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Hooters' big gamble

The founders of the wings chain are taking yet another flier: a Las Vegas gambling casino.

By Mark Albright, Times Staff Writer
Published June 17, 2007


Ed Droste, left, a partner and founder of Hooter's, and Neil Kiefer, chief executive officer of Hooter's have had a difficult first year running the 690-room Hooter's Hotel and Casino in Las Vegas.
photo
[Douglas R. Clifford | Times]
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The room looks like any Hooters: wood floors, wings and women in orange shorts lugging pitchers of beer. But the customers are throwing dice, betting on sports and playing blackjack to the electronic sing-song put out by 660 slot machines.

Hooters has followed Hard Rock Cafe into the Las Vegas casino business, but is off to a mighty shaky start.

"We think we're a natural, " said Ed Droste, a co-founder of the Clearwater-born empire that wants a place at the tables now that casino gambling has spread to most states. "We cannot out-glitz the big Vegas casinos, but we do fill a niche with a laid back, familiar alternative."

There are plenty of doubters. But pulling off a casino would be stunning follow-up act for an informal group of drinking buddies who founded the first Hooters 24 years ago on Gulf-to-Bay Boulevard. They had no restaurant experience. Now they're tackling the casino business the same way.

The Hooters founders sold the fledgling restaurant franchise business in 1984 to Atlanta-based Hooters of America for $50, 000 and 3 percent of the revenues. Now Tampa Bay's second biggest contribution to the casual dining scene, behind only the Outback Steakhouse chain, , Hooters royalties have soared with sales at 450 Hooters poised to pass $1-billion in sales this year.

While the Atlanta group parlayed Hooters into a name in sports marketing, created a magazine and even operated an ill-fated airline called Hooters Air, back in Clearwater the chain's four remaining founders chose gaming as their next chance to exploit a brand known by 82 percent of Americans.

One of their key casino partners is David "Lags" Lagschulte, who owns 19 Hooters in South Florida and Nevada, controls the Dan Marino's Fine Foods restaurant chain and had a hand in creating Stump's Supper Club and Splitsville in Tampa.

He's one reason why Hooters Casino Hotel boasts six restaurants, ranging from Marino's to roast pork to sushi.

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Hooters' resurrection of a third-tier casino got off to a rough start. The venture lost $21-million in first 15 months. But the founders group is lined up for a big payday after Santa Monica, Calif., -based NTH Advisory Group agreed in May to buy the 696-room resort for $95-million and assume $130-million in debt that Hooters founders took on to fix up the dated San Remo Casino.

"It was an unsolicited offer too good to turn down, " said Neil Kiefer, chief executive of Clearwater-based Hooters LLC. "But we will move forward in the casino business whether or not the sale is completed."

The $95-million will be split with the hotel's Japanese owner and 11 Hooters investors who put up the initial $5.1-million to control two-thirds of the venture.

The new owners will keep the Hooters Las Vegas intact for at least the first nine months and perhaps longer. The same group signed a deal for a Hooters casino in a resort planned on the Nevada border near Utah.

Skeptics abound. Debt analysts see a struggling casino but have yet to see the financial terms for a purchase that's already been put off once to an Oct. 30 closing.

Some gaming industry veterans wonder whether Hooters Casino is really a way for the buyer to maintain the cash flow to keep the property in a holding pattern until something better comes along. The real estate is across the street from the massive 5, 000-room MGM Grand and another developer plans to level the old Tropicana Casino next door for yet another multibillion dollar resort. Vegas brims with such deal-making bravado since Wichita, Kan., billionaire Phil Ruffin paid $167-million for the aged Frontier nine years ago, poured $100-million into a cosmetic fix only to sell the place to condo/casino resort developers last month for $1.2-billion.

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After surviving attacks from feminists and the Equal Employment Opportunity Commission as institutionalized sexism, Hooters' politically incorrect brand of naughtiness dissolves in Sin City's sea of strip clubs, topless pools and unbridled hedonism. "In Vegas, " said Droste, "we're PG."

But while casinos like Caesars' Palace don't put their less wholesome lures on the marquee, Hooters Slogan: Delightfully tacky, yet unrefined puts it in lights.

"The whole place is branded Hooters, " said Jeffrey Compton, a casino consultant. "Wives may let their husbands go there for a night out with the boys, but they won't take a vacation there because of the Hooters image. And women are your big slot players."

Despite a half-mile walk from the strip in a place built in 1973 as a Howard Johnson Hotel, the Hooters Casino debut stirred lots of interest. About 1, 100 applied for 200 Hooters Girl jobs. The place was mobbed for weeks with the sprawling pool deck resembling spring break in Panama City.

The welcome faded fast. Gamblers complained the slots were too greedy, the blackjack rules too tight. Hotel rates dropped to as low as $50 a night, compared with a citywide average of $100. Gaming provides only a third of the revenue, well below a 40-percent industry benchmark.

The founders concede they rushed to open too soon. They mistakenly didn't book advance business until the kinks were worked out.

In response, they relaxed the gaming rules, loosened the slot payoffs and set up a players reward club. They "toned down" the poolside drinking action and opened a comedy club featuring gravel-voiced Bobby "The Pit Bull of Comedy" Slayton. They replaced the reclining Hooters Girl on Los Angeles billboards with escapist vacation messages of couples to make women feel welcome. After sharing the influential Las Vegas Review-Journal's top rating for customer service with the luxurious Wynn Las Vegas, Hooters Casino's occupancy rates in recent months rebounded to more than 90 percent and the average room rate rose to $90 a night.

"But Hooters faces an uphill fight because the first choices for young people with money are hipper spots like The Palms and Hard Rock, " said David Schwartz, director of the Institute for Gaming Research at the University of Nevada Las Vegas.

Droste is undaunted: "We've overcome bigger obstacles than this."

Indeed, the annual Hooters swimsuit pageant and franchisees meeting will be staged next month in Las Vegas - at the rival Planet Hollywood Casino Resort, which is the new name for the previously bankrupt Aladdin.

The Hooters Casino didn't have enough meeting room space.

Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

[Last modified June 15, 2007, 20:08:07]


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