodding business nature.” In their gaming escapades, she was acknowledged as the driving force. The Wagon Wheel was very much a family affair; in the early years, when business slowed, family, friends, and employees sat around Harveys’ fireplace in the casino eating popcorn and telling stories.

In the 1950s Tahoe boomed as a tourist playground, and Harveys boasted “more slot machines under one roof than any other casino in the world.” By then the Wagon Wheel encompassed an entire city block, and a maintenance station topped Echo Summit to keep Highway 50 open during the winter. Giant billboards advertising Harveys dotted nearby highways, and Harveys offered shuttle service to customers between the casino and their hotel, along with a free keno game and a meal. Business was so good that Harvey Gross put off plans to retire and, instead, built an 11-story, 197-room hotel, changing Harveys Wagon Wheel to Harveys Resort Hotel & Casino. In the early 1960s Harveys’ flagship casino expanded, adding on gaming tables and more hotel space, and by the time Gross died in 1983, at the age of 79, his operation was earning $4.1 million on revenues of $70 million and had virtually no debt. Even so, Harvey Gross refused to expand beyond Lake Tahoe. When asked why, he always gave the same answer: “I have a nice little business…. How many steaks can I eat?”

Gross had made a commitment to Lake Tahoe, and he was not about to back out of it. He was committed to “spending money where he made it,” sponsoring scholarships for local students, and providing job opportunities for disabled citizens. He and Llewellyn were instrumental in opening Highway 50 to year-round traffic. He also played a key role in establishing the South Lake Tahoe airport, a medical center at Al Tahoe, and Barton Memorial Hospital at South Shore.

The Early Yturbide Years

William Ledbetter, Gross’s son-in-law, who assumed control of the business shortly before Harvey’s death, had different ideas. On a borrowed budget of $70 million, he moved to double the size of the casino and triple the number of rooms by 1985. Three years after Gross’s death, in 1986, the project was slightly less than about three-quarters complete and the money gone. Ledbetter then called upon Thomas Yturbide to run the business. Yturbide, an experienced casino hand who had worked for nearly three decades for the competition, Harrah’s, cut the staff back by ten percent, refinanced the construction loan, and finished a revamped expansion for an additional $30 million.

Yturbide also revamped Harveys’ marketing program. Gross had relied upon nearby Harrah’s to lure people to Lake Tahoe, in turn luring them from Harrah’s with his billboards and his well-known $2.99 steaks and cheap drinks. In 1988 Yturbide approved a $10 million marketing budget, five times more than Harveys had ever spent. He bought radio and television spots and plastered Highway 50, the main artery between Sacramento and Lake Tahoe, with dayglo signs which read, “The Party’s at Harveys.” His plan brought results. Between 1987 and 1994, Harveys market share rose from 21 percent to 28 percent, the second highest among Tahoe hotels.

Beyond Lake Tahoe: Two New Casinos in the 1980s

Then, in 1988, Yturbide began to pursue expansion beyond Lake Tahoe. His first plan to partner with the Council Bluffs, Iowa Sioux in building a casino fell through after four years of discussion and planning when the land they had hoped to develop upon proved unavailable. Yturbide then tried to acquire the bankrupt Bally’s hotel in Reno, but Hilton outbid him in his effort to buy. Harveys’ luck turned around when Peter Morton, founder of the Hard Rock Cafes, approached Harveys to jointly launch a Hard Rock hotel and casino in the mid-1990s. The idea was that Morton would provide seven and one half acres in Las Vegas and Harveys would supply $66 million of the $88 million the two businesses needed to finance the project. Together they planned to buy another eight and one half acres and split another $24 million capital contribution.

The first deal was not yet even closed when Yturbide signed on to another. Partnered with Mountain City Casino Partners, Harveys would build a 118-room hotel and casino in Central City, Colorado, 35 miles east of Denver. Yturbide committed his business to putting up $9.4 million and guaranteed $28 million of debt and $7.5 million worth of gambling equipment. He then took the company public in 1993, selling 2.25 million shares of common stock (and another 1.2 million that belonged to the heirs of Harvey Gross) to raise capital for the planned ventures. At $14 a share, the sale raised $48 million.

The Wagon Wheel opened in Central City in 1995. It was designed from the outside to resemble ten separate, vintage storefronts and businesses, in keeping with the Western theme, and contained a 400,000-square-foot casino with 938 slot machines and 24 gaming tables, two restaurants, and a two-level underground parking garage. In subsequent years the complex also included a 118-room hotel, restaurants, and entertainment lounges. Before the year was out, however, it had defaulted on a $4 million principal payment to one of its minority investors. Earnings had not met expectations, and Harveys was exploring ways of restructuring its $11.9 million debt. It did so by buying out its minority partner and making Harveys Wagon Wheel a wholly owned subsidiary of Harveys Casino Resorts.

The Hard Rock Hotel also opened in 1995, tiny by Vegas standards with only 340 rooms. In keeping with the rock theme, slot machines had arms shaped to resemble guitar necks and roulette tables were shaped like pianos. The $25 chips were purple and featured Jimi Hendrix’s profile and the title of his hit, “Purple Haze.” Morton, whose entrepreneurial genius had dreamed up the first Hard Rock Cafe in London more than 20 years earlier, was in agreement with the Harveys philosophy of treating the guest well. The rooms in the Hard Rock Hotel had windows and supplied room service, to make the guests feel at home, rather than to chase them out into the casino.

