05/15/2003 11:00PM

Station Casinos fighting battles on three fronts at once


May has been a busy month for Station Casinos. The company announced plans to build a California tribal gaming casino near San Francisco. At the same time, it had to fend off criticism of a lucrative stock compensation program for its top executives. State regulators are investigating one of its properties, Santa Fe Station, over its reporting of large cash transactions and the company was lectured in a public forum by the Nevada Gaming Control Board.

There is never a dull moment in the casino industry, and those who stand still are likely to get run over.

Station Casinos reached an agreement with the Federated Indians of Graton Rancheria to build and operate a tribal casino in Sonoma County about 50 miles northeast of San Francisco.

But there are hurdles to overcome. Graton does not yet have a signed compact with the State of California to operate a casino. Also, land must be acquired from the U.S. Department of the Interior. And the National Indian Gaming Commission, the federal regulatory agency that oversees gaming tribes, must approve the management contract with Station.

This would give Station a second contract with a California tribe. The other is with the United Auburn Indian Community, which is building Thunder Valley Casino, about 30 miles northeast of Sacramento.

Station, which controls approximately 40 percent of the Las Vegas locals market, is eyeing expansion in Nevada, too. There are plans in mid-2004 to begin building a Red Rock Station in Summerlin.

Station's aggressive out-of-state plans are not lost upon the Gaming Control Board. There is concern that the two new northern California tribal casinos will affect the Reno-Lake Tahoe market in northern Nevada.

Board member Scott Scherer asked if regulators had the power to force a company like Station to choose between its Nevada operations and future California operations.

Scott Nielson, Station executive vice president and general counsel, answered no. He advised that long-term it is better that Nevada casino companies are involved in California so that profits can be reinvested in Nevada.

Board member Bobby Siller questioned Station about its two northern California casinos and whether the Auburn tribe has created its own rules, which it has not.

"It would appear that without written policies, you'd be setting yourself up for legal challenges," Siller said. "It seems like an accident waiting to happen . . . and if you have trouble there, you'll have trouble here."

"These are great opportunities, but they are great challenges," Siller concluded. "I view any situation fraught with the potential for embarrassment to Nevada as one to be careful of."

Station has responded to criticism from two groups that have questioned its stock compensation plan for top executives. The Institutional Shareholder Services and The Culinary Union both criticized the plan as too costly relative to other Nevada gaming companies.

The Culinary Union has a vested interest in that it would like to unionize Station Casino employees.

In 2001, Station Casinos's chief executive, Frank Fertitta III, his brother and the company president, Lorenzo Fertitta, and chief financial officer Glenn Christenson ranked second, third, and fourth in total annual compensation among all executives with casino gaming companies.

Christenson defended the policy to grant more stock options and less cash compensation in order to align long-term executive performance with company performance.

"When thousands of union-represented employees were laid-off (after Sept. 11, 2001), we didn't lay off anyone," said Christenson. "When union employees are not getting a raise this year, our employees are."

At Santa Fe, Station Casinos found "filing irregularities" and notified the Gaming Control Board. An investigation is ongoing and the company is cooperating fully.

- Richard Eng is the turf editor for the Las Vegas Review-Journal and host of the Race Day Las Vegas Wrap Up show.