It has been nearly two decades since Paul Lowden was a musician and bandleader in the casino showrooms, but he is definitely doing all right with his two casino-hotels, the historic Sahara and the not-very-historic Hacienda, which anchor both ends of the Strip.
And it is a far cry from 1982, when Lowden leveraged his assets to the hilt to buy the Sahara and play in the big leagues of casino ownership. With its staggering interest costs, the sprawling resort ran in the red for the first four years.
Now the place is suddenly mortgage-free, and Lowden says he feels "almost naked" to be so unencumbered.
With some fancy footwork on Wall Street last summer, Lowden paid off the Sahara debt and is adding a 575-room, 26-story hotel tower and a face lift for the faded casino and its two existing towers. The addition will increase the Sahara's size to the "magic" 1,500-room level, which would put it in the realm of the leading Strip hotels and generate more lucrative traffic for its casino.
The big change has been made possible with the $63-million proceeds of a securities offering last summer that was a first in the gambling industry: a publicly traded limited partnership called Sahara Casino Partners.
The soft-spoken entrepreneur, a father of two grown children who is still baby-faced at 44 and whose present wife is a local television news anchor, has had a role in some major casino history and agrees that metaphorically he "dodged a bullet" more than once along the road to his present level of prosperity.
Notably, he was a minority owner with associates who later were engulfed in two major scandals involving the skimming of untaxed gambling revenue on behalf of Mafia families in the Midwest. Casino licenses were revoked or surrendered by owners of the Stardust, Fremont and Tropicana hotel-casinos in 1979, and federal authorities obtained convictions and long prison terms against a number of mobsters accused of the skimming.
Nevertheless, Lowden managed to distance himself from those situations in time to avoid being irretrievably tainted.
Some marvel at his luck, but Lowden says there was a lot more to it. According to this born-again Christian, he saw trouble coming and deliberately chose paths that were against his financial interests at the time but proved not to be in the long run.
Those troubled times were not even on the horizon when he went to Las Vegas with $7,500 savings as a teen-age musician in the early 1960s, he says.
After joining a band that played at a Reno casino in 1961, Lowden started playing the keyboards in Las Vegas lounges. One of his earliest gigs, he recalls, was in the Fremont's Carnival Lounge, where a young Wayne Newton and his brother were performing.
Although Lowden's only training was in music--he once was accompanist to singer Ann-Margret--it turned out that he had a good head for business, and he developed a knack for successfully investing in the stock market. He recalls playing the organ with a copy of the Wall Street Journal next to him so he could study the market.
Haven for Small Bettors
Lowden credits his investments for a major assist in getting a toehold in casino ownership, along with the fact that he was earning good money, especially after becoming musical director at the Flamingo around 1970.
In 1972, Lowden was able to come up with $250,000--half of it from the Valley Bank of Nevada in Las Vegas--to buy a 15% interest in the Hacienda, where he also became entertainment director.
The Hacienda--once rather shabby but later upgraded considerably--was at the south end of the Strip, far from the nearest casino. Unlike the major establishments farther north, the Hacienda had a reputation as the stomping ground for a type of small bettor sometimes derided by locals as the Greyhound Bus set.
Lowden had recruited several local partners--a lawyer, a small casino operator and a dentist--to buy the Hacienda from the estate of the late Judith Bayley.
Lowden says one of his partners, in turn, recruited a young San Diego land developer, Allen R. Glick, who later admitted that, as the sole owner of the Stardust and Fremont hotel-casinos, he acted as a front for the underworld.
In a recent interview at his Sahara office, Lowden displayed a copy of a carefully preserved credit report on Glick from 1972.
"We did as much due diligence as we knew how to do in those days," he commented, pointing to the report's conclusion on Glick: "No suits, no judgments, no derogs (derogatory information)."
In 1975, Lowden also became a part owner of the Tropicana. In mid-1976, about two years before scandal hit the major owners there, however, he walked away. He says he didn't even wait to be paid off on $500,000 he invested there.
According to Lowden, he left because of the influence of the late Joseph Agosto over the operation. Agosto subsequently was a key figure in the Mafia skimming scandal uncovered at the Tropicana by federal agents who intercepted conversations of Kansas City crime figures. (Agosto later pleaded guilty to skimming and was the principal government witness in a trial in which underworld figures and several casino employees were convicted in the same case.)
