By Howard Stutz

STATELINE – Mont Bleu, a resort that has gone by three names and had five owners in 41 years, is playing a central role in the future of the South Lake Tahoe gaming market.

Eldorado Resorts CEO Thomas Reeg said the Reno-based company will need to sell at least one of the three casinos it will own in Tahoe once a $17.3 billion merger/buyout of Caesars Entertainment is completed early next year.

Las Vegas-based Caesars owns the market’s two dominant properties, Harvey’s Resort and Harrah’s Tahoe, which are connected via a pedestrian tunnel underneath Highway 50. Eldorado controls Mont Bleu, which the company acquired last year as part of its $1.8 billion purchase of Carl Icahn’s Tropicana Entertainment.

South Tahoe has two other casino-resorts; privately held Lakeside and Hard Rock Lake Tahoe, which is owned by Las Vegas-based Paragon Gaming.

On paper, the combination of Eldorado and Caesars covers roughly 60 gaming properties in 18 states, including 18 casinos in Nevada. The merger is full of potential antitrust violations in several jurisdictions.

Reeg mentioned the community on the company’s third quarter earnings conference call in November. He said “Northwest Louisiana and in the Tahoe area” are “markets where you should expect us to be active” in terms of a casino sale prior to the deal closing.

Most gaming observers believe the nearly 500-room Mont Bleu, which borders a portion of the Heavenly ski resort at the corner of Highway 50 and Lake Parkway, is on the market once again. Analysts, however, won’t say a deal for the property is all but certain.

“It’s pretty clear that management wants (the Caesars merger) to get closed as soon as possible and is willing and ready to dispose of any assets that need to be removed,” Stifel Financial gaming analyst Steven Wieczynski told investors following the earnings call.

Eldorado owns the operations of Mont Bleu. The land and buildings are leased from Edgewood Companies, which also owns Edgewood Golf Course. Eldorado entered into a 15-year lease for the property with renewals of up to 20 years.

SunTrust Bank gaming analyst Barry Jonas said in an interview that South Lake Tahoe is small in terms of gaming numbers. South Tahoe reported $66.1 million in gaming revenue in 2018, compared to the Las Vegas Strip - $6.5 billion - and Reno - $636.9 million.

“Investors don’t really focus on the area materially,” Jonas said

Tahoe gaming and tourism officials hope they can change that view.

Mont Bleu is providing its northern parking lot for construction of an events and conference center community leaders believe helps the market become less dependent on gaming revenues, which have diminished because of Northern California’s Indian casinos.

Carol Chaplin, CEO of the Lake Tahoe Visitors Authority, said South Lake Tahoe’s casino business has softened since California tribes entered the gaming business. Tahoe needs a different reason for visitors to come back. Space inside the conference and events center has been designed to include meetings and conferences of various sizes with ability to seat 6,000 for concerts, 4,500 for sporting events and 2,000 for large banquets.

“We’re not a gaming destination right now and the conference center also allows us to reinvent our economic base and drive mid-week business to the market year-round,” Chaplin said. “We’re not competing with Reno. This is not a large center, but it’s the right size.”

Changing market

South Lake Tahoe’s casino market peaked in 2000, when the region collected $141 million in pre-tax gaming revenues. The next year, revenue fell 16 percent mostly because of tribal gaming. South Tahoe continued a gaming revenue slide that saw declines in eight out of the next 15 years, including dips of 11 percent in 2008, 23 percent in 2009, and 11 percent in 2010.

Gaming Control Board Senior Research Analyst Michael Lawton said the declines were “due to Indian gaming and of course the Great Recession.” In addition to the five casinos, the area referred to as the “South Shore” has three additional reporting properties, including a Dotty’s slot parlor located on Highway 50 next to Harrah’s.

Through November, gaming revenues are down 3.3 percent compared to 2018, which saw the market collect almost $66.2 million in gaming revenue – less than half of what Tahoe produced nearly two decades earlier.

Neither Caesars nor Eldorado report individual casino totals from its Tahoe properties on the company’s quarterly earnings statements. Caesars breaks out financial results from its nine Las Vegas casinos and includes Tahoe in the “Other U.S.” category. Eldorado includes Mont Bleu in the company’s West Region, which includes the company’s three casinos in Reno, Tropicana Laughlin and two casinos in Black Hawk, Colorado.

One gaming insider suggested Caesars’ Harvey’s-Harrah’s combination “already has the monopoly” on the Lake Tahoe market, which is a reason Mont Bleu is being shopped.

“We believe Eldorado remains comfortable with its ability to dispose of single assets in Tahoe and Shreveport (Louisiana), at multiples that promote financial deleverage,” Deutsche Bank gaming analyst Carlo Santarelli said in November.

Eldorado said it will achieve cost savings of $500 million in the first year following the merger.