More expansion was afloat back in Council Bluffs, Iowa. There, in exchange for $1.5 million and another $1.5 million to be spent on the construction of an athletic field complex on public land, the city council voted to sell Harveys a docking site on the Missouri River for its Kanesville Queen. The project cost Harveys $70 million and, in addition to the 2,352-passenger riverboat casino, which housed 1,100 slot machines, 48 table games, and seven poker tables, included a futuristic-looking, 251-room hotel, 20,000 plus-square-foot convention center, and docking site. In December of 1995, the Kanesville Queen received a ceremonial christening.

Company Perspectives:

Harveys’ business strategy is to develop premium hotel/casino facilities in markets in which the company believes it can establish and maintain a prominent position or niche. Each of the company’s properties offers casino gaming and a full range of amenities in a friendly atmosphere that caters to middle- and upper middle-income customers. As part of its commitment to providing a quality entertainment experience for its patrons, the company is dedicated to ensuring a high level of customer satisfaction and loyalty by providing distinctive and modern accommodations and attentive customer service in a friendly atmosphere. Management recognizes that consistent quality and a comfortable atmosphere can differentiate its facilities from the competition in all of its markets.

A Focus on Established Markets in the 1990s

Things quieted down for the next year or so. After the Wagon Wheel in Colorado failed to make expected earnings and missed its principal payment on $11.9 million in bonds that had been sold to help finance its building, Harveys proposed buying out the venture’s minority partner, Mountain City Casino Partners. When New York State appeared about to open its doors to big-time gaming in 1996, Harveys took out an option on 27 acres of land in upstate Greene County. When the pending gambling bill stalled, however, no new ground was broken; Harveys decided not to seek approval for casino gaming in new markets, but instead to focus strategically on open markets where gaming was already legal—Nevada, Mississippi, and Atlantic City.

Also in 1996, Harveys hired Bill Cosby to serve as casino spokesperson. Cosby’s role included promoting the firm’s properties via television, radio, and billboard, and raising money for charities through benefit concerts. In keeping with the tradition of Harveys Project Care, an in-house corporate contributions program that in 1992 gave $416,000 to education, health, youth, and service organizations regionally, Cosby’s six concerts raised more than $100,000 for charitable, educational, and youth groups across the country.

By 1997 Harveys had captured 28 percent of Tahoe gaming revenues, a conspicuous achievement in a market that included two other leading national casino companies. In Council Bluffs, net revenue increased approximately 44 percent over the previous year and market share increased to 33 percent. In Central City, revenue reached $320 million and market share was at 15 percent, while the Wagon Wheel Casino added a self-parking garage and 160 additional slot machines, bringing the total number of machines to 1,000. The company as a whole posted 1997 net revenues of $283,563,000 and net income of $30,775,000. It sold its stake in the Las Vegas Hard Rock Hotel and Casino to its joint venture partner, Hard Rock Hotel, Inc. for $45 million cash when it became clear that Harveys and Peter Morton had different ideas on how to best expand the property.

In 1998 Harveys also reached a second agreement with Hard Rock Cafe International to bring the Hard Rock Cafe brand to Harveys Resort Hotel and Casino in Lake Tahoe. According to this plan, a Hard Rock Cafe was built on the main casino floor of Harveys, outfitted with rock and roll memorabilia. The new cafe and retail outlet, completed by the busy summer season, encompassed approximately 6,500 square feet, with seating for about 200.

Harveys was going strong, posting earnings per share at the end of the first fiscal quarter of 1998 slightly less than double analysts’ estimates. Chuck Scharer, chairman, president, and chief executive officer, attributed these results to strong performances assisted by mild weather at all properties. “In Colorado, our property continues to experience the benefits of the new 530 parking structure. In Iowa, the Council Bluffs market has continued to show its strength and support as we continue to lead as the state’s top performing riverboat. And at Lake Tahoe, favorable weather patterns and road conditions … lead to increased volume at the property.”

Scharer also stressed that the company had remained true to its initial focus on people as well as products. “As we aggressively seek to take the company to the next level, our goal is to translate the essence of Harveys—the best possible service, quality and customer experiences—to new properties in new markets. The positive feedback from our customers tells us we are doing just that, and we intend to continue raising the bar in service and quality.” Management at Harveys believes that it is the personal involvement of Harveys personnel that drives the company’s success, and they insist that their front-line employees respond quickly to guests’ needs, empowering workers to do “whatever it takes” to make the customer happy.

But times were changing at Harveys. Acquisitions and consolidations were becoming common in the casino industry and growth was slowing after the mid-1990s boom. In 1998 the company was sold to the real estate investment firm of Colony Capital and some Harveys executives for $420 million, including assumed debt, putting an end to the era of family control. Chuck Scharer continued to run the company, and Harveys’ 4,000 employees retained their jobs, while three members of Harvey Gross’s family continued to sit on the Harveys board. But the Ledbetters, who retained 40 percent of the company’s shares through a family trust, were no longer central to Harveys’ day-to-day operations. The sale to Colony Capital, completed in early 1999, was designed to provide a big financial boost to the company, affording it the resources necessary to explore new opportunities, such as building a luxury hotel next to Harveys in Lake Tahoe, returning to Las Vegas, and building a $300 million casino in Salisbury Beach, Massachusetts. At the time of the sale in February 1998, Harveys’ stock soared to $27, showing investors’ continued faith in Harveys’ future.

Principal Subsidiaries

Harveys Tahoe Management Company, Inc.; Harveys C.C. Management Company, Inc.; Harveys L.V. Management Company, Inc.; Harveys Iowa Management Company, Inc.