The house always wins: Don Barden rolled the dice when he anted up millions for a Las Vegas casino. It turned out to be a sure bet – B.E. Company Of The Year – Barden Companies Inc
Sounds of electronic bells, buzzes, pings, and zaps fill the air as Don H. Barden strides along the Fitzgeralds’ casino floor. The cacophony is music to his ears as he surveys his surroundings, packed with guests–something Barden likes to see.
Amid row after row of slot machines promising the luck of the Irish and brilliant flashing lights that create an almost kaleidoscopic effect, he encounters a manager and gets an update on casino activity before moving on.
“I hope I can get to the driving range before I have to fly out of here,” Barden says as he lights a stogie. His tone, however, suggests he knows he’ll be far too busy to tee off. Barden has business to take care of. He’s just emerged from a planning meeting in one of the Las Vegas hotel-casino’s conference rooms, discussing expansion for the company’s Black Hawk, Colorado, operation with engineers and city officials. The proposed project will take 22 months to complete–at an estimated cost of $11 million–and includes expanding the 18,000 square-foot casino by an additional 12,800 square feet, and possibly building a 300-room hotel and 50,000-square-foot convention center (the property currently offers no lodging or convention areas). When completed, Barden expects these expansions to result in a 20% revenue growth at Fitz Black Hawk.
Over the past three decades, Barden has built a multimillion-dollar real estate portfolio, a cable business that ranked among the nation’s largest black-owned businesses, and, more recently, created a gaming powerhouse. Barden is the first and only African American to own a casino in the gaming capital of America: Las Vegas. This puts him in three of the top five U.S. markets–he owns establishments in Tunica, Mississippi, and Gary, Indiana. The strength of these operations earned Barden Companies Inc. (No. 6 on the BE INDUSTRIAL /SERVICE 100 list with $347 million in sales) a 6.44% increase in sales despite a brutal business climate in which established firms, as well as upstart companies, have been decimated. Because of its solid financial performance and ground-breaking thrust, Barden Companies has been selected the 2003 BE Company of the Year.
Growth is the name of the game for Barden, and last year it was partly achieved thanks to the inherent economic resiliency of the gaming industry–even when times are tough, consumers will spend money to be entertained. Though gaming’s overall growth has slowed somewhat post Sept. 11, the local markets (basically anywhere in the U.S. that allows gambling outside of Atlantic City and Las Vegas) have been holding steady as casino-goers, jittery about flying, simply drive to nearby locations. “During difficult and not-so-difficult times, people like to be entertained,” maintains Robert R. Russell, a senior gaming analyst for Fraser Trebilcock Davis & Dunlap P.C., a Detroit-based firm that specializes in gaming law.
This virtually recession-proof industry has encouraged several states to consider legalizing gambling as a means of eliminating budget shortfalls. These moves will further stoke the industry’s growth potential. Currently, commercial casino gaming is authorized in 11 states.
Consumer spending on commercial casino gaming in 2001 (the latest figures available, which don’t include Native American operations) totaled $25.7 billion, compared with $24.3 billion in 2000 and $22.2 billion in 1999. “So we’ve seen a dramatic growth in the industry and a lot of that has to do with the proliferation of gaming, which is going to continue,” Russell predicts.
Barden is fully prepared to cash in on that growth. He sees his decision to expand and renovate his operations as a wise investment. Already, he’s experiencing a greater rate of growth in 2003 than in previous years. “So far this year, we’re trending upwards toward double-digit growth, so we want to be able to absorb that growth,” he says, noting that his properties must expand to handle the demand. “Essentially, we’re turning away people on weekends [at the Black Hawk location] because of capacity.”
These moves are also evident at the flagship 34-story, 638-room Las Vegas property where about $2.5 million worth of improvements have been made. “The vision that I have for this property is what I call positioning,” explains Mike Darley, vice president and general manager of the Las Vegas casino. “We could lay back and not do anything with this property, but what we’re trying to do is build the skill set of our employees, the morale, and the physical property so that when the economy turns around, we’re positioned to take advantage of [it].”
Not only is Barden Companies upping the ante to meet the market’s demand, but it’s also looking at ways to ensure continued interest with stepped-up marketing efforts, including a campaign targeted at African American consumers. “A lot of people don’t know my casinos are African American-owned,” asserts Barden, who intends to spend at least $1 million on the effort. “I want to change that. The plan is to initiate an advertising campaign in local and national black publications as well as market directly to African American organizations, such as fraternities, sororities, or professional groups.”
It also makes good business sense since African Americans spent some $30.5 billion in travel and represented about 9% of the 35 million visitors to Las Vegas in 2001. And Barden will be the beneficiary since 95% of his company’s revenues are derived from gaming. The remaining revenues are generated by real estate development and Namibia-based operations that retrofit American-made vehicles from left- to right-hand drive for sale in that African country. The Namibian business grossed roughly $12 million in 2002.
