Unexpected departure of David Farahi from Atlantis owner Monarch surprises investors

The completion of an expansion project to Monarch Casino & Resort’s Colorado property is allowing Chief Operating Officer David Farahi to leave the Reno-based company and explore business opportunities away from the gaming industry.

The late Tuesday announcement raised a few eyebrows given the structure of Monarch, which is publicly traded on the Nasdaq but is overseen by the founding Farahi family. John Farahi and his brother Bob Farahi serve as the company’s co-chairmen with John also holding the CEO position. David Farahi, who is John Farahi's son, said he will leave the company on Sept. 3.

Truist Securities gaming analyst Barry Jonas, in a research note published Wednesday morning, said David Farahi, 40, has been the public face that investors in Monarch have come to know. The company operates Atlantis Casino Resort in Reno and Monarch Black Hawk, roughly 40 miles west of Denver.

“We’ve seen Mr. Farahi as a key part in setting and executing Monarch’s existing and growth strategies, and a potential successor for the CEO role at some point,” Jonas wrote. He said the management change was a “personal decision not grounded in any disagreement or concern over the company's prospects.”

In an interview with The Nevada Independent, David Farahi said the Black Hawk casino has “ramped up faster and better than predicted.” Analysts expect the Colorado casino will be the primary driver of gaming revenues for the company.

John Farahi, in the same interview with the Independent, said he supported his son’s decision.

“He’s a blessing for a father,” he said. “I was careful not to tie him down and this allows him to explore other opportunities. He will be successful in whatever he does.”

John Farahi said he is now focused on expanding Monarch’s presence in Reno where it controls an additional 40 acres near Atlantis. He said the company is exploring potential mixed-use development ideas to coincide with a rapidly expanding Reno.

“We want to see what the prospects are for this city,” he said.

In addition, he said Monarch would seek a new chief financial officer, filling a position that has been vacant since 2016. John Farahi said the new CFO would lead any mergers and acquisitions discussions, allowing the company to expand from just two casino resorts.

“We believe the announcement adds complexity to the debate around identifying and acquiring the next asset for growth and the long-term growth trajectory,” Jefferies gaming analyst David Katz said of Monarch pursuing a CFO. “This element, given the apparent success with Black Hawk thus far, is key to the longer-term growth trajectory for the company.”

Wearing many hats

David Farahi became Monarch’s chief operating officer in 2012 and filled several other positions, including oversight of gaming operations and investor relations. He held more than a dozen roles at Atlantis starting in 1998.

But he also spent two years outside the gaming industry in investments and private banking.

“I’m proud of what the team has accomplished,” David Farahi said of Black Hawk casino, adding that he plans to remain in Denver. “I’m not rushed right now, but I’m exploring the potential of what is out there.”

For the past two years, he was tasked with overseeing the increased staffing for a $400 million expansion to the Black Hawk resort, which was completed this year. The size of the casino was increased to 60,000 square feet and a poker room was added along with a sportsbook. The property also opened new restaurants, convention space, and grew to 513 hotel rooms.

David Farahi was credited with helping push along passage of Amendment 77 last November that was overwhelmingly approved by Colorado voters. The measure removed the state’s $100 single-bet wagering limit and allowed casinos to begin offering previously forbidden games, such as baccarat, keno and the big six wheel.

The gaming law changes took effect on May 1, which coincided with the completion of Monarch Black Hawk’s expansion.

Monarch said in July its net revenues in the 2021 second quarter were $97.7 million, an increase of 55.7 percent over the 2019 second quarter. For the first six months of 2021, Monarch’s total revenues were $172.7 million, a 42.1 percent increase over 2019. (The investment community compares 2021 with 2019 because of the influence COVID-19 restrictions and guidelines had on 2020).

The company doesn’t break out individual results for the Reno and Black Hawk resorts.

Wall Street still bullish on Monarch

Shares of Monarch closed at a price that was down 1.21 percent Wednesday as investors sought answers to David Farahi’s sudden departure.

“The stock is trading off today, likely reflecting concerns around key management risk with Mr. Farahi's departure,” Stifel Financial gaming analyst Jeffrey Stantial said in a note to investors. “However, we expect a smooth transition given most of the heavy lifting is over for Black Hawk, with the ramp already off to a strong start.”

Macquarie Securities gaming analyst Chad Beynon said he remains “confident in the leadership of the company” and the direction of the Reno and Black Hawk casinos.

In May, David Farahi sold 62,000 shares of Monarch stock, leaving with him 16,000 shares out of the company’s 19.5 million shares outstanding. Combined, the Farahi family controls more than 30 percent of the company.

“We believe he (David) has significant holdings as a beneficiary of a family trust,” Jonas said.