Got $250,000 Back
Lowden says he departed the Tropicana in mid-1976 after Mitzi Stauffer Briggs, one of the major owners with Deil Gustafson, declined to buy him out. He says he told Briggs at the time: "My license means more to me than the money; pay me when you can."
In the recent interview, Lowden said: "You make your choices. It was a lot of money to me then. It's a lot of money to me now. It was half a million. Is your license worth more than a half million dollars? I said, 'No matter what happens, I'm not going to stay in this place.' "
(It wasn't until 1979, after the state forced the owners out, that Lowden got back $250,000 of his investment. His claim for the rest, he says, is still tied up in a long-running lawsuit.)
Meanwhile, in mid-1976, a storm that had been gathering over the Glick-controlled casinos--including the Hacienda--broke with a discovery by state investigators that about $7 million had been skimmed from the casinos' slot machines since 1974.
In 1977, Lowden managed to put together a $22-million buyout of Glick and the other minority owners. Most of the purchase price, he says, was provided by Valley Bank in Las Vegas on a first mortgage and First American National Bank of Nashville, Tenn., on a second mortgage.
But there remained another obstacle. The state Gaming Control Board recommended against allowing Lowden to take control of the Hacienda because of his past associations. However, the Nevada Gaming Commission overrode that recommendation, giving Lowden his new license, and he was free of the Glick connection.
In 1978, federal agencies disclosed the wiretap evidence that was to be the foundation for the criminal skimming cases involving the Tropicana as well as Glick's casinos.
Nevada later revoked Glick's casino license on grounds that he failed to prevent large-scale skimming, and the Tropicana's majority owners surrendered their licenses to settle disciplinary proceedings.
Glick himself later testified in a skimming trial as a key government witness, reiterating what the prosecutors had told the jury in opening statements--that he was a terrified victim of the mob figures who influenced the Teamsters Union leadership to finance his purchase of the Stardust and Freemont.
Witness Before Grand Juries
There came a time when Lowden considered buying the Stardust and Fremont himself, he recalls. But he says he decided not to take it on because the mortgages were still held by the mob-tainted Teamsters Central States Pension Fund and because his investment banker, E. F. Hutton, advised him that the firm could not take on the financing arrangements because "the stigma is too great for us to overcome." That was in 1978, and the owners who succeeded Glick were forced to surrender their license in 1984 because of yet another skimming investigation.
As for Glick, Lowden notes that he was a witness before two federal grand juries investigating skimming during Glick's ownership. Lowden says he expected to be called as a witness in the 1985 criminal trial of the underworld figures and still finds it "strange" that he was never put on the stand.
Noting that the federal prosecutor painted Glick to the jury as a victim, Lowden said: "Then I read what the government said about Allen Glick, which was in conflict with a lot of areas (about) which I testified," Lowden said. "The guy went into it with his eyes open, there's no question about that. That's what I said (to the grand juries)."
"You are given choices, and you can make the right choice or the wrong choice," Lowden philosophizes. "In my opinion, Allen Glick made the wrong choice."
Lowden adds that he made a conscious choice not to go into the Stardust with Glick originally, saying: "If Allen Glick was going to be involved with the Teamsters Central States Pension Fund, I wanted nothing to do with it."
Whatever the degree of foresight that may be credited to him in these matters, there is no question that Lowden also has thrived by being tuned in to Realpolitik, Nevada-style.
For instance, he has had the longtime assistance of William Raggio, who has considerable clout as Republican majority leader in the state Senate. Raggio, a Reno lawyer who has served Lowden as corporate counsel since 1977 at the Hacienda and then the Sahara, has been an officer and director of Lowden's operation since 1982.
Rare Knack for Finance
And throughout his career, Lowden has benefited hugely from banking connections that were the envy of some of his competitors. Importantly, he has had the backing of Valley Bank, whose longtime head, E. Parry Thomas, has been one of the top powers of the casino industry.
Along the way, Lowden got the Sahara a $25-million loan from the state Public Employees Retirement System, which had previously made only one casino loan. And Lowden knew how to get help on Wall Street for his public offerings.
Lowden appears to have a familiarity with finance that is rare among casino executives who have not had more formal business training.