Changes to the Tahoe landscape

Eldorado has made a few cosmetic changes to Mont Bleu since acquiring the resort. The company is more focused on adding amenities to its three Reno properties, Eldorado, Silver Legacy and Circus Circus, which is referred to as “The Row.”

Caesars has focused efforts on room renovations and facility enhancements in Las Vegas.

Paragon acquired 68 percent interest Hard Rock Lake Tahoe in November 2016 and franchised the name from Florida’s Seminole Indian Tribe. The property, known over the years as Sahara Tahoe, High Sierra Resort and Lake Tahoe Horizon, is flourishing, said CEO Scott Menke. He said the company upgraded the 25,000-square-foot casino and 539 hotel rooms that offer views of either Lake Tahoe or the Heavenly ski runs.

Hard Rock is a short walk to the conference center site that he termed a “game changer” for the Lake Tahoe.

“The town has nothing like it, and you have to be prepared 365 days a year,” Menke said. “To be able to accommodate special events and conferences makes us a true destination. It adds to everything else the market has to offer.”

The Legislature approved the funding mechanism for the project, which allows the visitors bureau to impose a $5 per night room tax on all hotel, motel, and short-term vacation rentals in the Tahoe Township. The tax, which kicked in July 1, is expected to raise $91 million to pay off the construction bonds.

Casinos in Stateline backed the legislative effort and Mont Bleu is providing the land.

Chaplin said additional approvals are needed from the Tahoe Regional Planning Authority. She hopes construction will begin in May with an 18-month building timeline. A project manager has been hired for the development.

“It’s nice amenity that will not only drive visitation, but also provide jobs,” Chaplin said.

She is hopeful the center will help attract non-gaming businesses to Tahoe. In the most recent Gaming Abstract covering fiscal 2018, South Tahoe collected 54 percent of its revenues from gaming. In major Nevada gaming areas, non-gaming revenues move the needle. Statewide in fiscal 2018, resorts received 57.2 percent of their revenues from hotels, restaurants, retail and entertainment. In Las Vegas, the non-gaming revenue figure was 66 percent.

“We need to become destination (market),” Chaplin said.

The California side of Highway 50 is what she would like the Nevada side to copy.

In 2012, Vail Resorts management acquired the company that owned Heavenly and two other ski areas for $18 million. The ski resort was upgraded, and the changes led to an investment that included retail, restaurants, improved lodging, and a pedestrian mall.

“It used to be kind of dumpy, but now it looks nice and it’s one of the best things about the area,” said former Harrah’s Entertainment CEO Phil Satre, who was in charge of the company when it purchased Harvey’s in 2000.

“When I started, Lake Tahoe was really rocking,” Satre said. At the time, the company owned just Harrah’s Tahoe. “The recession and Indian gaming took its toll on the market. I’d love to see Tahoe take off again.”

Hard Rock picked up on the pedestrian mall idea and created Guitar Plaza at the property’s front entrance. The space is adjacent to a tavern, is marked by a giant guitar and offers outdoor seating and dining, as well as live and pre recorded music. The patio is the only outside event space in the South Tahoe corridor.

Mont Bleu rival?

Menke and other business leaders want to see how the Eldorado-Caesars deal influences South Tahoe.

Eldorado has been in an acquisition mode since 2014, when the company acquired West Virginia-based MTR Gaming. Subsequent deals for its Reno casinos, Isle of Capri Resorts, an Illinois riverboat and Tropicana Entertainment, created a regional casino giant ahead of the Caesars announcement in June.

Menke became associated with the Carano family, founders of Eldorado, when he was with Circus Circus. The companies co-developed Silver Legacy.

“It seems like they have been in transition for the past year,” Menke said. “They are taking on a gargantuan transformation of their company.”

Park Cattle Co. opened Mont Bleu in 1978 as Park Tahoe. It was acquired by Caesars World a year later and renamed Caesars Tahoe. A $40 million investment completed the hotel. The resort was managed as a smaller version of Caesars Palace in Las Vegas.

When Caesars was acquired in a $9 billion merger with Harrah’s Entertainment, Caesars Tahoe was sold for $45 million to Columbia Sussex in 2005 to avoid federal antitrust scrutiny. The property was renamed Mont Bleu a year later. Icahn acquired the property in 2010 when Columbia Sussex went bankrupt and it became part of Tropicana Entertainment.

Eldorado has been paring down properties in certain markets so the Caesars merger can meet Federal Trade Commission approval. The company sold two Missouri casinos and a West Virginia racetrack this month and has a deal to sell a Kansas City casino and Mississippi property.

Most expect Mont Bleu to join that list.

“Tahoe is a great market and it continues to change,” Menke said. “There is a lot of opportunity.”

Howard Stutz is a freelance gaming reporter for The Nevada Independent and the Executive Editor of CDC Gaming Reports. He has been a Nevada journalist for 30 years. He can be reached at [email protected]. On Twitter: @howardstutz