Beynon said there have been few gaming companies that are considered “family businesses” the way that Monarch has been. As a result, he said “investors have appreciated the vision and rewarded” the company with a higher valuation.

“In addition, the company has operated with arguably the healthiest balance sheet, only borrowing capital when needed,” Beynon said. “Monarch remains focused on further building an executive bench and expanding the portfolio even further.”

New Colorado leader

As part of the announcement, Michelle Shriver, a longtime gaming executive who has been a consultant to Monarch since April, was named corporate vice president of operations and will have primary responsibility for the Black Hawk resort. She will be based in Colorado.

She previously was part of the Ameristar Casinos executive management team with responsibility for the company’s eight regional casinos. She also oversaw the expansion of Ameristar Casino Black Hawk and has familiarity with the Denver market.

“Michelle has a track record of approximately 20 years in the gaming and hospitality industry,” John Farahi said in a statement. “She has extensive experience developing a corporate strategy aimed at maximizing revenues and achieving market leadership.”

Updated at 10:17 a.m. on 8/27/2021, to reflect David Farahi's role with the Black Hawk resort expansion.

Reno casino operators: Market ‘transformed’ and ‘more stable’ as new competition springs up in Northern California

Potential competition coming from more than $1 billion of Indian casino development in Northern California isn’t causing Reno gaming operator David Farahi to lose any sleep.

If he ran a casino in Sacramento, however, Farahi says he would have concerns.

“California is already saturated,” said Farahi, chief operating officer of Monarch Resorts, which owns Reno’s Atlantis Casino Resort. He said the three new casinos, operated by Hard Rock, Boyd Gaming Corp., and Caesars Entertainment, and expected to open by 2020, will steal business away from Indian gaming properties in Sacramento and the Bay Area, rather than from Reno.

“The short answer is, no,” Farahi said. “Reno has a more diversified economy than before and we’re much more stable than the last time.”

The Atlantis in Reno, Nevada. (David Calvert/The Nevada Independent)

Farahi was referring to the mid-2000s.

The 2003 opening of the United Auburn tribe’s Thunder Valley resort near Sacramento, coupled with expansions at two nearby Northern California Indian gaming properties, decimated Reno’s gaming market.

Washoe County’s gambling revenues – Reno accounts for 75 percent of the market – hit an apex of $1.14 billion in 2000. A slow downward spiral began that year and was enhanced by the recession toward the end of the decade. When the bottom hit in 2012, Northern Nevada casinos had lost almost $400 million in annual gross gaming figures.

Now, in the eyes of the region’s business community, economic development leaders and gaming analysts, Reno’s casino business is in far better condition to weather competition from California.

“In my view, the new properties in California will have no impact whatsoever on Reno,” said Jefferies gaming analyst David Katz.

An economic upswing in Northern Nevada, thanks to an influx of large and small technology-based companies, has transformed Reno’s gaming industry from a tourism-dependent market into a traditional regional gaming destination driven by a local customer.

Mike Kazmierski, CEO of the Economic Development Authority of Western Nevada, said the move into the Reno area by some 200 companies has made the region less dependent on gaming.

“Reno has much different economy than in years past,” Kazmierski said. “The model is less susceptible to activity outside the market. Where this has helped the casinos, to some degree, is the growth in midweek business activity.”

Gaming revenues produced by Reno casinos have bounced back. The market has grown each of the last six years, including 2017’s 8.7 percent increase. Reno revenues were $636.9 million in 2018, an increase of 4.1 percent. Washoe County experienced 16 straight months of increases before the numbers declined in September.

“The growth trajectory the market has been on isn’t going to last forever,” said Michael Lawton, the Nevada Gaming Control Board’s senior research analyst. “Everybody believes a 3 percent yearly growth rate is realistic moving forward. The market is doing quite well.”

But it’s more than just slots and table games. Reno’s casino industry doesn’t resemble the 1990s and 2000s.

Older properties – such as Grand Sierra (formerly Bally’s Reno and Reno Hilton) and the Nugget in Sparks (formerly John Ascuaga’s Nugget) – were acquired by new operators who invested millions of dollars in upgrades, new restaurants, spas, entertainment and other non-gaming amenities.

The Nugget is building a $6.2 million, 9,000-seat outdoor amphitheater in downtown Sparks across from the casino that is expected to open this summer.

Home-grown Eldorado Resorts – which has expanded into the third largest regional casino operator in the nation with 26 properties in 12 states – hasn’t ignored Reno. The company’s three inter-connected downtown Reno properties across six city blocks – Eldorado, Silver Legacy and Circus Circus – have been dubbed as “The Row,” offering guests dozens of new non-gaming amenities.

The control board’s Fiscal 2017 Gaming Abstract showed that 51 percent of all revenues produced by casinos in Reno came from gaming activities. Ten years earlier, 54.3 percent of the revenues came from gaming.