Like the casino-goers who frequent his establishments, this CEO is not afraid to let it ride–but he always takes a calculated risk. In 1986, Barden began the task of wiring Detroit for cable, concentrating his efforts in less affluent neighborhoods at a time when other cable operators believed the risk too high, and that residents would have trouble paying monthly bills. Barden Cablevision would prove them wrong and boast some 120,000 subscribers. The enterprise became successful enough to make Barden Communications Inc. the nation’s fifth largest black-owned business, with gross sales of $91.2 million, earning it the 1992 BE Company of the Year award.
Barden rolled the dice again in 1993 when he decided to explore the casino business after Indiana approved the operation of riverboat casinos. “I thought this would be a way to expand my business and increase my standing in BLACK ENTERPRISE,” Barden quips. “I liked the business, and it involves real estate development, a hotel component, which was something I knew about.”
He then hired an engineer and struck a deal with St. Louis-based President Riverboat Casinos, the nation’s largest riverboat gaming company at the time. In the 50-50 partnership, President Riverboat would put up the necessary capital, while Barden Companies would handle all real estate development and securing of necessary licenses. President Riverboat, however, ran into rough times and was unable to come up with its half of the money to develop the casino and pay for slot machines and tables. But Lady Luck smiled on Barden when an opportunity arose to sell his cable business. He sold the cable operations in 1994 to Philadelphia-based Comcast, one of the country’s largest cable operators, to the tune of $300 million. All told, Barden cleared some $110 million. By the following year, he would bid on and win the Gary, Indiana, contract, completing his transition to casino operator, with the opening in June 1996 of the riverboat casino, Majestic Star.
Though Barden generally parlays his ventures into a winning hand, he has rolled snake eyes on occasion. After a 1997 proposal to build a casino in his hometown of Detroit was rejected, Barden returned the next year with a partner–pop icon Michael Jackson. The pair planned to build a billion-dollar theme park and hotel casino on the city’s riverfront. Unfortunately, the city’s voters shot down the proposal in August 1998.
When the Lac Vieux Desert Band of Lake Superior Chippewa Indians claimed the 1997 bidding process was unconstitutional and sought to have it reopened, Barden partnered with the tribe to co-bid on a permit. The bids had been awarded to the operators of the MotorCity, MGM Grand Detroit, and Greektown casinos. The tribe convinced the appeals court that the selection process was unconstitutional, and the appeals court sent the case back to a federal judge for reconsideration. In August 2002, the Detroit City Council approved the three permanent casino agreements negotiated by Mayor Kwame Kilpatrick, hoping to have construction completed in time for the 2006 Super Bowl hosted by Detroit. But litigation ensued. In September 2002, the 6th U.S. Circuit Court of Appeals told the city of Detroit it couldn’t issue any building permits for permanent gambling parlors until the high court reviews the lawsuit–postponing any planned construction or permanent gaming in the city.
Now, Barden continues to wait on the sidelines hoping the casinos will be re-bid so he can get another shot at ownership–something he was denied under former Detroit Mayor Dennis Archer, the public official he fought in a much-publicized battle. “If the court rules an order to re-bid, then I’ll be in a very strong position to bid and win one of the licenses,” he says with optimism.
The reaction of the city’s African American population and business community to Barden’s denial of a gaming license was one of disappointment. “A lot of folks here felt that Don should have been awarded one of the casinos,” says Dave Bing, CEO of Detroit-based The Bing Group (No. 7 on the BE INDUSTIAL/SERVICE 100 list with $344 million in sales). “It didn’t happen, and he moved on. [He] has done different things in terms of growing his casino business but it’s not in the city of Detroit. I know that’s where he really wanted to be. If the opportunity presents itself [for him] to get involved here locally, I’m sure he’ll jump on it and he’ll get a lot of support.”
Perhaps the biggest risk of Barden’s career was in 2001 when he anted up $149 million–$14 million of his own money–to acquire three Fitzgeralds casinos that had been operating out of bankruptcy. The properties were profitable, but were dragged into insolvency because of the inability of the former owners to make interest payments on its bond debt. The former Fitzgeralds owners were forced to file for Chapter 11 bankruptcy in U.S. District Court in Nevada on Dec. 5, 2000.
In March 2001, Barden placed the bid for the three properties at the bankruptcy court. To fund the acquisition and its transition costs, he raised nearly $150 million in a high-yield bond offering after a 10-day tour visiting 40 institutional investors in a dozen cities. He used three key selling points to open investors’ wallets: In the Midwestern market, Majestic Star casino has a successful track record competing with national casino firms; the three Fitzgeralds casinos are profitable and have excellent growth prospects; and the casinos are being bought at a discount at four and a half times cash flow.
