BOYD OFFLOADS SOUTH COAST TO MICHAEL GAUGHAN

After seeing what it called soft results from its South Coast Hotel & Casino on the south end of the Las Vegas Strip, Las Vegas-based Boyd Gaming last week announced it had agreed to sell the property to Michael Gaughan, the very man who fostered the property's planning and construction.

Boyd acquired Gaughan's Coast Casinos properties in Las Vegas two years ago as part of a $1.3 billion merger. Included was the under-construction South Coast, the largest of the Coast properties to date. But Boyd officials have not been thrilled with the property's operating results since it opened last year.

Meanwhile, Gaughan, in a meeting with Boyd Chairman Bill Boyd roughly two months ago, said he was not happy with his role in Boyd's corporate structure, and that he wanted to return to the entrepreneurial roots that helped him build Coast Casinos. Boyd agreed to sell the South Coast back to Gaughan.

While official financial terms of the deal have not been disclosed, the Las Vegas Review-Journal reported that South Coast will be sold for a price equal to the net proceeds from the sale of approximately 15.8 million shares of Boyd Gaming stock owned by Gaughan. At the July 26 stock price for Boyd (the day the deal was announced) of $36.49 per share, the deal would roughly be worth $576 million-just shy of the property's $600 million price tag to build.

"If you go by what the place cost to build, I'm getting a good deal. If you go by the (operating profit), Boyd's getting a good deal," Gaughan told The Associated Press. "I'll straighten this place out," Gaughan said. "I've kind of been too far removed from it. I've gotten lazy. It's time to go back to work."

He said he expected the property to turn an operating profit of about $40 million for the year.

"We felt (selling) South Coast made a lot of sense, we had a fairness opinion and we proceeded to do it. It's something that's fair to both of us," Boyd told the Review-Journal. "The success of the South Coast is several years down the line as far as return on investment is concerned, so we were satisfied to give it up for a fair price."

Boyd officials noted a slowing of the locals casino market in Las Vegas due to increased capacity with the South Coast and Station Casinos' recently opened Red Rock Hotel & Casino. Boyd's chief financial officer, Paul Chakmak, said it would take years to ramp up South Coast's fledgling performance, and that his company had other projects, like its $4 billion Echelon Place project on the center-Strip that were of greater priority.

Yet, some analysts wondered whether now was the best time for Boyd to offload a still-promising property, especially its newest.

"The problems that they have been facing seem short-term, such as roadway access," said Matthew Jacob, senior gaming analyst with Wall Street-based Majestic Research. "But in six months, you should see the property ramp up some. The results so far may not be indicative (of how the property can perform."