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Local Las Vegas establishment, Sunset Station, is suing the city of Henderson over the approval by the city of a competitor’s license and operating permit. The suit was filed in the Clark County District Court last week against Henderson and owner of the Roadhouse Casino Robert McMackin and Marengo, Inc.

The Roadhouse

The competing casino, the Roadhouse, closed down years ago. However, they open one day each year to remain current on its Nevada nonrestricted gaming license. The latest approval was earlier this year to open for one day with 17 slot machines. In order to keep a gaming nonrestricted license in Nevada you must also have at least 16 slot machines in house. Current nonrestricted applicants must also have a hotel, but the Roadhouse is grandfathered in.

The Legal Battle

Sunset Station and its sister casinos, Boulder Station and Fiesta Henderson, have been fighting a legal battle against the Roadhouse as they are planning to operate with a nonrestricted license without having a hotel. Their argument does not challenge the license held by the Roadhouse, instead they are after the city license.

A representative at McMackin announced plans of reopening the Roadhouse and acquired approval for rehabilitating the property. However, there have been no building permits issued yet.

The Facts

On September 21^st, attorneys from Sunset Station attempted to revive conditional right usage that the company used to have under a 1988 permit. Furthermore they argue that McMackin received approval in 1992 to expand the Roadhouse, something the company never fully did. Also that the Roadhouse never operated at the standard set by the city.

Moreover, they argue the McMackin has received several extensions for use of the conditional permit and was finally denied on August 1^st, 2006. The 1988 permit did not require a resort hotel but now does so Sunset Station feels the permit should be updated to current standards. Also, it was acknowledged by McMackin that all regular rights of the conditional use permit would be removed as of the denial in 2006 but the city continued to allow them to operate in such a manner.

Given the facts reported by the Sunset Station attorneys, it looks as if they have a good case. Although only opening once per year for a small crowd, if they reopen full time, this could create unnecessary competition by a casino that is not following the current city codes and guidelines.

The long-standing Riviera Hotel and Casino filed for Chapter 11 bankruptcy this past Monday; a sad day in the Las Vegas casino community. However the Starwood Capital Group is contributing to the takeover of both the Las Vegas and Colorado locations. The Riviera stated that more than two-thirds of its $270 million worth of debt has been supported by holders with the primary debt holder being Starwood Capital.

Barry Sternlicht

Starwood Capital is headed by Barry Sternlicht, a hotel industry giant. During the late 1990’s he ran the Caesars World. He is also well known for expanding the Heavenly Bed at Westin Hotels. Up to this point he hasn’t commented on this progressive takeover. He is also well known in the real estate industry as being an entrepreneurial real estate investor. Recently, Barry raised $3 billion in two years for investment in loan portfolio Corus Bancshares.

Terms of the Deal

Starwood Capital and other investors completed a deal with Riviera Holdings to exchange their debt for controlling equity stake in the company. Also they will provide $10 to $30 million in financing to the Riviera. Other terms of the deal were that $220 million of the debt will be paid back leaving only around $50 million.

The Future

There are plans to continue to operate as the bankruptcy filing has had little effect on the Riviera’s operations. Their plans are to restructure its indebtedness and allow for new investment into the company. The hope is to emerge in a much improved financial situation with a stronger operational advantage.

Unfortunately stockholders will receive no return on investment. The Riviera foresees little recovery for equity holders. This filing will provide the Riviera properties with a viable capital structure and additional financing to expand. Since both Riviera Holding properties are continuing to show a positive cash flow, the money will be used to           pay operating costs in a timely manner and fund maintenance expenditures.

Reasons for the Filing

The primary reason for filing Chapter 11 is the economy. The Riviera lost $4.5 million in the first quarter of 2010. The company has been hurt by declines in trade show and convention attendance and the establishment’s isolated location.

The Riviera appears to have a strong rebound plan. With proper money management, a rise in the global economy and clever marketing techniques, they may be able to return to their old profitable ways.