By all accounts, the Monarch weren’t making the Maloofs money but the team wasn’t losing much either. In November, the Maloofs abruptly folded the Monarchs claming they needed more time to focus on the Kings. A few weeks later, the Maloofs decided to sell their family beer distributorship – which was a reliable profit center for decades. Once again, the family insisted the move was solely about focusing their energy on Sacramento and Las Vegas. Looking at the facts below, while the Maloofs overall wealth remains substantial, it appears they might be experiencing cash flow issues. This shouldn’t come as a huge surprise as both the Kings and Palms require huge operating costs and rely on discretionary income during an economic crisis.
In 2002, the Maloofs opened up their books to the Sacramento Bee. (Footnote (FN) 1.) The family’s assets were estimated at approximately one billion dollars with four main components: the Kings, the Palms, the New Mexico Beer Distributorship, and Wells Fargo stock. (FN1.) Seven years later, the values of the Palms and stock have fallen sharply. Some fans focus on the Kings losses, but those figures are merely a fraction of the losses the Maloofs have suffered recently.
Now, the family is selling the business that was both the cornerstone and backbone of their empire for many years. Therefore, it appears that sale – and to a much lesser degree the closing of the Monarchs – have more to do with freeing up cash than prioritizing their businesses.
A. Background
The family has been in the beer business forever. Based upon the need to move beer from Colorado to New Mexico, the family also operated a successful trucking business. George Maloof bought the Rockets in 1979. After his death, the family sold the team in 1982. (FN1) In 1994, the family built the Fiesta Casino in Las Vegas for $30 million dollars. After successfully managing the small casino, they sold it for $170 million in 2000. (Id.)
B. Wells Fargo & Co. Stock
1976, the Maloofs paid $10 million for a 77 percent stake in First National Bank in Albuquerque. (FN1.) In 1994, the bank merged with Salt Lake City-based First Security Corp. in a $200 million stock swap. In 2000, Wells Fargo & Co. acquires First Security in a stock swap, with the Maloofs receiving nearly 4.87 million shares of Wells Fargo stock. (Id.)
In 2002, when the price was trading at almost $50 a share, their Wells Fargo stock was worth $248 million. (Id.) Friday, the stock was trading just above $25. However, that price is up significantly from its low of $7.80 in March 2009.
C. Beer Distributorship
As a preliminary matter, beer distributorships are profitable, extremely hard to get, and almost recession proof. You get the exclusive right to sell a product with a decent margin.
The family the family obtained a Coors distributor ship in 1937, with the exclusive right to supply the state of New Mexico. In 2002, the company was valued at 45 million dollars. (FN1.) The next year, the company expanded. In 2003, the Maloofs bought the third largest distributorship in the state and merged the companies. At which point, the supplied 42 percent of the states’ beer, with exclusive rights to all Coors, Miller, Corona, and Heineken sales as well as 40 other products. (FN2.)
Since the expansion, the business has remained profitable. In May 2009, George Maloof, Jr. described 2008 as a “huge successes” for the distributorship. (FN3.) Michael Bellas, chief executive of the New York consulting firm Beverage Marketing Corp recently estimated the annual revenue is “likely well more than $100 million.” (FN4.)
D. Palms
The Palms opened in 2001. In 2005, the Maloofs opened the “fantasy tower” at a cost of approximately $600 million. In 2008, the Maloofs opened a third tower called Palms Place, which includes a hotel, spa, and 600 condo units.
Station Casino Inc. owns 6.7 of the Palms. Station is currently in Chapter 11 bankruptcy. The Maloofs aren’t providing any specifics about the value of their casino, but Station’s filings with the SEC indicate the value of the Palms continues to fall sharply. (FN3.) In March of 2009, Station filed papers with the SEC that claimed their share of the Palms fell from 25.9 million in January 2008 to 3.3 million. (Id.)
Station’s filings also address the overall value of the Palms. It was reported that in early 2008, the casino had a value of $386 million. In March 2009, Station reported the value was only $50 million and cash flow had fallen 19% from the previous year. (Id.) On September 30, 2009, Station indicated the value of the Palms was $20 million. (FN4.)
Here are a couple of things to consider. Because they are in a bankruptcy proceeding, Station has an incentive to emphasize liabilities and minimize assets whenever possible. At the same time, perjury - particularly to the SEC - has significant consequences and a $366 million loss isn’t exactly “fudging” a number on a balance sheet. Moreover, no one disputes that most Las Vegas casinos are in serious economic trouble. MGM Mirage, which owns 10 casinos, the most on the Strip, posted a $750.4 million net loss. And Harrah's Entertainment Inc., which owns eight casinos in Las Vegas, had more than a $1 billion net loss. (FN5.)
While the Palms remains world renowned and a popular tourist destination, like the Fiesta, it is located off the Strip in order to attract to local customers. Because Las Vegas is among the cities hit the hardest by the collapse of the United States housing market that money has dried up significantly.
Because reports indicate a combined $900 million was spent on the Palms this decade, it is hard to comprehend the value could be only $20 million. However, the fact accountants can even make that claim, under the threat of SEC fines and jail time, is staggering. We know that Station is reporting their share of the Palms has fallen 87% over the last two years. (FN3.) If you apply that figure to 900 million, the value of the Palms would be 108 million. While that’s significantly higher than 20, it would still reflect a three quarter of a billion dollar loss. When you consider at least some of the $600 million investment was borrowed, it’s entirely possible the Palms is worth only $20 million.
Other than vaguely claiming the casino is “holding its own” the Maloofs aren’t talking about the status of the new family flagship. Kings fans pouring over the Forbes franchise values, but these are the numbers that are truly frightening for the Maloof family.
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Originally Posted by piksi
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