As Barden was nearing completion of the deal, the horrific events of Sept. 11 took place. Aside from the terrible loss of life, it was apparent that the tourism industry would suffer greatly–including the Las Vegas market. But Barden was hedging his bets with the Fitzgeralds properties in Mississippi and Colorado, which attracted a strong local following and weren’t impacted by consumers with flying jitters. “We knew there would be a negative impact on Las Vegas, but that was more than offset by the positive impact on the other two Fitzgeralds properties.”
By December 2002, Barden would take possession of the casino and achieve what no other African American has to date–own a Las Vegas casino.
Barden was far from done, however. Also in 2002, he formed Barden Entertainment and Barden Technologies divisions to market consumer products–the first of which is a video jukebox he plans to roll out this year. “I partnered with some bright guys who brought this development to me,” explains Barden. After examining their technology and conducting the due diligence, Barden & Co. determined that there’s a sizeable market for the video jukebox, which stores up to 3,000 digital-quality music videos on a computer hard drive and operates through a touch-screen monitor. “We’ll have several hundred of these [jukeboxes] in place by the end of this year and then several thousand [in the future].” Barden Entertainment holds a controlling interest in the partnership, which he projects will gross $100 million annually by 2006.
Barden would not disclose manufacturing costs for the jukebox–because of the proprietary nature of the technology–but said the machines would be placed in Barden Companies’ properties as well as bars and restaurants at close to a 50-50 revenue-sharing basis. “It doesn’t cost the location anything and they get to share in a percentage of what the jukebox generates,” Barden says. “In addition to that, we’ll be selling advertising on the screen between videos.”
Barden is part of an elite group of serial entrepreneurs who have built successful business empires in disparate industries, ranking them among the BE 100s CEOs of two separate enterprises. Another prominent member of this group is Robert L. Johnson, whose BLJ Development L.L.C. (with $49.4 million in gross sales) ranked among the largest African American-owned businesses in the United States.
Though Barden’s core business has shifted from real estate to cable, to gaming, these industries share a common thread. “The underlying concept is that I like to be in businesses that make money while I sleep,” Barden explains with a grin. “Real estate makes money while you sleep because you get a rent check every month, and it’s an asset that does not require my time in order to get compensated. The same holds true for cable television and casinos.” The industries are also attractive from a cash-flow basis, the entrepreneur says, with cash exceeding operating costs by as much as 20%-25%. This increases profits and leaves more funds available to service debt and pay for capital expenditures.
Barden doesn’t expect to make any dramatic business transitions in the future, but rather intends to leverage his existing businesses to develop new products and services. “At this juncture in my career, I don’t imagine that I’ll have an interest in pursuing something that’s a material departure from my current businesses,” Barden says. “As long as it’s related [to existing businesses], and I can easily integrate it, then it would be an attraction to me–whether something to do with our casinos like concerts or boxing.”
Barden is also becoming more active on the political front. He was recently appointed vice chairman of finance for the presidential campaign of Rep. Richard Gephardt (DMo.). His responsibilities will focus on wooing contributions from businesses and individuals–particularly in areas where he’s well connected, such as Las Vegas and Detroit. “I’ve known congressman Gephardt for several years. I like him. I like what he stands for. I like his focus and experience on the domestic economy, as well as his expertise in foreign affairs,” Barden says. Though no monetary target has been set, Barden hopes to raise at least $1 million in the African American community alone.
According to Gephardt, Barden was one of Bill Clinton’s best fund-raisers during his campaign. “Don started as a small businessman and has become a powerhouse in American business,” Gephardt said. “Don’s success is a direct result of his sharp intellect and his dedicated work ethic. Hopefully, a little of that will rub off on me.”
Whether expanding operations, mapping growth strategies, or identifying new sources of income, Barden Companies is showing the flexibility, innovation, and savvy it takes to flourish–in good times and bad. As chance would have it, the following day’s rain kept the CEO from the driving range. While luck may be a factor when it comes to golfing, business is a game where Don Barden leaves nothing to chance.
Barden Companies Staff/Sales
1998 1,675 $143.5
1999 1,678 $145.0
2000 1,500 $136.5
2001 3,900 $326.0
2002 4,050 $347.0
* IN MILLIONS OF DOLLARS, TO THE NEAREST THOUSAND. AS OF DEC. 31, 2002.
PREPARED BY B.E. RESEARCH. REVIEWED BY THE CERTIFIED PUBLIC ACCOUNTING
FIRM EDWARDS & CO.
Note: Table made from bar graph.
COPYRIGHT 2003 Earl G. Graves Publishing Co., Inc.
COPYRIGHT 2003 Gale Group