Monarch Casino & Resort, Inc.

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Monarch Casino & Resort, Inc.

1175 W. Moana Lane, Suite 200
Reno, Nevada 89509
U.S.A.
Telephone: (775) 825-3355
Fax: (775) 825-7705
Web site: http://www.monarchcasino.com

Public Company
Incorporated: 1993
Employees: 1,792
Sales: $115.95 million (2003)
Stock Exchanges: New York
Ticker Symbol: MCRI
NAIC: 713990 All Other Amusement and Recreation Industries

Monarch Casino & Resort, Inc. owns and operates the Atlantis Casino Resort in Reno, Nevada, through its lone subsidiary, Golden Road Motor Inn, Inc. The Atlantis is a tropically themed hotel and casino adorned with such tropical décor as giant artificial palm trees, thatched roof huts, and waterfalls. The property includes three high-rise hotel towers, containing 831 rooms and suites, as well as a low-rise motor lodge with 149 rooms that appeal to value conscious guests. The 51,000-square-foot casino offers nearly 1,500 slot and video poker machines, 37 table games, and a sports book operation run by an outside party. The Atlantis also provides several restaurants, a health spa, indoor and outdoor pools, a full-service salon for men and women, retail establishments, a family entertainment center, and banquet, convention, and meeting room space. Monarch owns 16 acres of adjacent land that is available for further development, but in the meantime is used for parking, which is connected to the Atlantis by the "Sky Terrace," supported by two 100-foot-tall Grecian columns. The Sky Terrace also maintains a tropical look and contains banks of slot and video poker machines, a comfortable lounge, oyster bar, and sushi bar. While clearly appealing to leisure travelers, the Atlantis also caters to area gaming customers by offering more slot and video poker machines with higher than average payout rates and liberalized rules at blackjack. Much of the success of the Atlantis is due to its location, several miles from Reno's downtown casinos and the only hotel within walking distance of the Reno Convention Center, which supplies a steady stream of fresh customers. Monarch is 48 percent owned by brothers John Farahi, Bob Farahi, and Ben Farahi. All three are co-chairs of the company, with John serving as chief executive officer and chief operating officer, Bob as president, and Ben as chief financial officer.

Establishment of Legalized Casino Gambling in Reno in 1931

Reno, Nevada, named after Union Civil War General Jesse Reno, was founded in 1868 when the Central Pacific Railroad established a depot. The area already had become an important agricultural center and transportation hub supporting the mining of the legendary Comstock silver mines, but the railroad depot ensured that Reno would not suffer the fate of other boomtowns that disappeared once the gold and silver deposits ran out. In addition to being an important freight and passenger center, Reno also gained a reputation for providing less savory services, earning the moniker "Sin City." Reno was known for its brothels, underground gambling dens, prize fights, and easy divorces. Reno eventually became known as the divorce capital of the world. With the deepening of the Depression of the 1930s, Nevada decided to legalize casino gambling and it was Reno that set the stage for the casino industry on which Las Vegas would capitalize. With the building of highways, Reno became a tourist destination and the casinos flourished. The city decided in 1947 to prohibit casinos outside of a designated downtown area, but that "redline" legislation was repealed in 1972, making the area where The Atlantis now stands available for casino gambling.

Monarch traces its history to 1972, when the father of the company's co-chairmen, David Farahi and his brother-in-law, Isaac Poura, bought a rundown 142-room motel called the Golden Door Motel located on four acres of leased property on the southern edge of Reno. It was well removed from the bulk of the tourist trade that frequented the downtown casinos. The facility's only tangible asset was its close proximity to the city's convention center, which provided enough business, along with overflow guests from downtown hotels during peak times, to barely keep the enterprise afloat. The Golden Door was a two-story low-rise structure with an adjoining building that housed the lobby, a coffee shop, banquet room, and lounge. Because it was part of the Golden Door chain, the name was changed to the Golden Road Motel. John Farahi, a political science graduate from California State University, Hayward, soon went to work for the motel and during summer vacations from college he was helped by his brothers. Bob would earn a biochemistry degree from the University of California at Berkeley, and Ben received a mechanical engineering degree from the University of California at Berkeley as well as an M.B.A. degree in accounting from California State University, Hayward. Over the next several years all three sons would eventually come to work for the business on a full-time basis. Poura would not be with the company, however. The two brothers-in-law proved incompatible business partners and in mid-1973 David Farahi bought out Poura. In 1976, with his sons having taken on so much of the responsibility for running the business, he transferred ownership to them and their sister Jila.

