Amid dispute, Station considered buying Dotty’s

According to Station, Dotty’s doesn’t follow the law, blurs the lines between regular casinos and taverns and preys on legitimate gambling businesses. So it might come as a bit of a surprise to learn that Station Casinos allegedly tried to purchase Dotty’s.

According to Susan Johnson, general counsel for Dotty’s parent Nevada Restaurant Services Inc., Station Casinos Chief Financial Officer Marc Falcone met with Dotty’s owner Craig Estey on Feb. 5, 2013, at the PT’s Pub at Charleston and Decatur boulevards.

At this meeting, Falcone tendered an offer to purchase Nevada Restaurant Services Inc. for seven times Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Estey turned Station down, Johnson said.

The meeting, and the offer, was the culmination of a courtship that had begun in April 2012, after Station and Dotty’s were at odds over new tavern rules adopted in Clark County that forced Dotty’s to make changes to its operations. Those meetings included a flight to Montana to see a slot machine manufacturing business Estey owns. It was on the way back from this trip that Estey told Falcone and then-Station Executive Vice President Kevin Kelley that Estey shared his EBITDA number with the Station officials, Johnson said.

But Station Casinos President Steve Cavallero flatly denied any formal offer had been tendered, although he acknowledged his company had what he called “preliminary business meetings” with Estey.

“There was no formal offer made,” Cavallero said. “We would have had to go to the board” of directors in order to tender such an offer, and that was never done, he added. Nor was there an extensive review of Dotty’s financial documents or other due diligence.

But Estey has recounted the meeting and the offer in a sworn declaration filed with the Gaming Control Board, Johnson said. Asked again, Cavallero replied, “To the best of my knowledge, we did not make a formal offer” to Dotty’s. And asked if it would be possible for such an offer to be made without his knowledge, Cavallero said it would be hard for him to believe.

However, Cavallero acknowledged that Station officials may have discussed the value of Dotty’s in meetings with Estey, although he insists those discussions didn’t constitute an offer to buy the company. He said that when Kelley and Falcone returned from the Montana trip, they reported to him that Estey believed his company was worth seven times EBITDA, a figure he believed was too high. Interest in a potential purchase waned at that point, he said.

But Johnson says Falcone, in a chance meeting recently with Nevada Restaurant Services Inc. Chief Operating Officer Mike Eide, mentioned the offer in conversation.

The very idea of Station being interested in Dotty’s seems odd, given Station’s antipathy for the Dotty’s business model. Cavallero said Station would have “brought Dotty’s into compliance” had a purchase been made, transforming the kitschy bars until they more closely resembled taverns.

Even so, a Station-owned Dotty’s chain would seemingly still represent everything Station currently abjures: Ubiquitous, less costly slot outlets that ostensibly take business from larger, more expensive casinos. (That last point is heavily disputed by Dotty’s, which says it caters to a totally different customer base that would not regularly visit a casino.)

The dispute calls to mind the debate over Indian casinos in California in the past decade, when Nevada gambling interests fought gambling, at least until Las Vegas companies (including Station) negotiated deals to help run them. Or industry neutrality on Internet gambling legislation until a pathway to profits was clear. The plan seems to involve fighting competition through the legislative or political process, until such time as Las Vegas companies can get their share of the pie.

Notably, after the alleged Station offer was rejected in 2013, lobbyists for the Nevada Resort Association pushed for bills in the 2013 Legislature that imposed new rules on restricted gambling license holders. And the NRA is currently lobbying local governments on rules that could pose additional problems for Dotty’s.

Steve Sebelius is a Las Vegas Review-Journal political columnist who blogs at SlashPolitics.com. Follow him on Twitter (@SteveSebelius) or reach him at 702-387-5276 or ssebelius@reviewjournal.com.