Lawton said the market is slowly evolving, but it’s still not Las Vegas, where gaming revenues account for less than 35 percent of the total market.

The Eldorado in Reno, Nevada. (David Calvert/The Nevada Independent)

California competition

California is the nation’s largest Indian casino market, accounting for more than 26 percent of the nation’s tribal gaming revenues. According to economist Alan Meister, the state’s Indian casinos produced $8.4 billion in 2016, roughly $2 billion more than the Las Vegas Strip.

The current expansion is the largest in a decade and surrounds the state’s capital city.

Hard Rock, which is owned by the Seminole Tribe of Florida, is partnering with the Enterprise Rancheria of Maidu Indians on a $440 million resort in Yuba City, 30 miles north of Sacramento.

Caesars and the Buena Vista Band of Me-Wuk Indians are developing a $168 million casino 30 miles east of the city.

Boyd Gaming and Wilton Rancheria of Miwok Indians are building a $500 million complex in the Sacramento suburb of Elk Grove.

“Our location is ideally positioned to serve both the Sacramento and San Francisco Bay markets, making this project a significant opportunity for the tribe as well as our company,” Boyd CEO Keith Smith said on a quarterly earnings conference call in October.

All three properties are within a three-hour drive of Reno.

However, Macquarie Securities gaming analyst Chad Beynon doesn’t believe new casinos “over the hill and west on Interstate 80” will have the same impact on Reno the market experienced a decade earlier.

“Reno casino operators like to point out that you have to drive past all those casinos in Sacramento to get to Reno,” Beynon said. “That means a customer really wants to go to Reno.”

Farahi cited the 2013 opening of the Graton Resort near Santa Rosa, roughly 45 minutes north of San Francisco, as an example of Reno now being immune to California competition.

“We saw little if any effect from Graton on our business,” he said. “I think [Northern California Indian casinos] Graton, Thunder Valley, Red Hawk and Cache Creek will see the most impact from the new casinos.”

The number of visitors to Reno from California has diminished in recent years. The last visitor profile from the Reno Sparks Convention and Visitors Authority, dated 2015, showed California provided 32 percent of Reno’s visitors. In 2011, the figure was 39 percent.

Reno is drawing visitors from other markets, though, including the South and Midwest, and there is still a drive for convention business. The Reno Sparks Convention Center leadership is expected to approach the Legislature this year about funding for an expansion.

Meanwhile, the Reno-Tahoe International Airport has experienced 42 consecutive months of increased passenger travel. For the first 11 months of the year, passenger volume was more than 3.8 million travelers, up 4.9 percent over the same period last year.

A locals gaming market

Outside of Eldorado Resorts, which relies on tourism for 75 percent of its business, analysts said most Reno casinos focus on locals.

Farahi said Atlantis’ customer base is 55 percent locals. Beynon suspects others, including the 2,000-room Grand Sierra, approach 60 percent locals business.

Katz said the rejuvenated Reno economy has boosted the casino numbers. Higher wages and low unemployment mean people have a more disposable income for entertainment.

“It seems like the city has turned a corner,” Katz said.

Filling hotel rooms in Reno has not been a problem of late, either.

In the last 12 months, 29 companies moved their corporate headquarters to Reno. Kazmierski said these businesses average roughly 100 employees. Corporate meetings are big business for the midweek market. However, the area’s housing shortage has left many new utilizing hotel rooms for extended stays during the midweek.

Farahi said the hotel occupancy is somewhat a double-edged sword. Occupancy is solid, but operators can’t drive a higher rate.

“Reno is still very far away from the Las Vegas model,” Farahi said. “We’re not making as much of a profit from non-gaming and our gross gaming revenue is still 20 percent below the peak.”

As for any potential expansion in the Reno market, Station Casinos owns an eight-acre site near the convention center but stalled any development plans to focus on nearly $600 million in combined renovations to Place Station and Palms in Las Vegas.

Farahi said Monarch owns 40 undeveloped acres surround the Atlantis for expansion, but the company is currently focused on expansion of its hotel-casino complex in Colorado.

During the recession, there was a contraction in the Reno market. Several older casinos closed. SunTrust Bank gaming analyst Barry Jonas suggested the closing of additional older Reno casinos could give the market an additional boost.

“There really doesn’t seem to be any risk to Reno from the tribal gaming supply in California,” Jonas said. “What the market truly needs is a little more from the non-gaming side.”

Howard Stutz is a freelance gaming reporter for The Nevada Independent and the Executive Editor of CDC Gaming Reports. He has worked as a Nevada journalist for 30 years. He can be reached at howardmstutz@gmail.com. On Twitter: @howardstutz