Among his accomplishments before acquiring the Sahara was the building of a $25-million portfolio of time-share sales contracts for rooms at the Hacienda and the Imperial Hotel in Hawaii. Backed by mortgages, these contracts have provided collateral to finance other operations through the years. "It probably was our main business," Lowden notes.
Since putting the hotel-casinos into a limited partnership, however, Lowden sold the time-share portfolio to focus on the main business.
The Sahara obviously is the center of Lowden's attention these days. Last month, the partnership sold an 8.8% interest that he had accumulated in Showboat, which owns casinos in both Atlantic City, N.J., and Las Vegas. Lowden says the stock was sold to Showboat at Sahara's net cost ("We weren't interested in greenmail"). The reason is that Showboat did not seem interested in a friendly takeover and Sahara had too much on its plate to think of a hostile one.
Lowden acquired the Sahara six years ago from Del E. Webb Corp., which built it in 1952 for Milton Prell and then bought the resort nine years later. The Sahara had the first high-rise hotel facility on the Strip, and its showroom featured such entertainers as Jack Benny, George Burns and Don Rickles.
Proud of Renovation
Although showing age, the hotel still retains a handsome appearance, and Lowden says it has maintained a 94% occupancy rate during the past two years.
Construction work under way includes gutting and remodeling 600 rooms in the two high-rise hotel buildings and a spate of casino changes that include a greatly enlarged gambling area, a new horse racing and sports betting area, a fancy marble entrance, two new restaurants and even a resurrection the Casbar lounge, a spot that once was known for its lively entertainers.
In line with the hotel's concentration on convention business, which accounts for almost one-third of its customers, Lowden proudly shows off its huge convention area and the work in progress to add 15,000 square feet more of meeting space--including even a special lecture hall of the type used in universities.
Seeking to expand the Sahara and with aid from brokerage giant E. F. Hutton, Lowden zeroed in on a way to get needed capital from public investors: a master limited partnership. The lure of this financing vehicle is that each purchaser of a partnership unit gets a stake in the two casinos, a guaranteed minimum yield on his investment and significant tax breaks.
Sahara Casino Partners got under the wire before federal tax law changes last December eliminated advantages for new limited partnerships that are not in rental real estate or certain types of oil and gas ventures.
"We were very fortunate," says Lowden, "to get ours out (into the stock market) and be grandfathered in (under the old tax provisions)."
Limited partnerships generally have come in for criticism because of the large fees collected by their general partners.
Advantages of Partnership
"In the early days, the (master limited partnerships) got away with an awful lot," Lowden commented. "But I think ours was structured very nicely, and the rate of return is a pretty fair one--if not overly fair."
Sahara Casino Partners has been trading on the New York Stock Exchange since last July 23, with 37% of the ownership in public hands. Sahara Resorts, a publicly traded corporation in which Lowden has a 73% controlling interest, owns the rest of the partnership units.
The $63-million Sahara Casino Partners offering at $9 per unit was snapped up last July; in fact, it was oversubscribed. Lowden attributes this to the advantages that his deal offered to the public investors.
Among them is a guaranteed cash distribution of at least $1.12 per unit, paid in quarterly installments, with the opportunity to get more in so-called excess distributions. The $1.12 provides a yield of 12.44% on the unit price.
Lowden's group subordinated its share of distributions until the minimum distribution was made to public investors. This arrangement applies for the first five years of operations.
Excess distributions are to be divided 50-50 until public investors receive an additional 5 cents per unit, after which the split is to be 75% to the general partners and 25% to the limited partners.
"We chose to sit and wait for our money," Lowden says. "We thought it was a helpful sales tool."
Looking at Atlantic City
So far, the partnership has been reporting steady earnings. Last month, it made its first full quarterly cash distribution of 28 cents per unit to the limited partners and had some left over for the general partners.
Despite having dipped as low as $5.75 after the Oct. 19 market crash, Sahara Casino Partners has bounced back to trade on the Big Board at above $8, compared to the $9 original price.
Although he has had no problems since buying out Glick in 1977, Lowden says he has prepared himself to face "all those Tropicana and Glick questions" in the event he should ever try the waters of Atlantic City. He has hired politically savvy New Jersey lawyers and, at a cost of $100,000, has had two different law firms there go through mock licensing investigations of him.
The opportunity to use the practice just might arise. Lowden says he is "not permanently bearish" on Atlantic City, adding: "If you're in the business and are public, probably you owe it to the shareholders to be there at some point."