Switching to Travelodge in 1983

The problems that troubled the Golden Door did not dissipate with a name change. The motel struggled through the 1970s, and the three Farahi brothers filled in doing every conceivable job at some point. It was not until the early 1980s, when Reno finally grew large enough to bring the Golden Road well within the orbit of the city's developed section, that the motel began to truly prosper. In 1983 the Farahi brothers began taking steps to improve the motel's image by making it a Travelodge franchise. In addition, they took back the coffee shop, which had been leased to outsiders, remodeled it, and opened the Cooper Kettle restaurant, which proved popular and helped to bring in more local business and outside traffic. The next major step in the development of the business came in 1986 when it seized an opportunity to buy 15.8 acres of nearby property, within walking distance of the convention center, which the Farahi brothers believed would become highly valuable as this area of Reno continued to enjoy rapid growth. It was a costly, risky investment, but they bought the parcel and then successfully petitioned the city to have the site zoned for use as a hotel casino. Also in 1986, they remodeled all of the rooms of the Travelodge, another step in transforming a once dilapidated motel into an upscale accommodation.

The use of the newly acquired property, however, would not matter greatly to the company's immediate plans, because in 1987 the Farahi brothers were successful in buying the land on which the Travelodge was situated plus several acres adjoining it. After receiving permission from the city to operate 50 slot machines on the site, they began a further remodeling of the motel. It now became a Quality Inn, and the renovated restaurant and lounge would one day form a building block for the Atlantis complex. The upgraded motel, restaurant, and combination nightclub and lounge became very popular with area residents, prompting the owners to take their most ambitious step to date: to transform the Quality Inn and its eight acres of land into a major hotel casino. Finding financial backing was not an easy task, given that many bankers failed to accept the Farahi brothers' contention that being located away from the downtown area was actually desirable. First Interstate Bank of Nevada finally agreed to fund the project to the tune of $18 million, a syndicate was formed, and the project was launched in mid-1989. Soon the venture received an unrestricted gaming license from the state. Already half of the motel units had been moved to the outskirts of the property in preparation for the major construction. Working with the Farahi brothers was Peter Wilday, an experienced architect who had designed several of Reno's most successful hotel casinos. They decided on a tropical motif, featuring waterfalls, palm trees, and thatched roof huts. In 1990 the rest of the motel units were relocated and construction began on a 160-room high-rise hotel tower along with another 16,000-square-foot structure that would house 500 slot machines, 21 table games, a restaurant, several bars, an outdoor pool, and a health club. Work was completed in just eight months and within 2 percent of the projected budget.

A licensing agreement with Choice Hotels International was reached, so that when the project was completed it opened in April 1991 as the Clarion Hotel Casino and was an immediate success. Less than a year later, more casino space was added, as well as a fashionable restaurant and nightclub. During the first full year in operation, the Clarion generated $23.2 million, a significant increase over 1990's $5.2 million. Business was so strong that by the end of 1992, the Farahi brothers began making plans for further expansion. This time they looked to the stock market for funding, after a number of gaming companies had enjoyed recent success in floating offerings. Because the company owned just one gaming property, however, they met with some resistance from investment banks. Finally Volpe, Welty & Company agreed to underwrite an initial public offering of stock. In preparation, Monarch Casino & Resort, Inc. was formed in 1993 for the purpose of acquiring Golden Road Motor Inn, Inc., the legal name of the business. Then in August 1993, 2.4 million shares in Monarch were sold to the public, raising $17.1 million.

With the necessary cash in hand, Monarch launched the next phase of expansion in October 1993, constructing a second high-rise hotel tower, which added 283 rooms and suites, a buffet restaurant, an 8,000-square-foot family entertainment center, 10,000 square feet of banquet and meeting space, and an additional 14,000 square feet of casino space, able to accommodate 450 more slot machines and 14 table games. In less than a year, and on budget, the new facilities were opened to the public, which once again expressed its approval through its business. Within six months occupancy rates exceeded 90 percent.

Company Perspectives:

Our revenues and operating income are principally dependent on the level of gaming activity at the Atlantic casino. Our predominant marketing goal is to utilize all of the Atlantic facilities to generate additional casino play. Our secondary goal is to maximize revenues from our hotel, restaurants, cocktail lounges, convention and meeting rooms and other amenities.

Failed Attempts at Riverboat Gambling in the 1990s

Monarch, in the meantime, attempted to become more than a single gaming property company. In 1993 it formed a subsidiary, Dunes-Marina Resort and Casino, Inc., and looked to become involved in the riverboat gambling business that was opening up in midwestern states. Monarch sought to develop such a project in Gary, Indiana, hoping to win one of the first gaming licenses issued by the state. Monarch won approval from the city, prevailing over a dozen rivals, including the likes of Donald Trump, Aztar Resorts International, and Carnival Cruise Lines. In anticipation of winning a gaming license, Monarch in March 1994 bought the Muskegon Clipper, which at 345 feet long and 65 feet wide, was one of the nation's largest riverboats. But the vessel would not be needed. Despite winning the endorsement at the city level, Monarch was beat out at the state level by two other bidders. The venture was written off, as was a 1995 attempt to secure a lease on a riverboat casino project in downtown St. Louis. The Dunes Marina Resort and Casino subsidiary finally would be dissolved in 1999, as Monarch decided to focus on its Reno property.

In the mid-1990s Monarch looked to build up its middle and upper-middle income clientele. As of 1994 the customer mix for the Clarion was 60 percent local, but the expansion helped to move the mix closer to 50–50. Marketing efforts were concentrated in the northwest, on northern California, Oregon, Washington, and British Columbia, but going forward Monarch looked to grow its customer base beyond these traditional markets. Another important factor in growing the tourist side of the business would be the opening of the National Bowling Stadium in Reno, a massive bowling complex that would host major tournaments and was expected to draw tens of thousands of visitors to Reno each year. In 1995, the first full year following the most recent expansion, Monarch saw revenues rise to $53 million. With future prospects looking bright, the Farahi brothers wasted no time in developing a master plan for expansion, which could be accomplished in phases and was approved by the city of Reno.

In April 1996 Monarch terminated its licensing agreement with Choice Hotels International and changed the name of the Clarion Hotel Casino to the Atlantis Casino Resort. Conditions in the Reno gaming industry were becoming highly competitive; during a 17-month stretch in 1995 and 1996 the city added some 3,500 hotel rooms. Changing names in that environment was risky, but the owners believed it was in their best interest long term and they were able to rebrand the hotel casino with only a short-term loss in business.

Monarch decided to proceed with the first phase of its master plan in May 1998, taking the unusual step of funding the $75 million project entirely out of operating cashflow and an available line of bank credit. In June 1999 construction was completed, resulting in a second hotel tower, 28 stories high, containing 388 rooms and suites, as well as 1,500 square feet of new meeting space. Rooms on the top seven floors of this structure were larger, featuring more luxurious accommodations, a private concierge service, and private elevator access. The Sky Terrace was also part of this expansion phase.

As Monarch entered the new century, it continued to invest in upgrading the Atlantis. In 2001 the company spent $4.5 million to renovate suites in the third tower, acquire new slot machines, and improve the facility's computer information systems. Another $6.5 million was spent in 2002 to renovate the first hotel tower, a restaurant, the front desk, and VIP services area, as well as further upgrades to gaming equipment. In 2003 Monarch spent $8.4 million to build a new sushi bar and salon, conduct renovations on the second hotel tower, and continue the effort to acquire and upgrade gaming equipment. As a result of continued expansion, Monarch experienced steady growth on the balance sheet. For 2003 revenues totaled $116 million and net income amounted to $9.6 million.

Monarch stood at a crossroads by 2004. It had an option to purchase property in South Reno for the development of a new hotel casino. It also had approval to expand the Atlantis by 520 hotel rooms and 500 more slot machines. Moreover, it could choose to build another resort casino or entertainment facility on the adjoining 16-acre parcel. For the time being, the Farahi brothers decided not to develop any of these properties, electing instead to adopt a wait-and-see strategy, gauging industry trends and consumer demand before taking the next step in the hotel casino's development.

Principal Subsidiaries

Golden Road Motor Inn, Inc.

Key Dates:

1972:: The original property, Golden Door Motel, is acquired by David Farahi and his brother-in-law.
1976:: Ownership is transferred to Farahi's children.
1991:: The Clarion Hotel Casino opens on the site of the original motel.
1993:: Monarch Casino & Resort, Inc. is formed and taken public.
1996:: Clarion is renamed Atlantis Casino Resort.