The Motley Fool recently interviewed John Boushy, CEO of Ameristar Casinos (NASDAQ:ASCA), which was recommended in the November 2005 issue of Motley Fool Hidden Gems. Here are some choice excerpts from the interview, including Boushy's comments about growing future profits and common misconceptions about the casino industry.

The Motley Fool: Could you please give a description of Ameristar Casinos?

John Boushy: Ameristar is a leading developer, owner, and operator of casino entertainment facilities in local and regional markets. Founded in 1954, Ameristar has been a public company since November 1993. We have seven casinos in six markets:

  • Ameristar St. Charles (greater St. Louis)
  • Ameristar Kansas City
  • Ameristar Council Bluffs (Omaha, Neb., and southwestern Iowa)
  • Ameristar Vicksburg (Jackson, Miss., and Monroe, La.)
  • Ameristar Black Hawk (Denver)
  • Cactus Pete's and The Horseshoe in Jackpot, Nev. (Idaho and the Pacific Northwest)

In April 2007, Ameristar signed a definitive agreement to purchase Resorts East Chicago, a casino hotel located in northwest Indiana, serving the Chicagoland market. This acquisition is expected to close in the fourth quarter of 2007.

Ameristar maximizes profitability through our key operating strategies:

  • Developing the highest-quality facilities in our markets with a wide range of amenities.
  • Leading our markets in the gaming experience.
  • Building the Ameristar brand.
  • Employing a collaborative hands-on management approach.

We have designed and built the highest-quality facilities in each of our markets. We believe that the number and variety of our amenities is important [for] attracting guests and developing repeat business. Our properties offer restaurants ranging from casual to upscale, and our guests choose from entertainment options spanning cabaret lounges and sports bars to outdoor amphitheaters and multipurpose entertainment pavilions.

We create the most advanced casino floor and provide a state-of-the-art gaming experience for our guests. This includes the combination of the right games in the right places with convenient access to other amenities that create a more entertaining experience while on the casino floor.

Our branding and marketing support our position through traditional media channels (television, print, radio, and outdoor advertising), as well as targeted direct mail and email. Our multi-tiered players' club (Star Awards) is designed to identify and reward guests based on their level of play. Our best players receive enhanced personalized service and additional benefits through our hosting and ambassador teams.

Finally, we enhanced our revenues and minimized costs by centralizing strategic aspects of our company while also practicing a hands-on management approach. We have a high level of collaboration and communication among all our properties and the corporate team. Since our inception, we have developed a number of "best practices" and strategies for our operations. Working together permits us to continually refine these processes and at the same time more efficiently manage our business.

In the first quarter of 2007, Ameristar continued to deliver outstanding financial results by setting all-time records across virtually all financial metrics. This strong performance represents our commitment to invest in our properties and provide Ameristar-class, best-in-market facilities and experiences to our guests. Specifically, our investment in Black Hawk drove significant improvement in the property's first-quarter financial results.

Since our acquisition of Black Hawk, our market share has increased by 37%, demonstrating strong guest preference for the Ameristar brand. Another performance driver in our first quarter is the strategic focus on maximizing operation efficiencies at each property while continuing to maintain high quality standards and provide superior guest experiences.

TMF: How does Ameristar plan to grow profits in the future?

JB: We are pursuing a 50/50 growth strategy -- that is, disciplined expansions at selected properties combined with strategic acquisitions and new developments -- with the goal of doubling our EBITDA over the next three to five years.

On the internal growth front, we have major expansions underway at four of our properties. We are building a 400-room, all-suite luxury hotel in St. Charles, Missouri. In Vicksburg, Miss., we are expanding the casino to accommodate approximately 800 games and adding two new restaurants, retail space, and a parking garage. In Black Hawk, Colo., we are building a 536-room luxury hotel, and in Council Bluffs, Iowa, we announced plans to double the size of our casino as well as add new dining outlets and increase garage parking. The expanded portion of the casino floor will be located on a single level, creating better access and convenience for guests.

At the same time, we are pursuing an aggressive external growth strategy. Resorts East Chicago hits the bull's-eye of our acquisition criteria -- it allows us to enter an extremely attractive market, diversifies our cash flow, enhances our distribution channels, and provides a platform from which we can substantially grow an already well-positioned property, while achieving an appropriate return.

We continue to focus on the potential acquisition of existing casino-entertainment properties that can be improved through the implementation of our development and operational expertise. We also consider new development opportunities in existing and emerging domestic and select international markets. Longer-term, we contemplate development projects in major national markets. We invest in projects -- both internally and externally -- that we expect will deliver approximately 15% cash-on-cash return.

TMF: What do you think truly differentiates your business in the battle for customers and profits?

JB: Ameristar is truly different because we strongly believe that guests recognize and reward quality. Quality in the facilities we build, quality in the products we provide, such as food and slots, and quality in the service our 7,200 team members provide to every guest. When it is all combined, this leads to a better quality experience overall.

TMF: What is the biggest misconception about your business?

JB: The biggest misconception is that the industry is still all about Las Vegas and Atlantic City. Many people aren't aware that gaming in the Midwest and South -- now more than 10 years old -- is burgeoning.

The old-style excursion riverboats are rapidly being replaced by single-level gaming floors that rival the size and scope of the traditional gaming markets. For example, our casino floors in Kansas City and St. Charles are ranked among [the] 15 largest state-licensed casinos in the United States. They feature amenities to match -- expansive streetscapes, a wide array of restaurants and bars, and great live entertainment.

The hotels at our properties rival any on the Las Vegas strip in their level of luxury. If we look at this from another perspective, gaming revenues in the "new jurisdiction" states of Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, and Missouri totaled $14.5 billion in 2006 compared with revenues in Nevada and New Jersey that totaled $17.8 billion in 2006. ...

TMF: Does Pinnacle's (NYSE:PNK) entry into St. Louis concern Ameristar?

JB: We believe there are distinct advantages to our St. Charles (western suburb) location. We are significantly upgrading the property, creating a full-scale resort where luxury meets fun. Ameristar completed the topping out of our 400-room, all-suite luxury hotel in mid-June.

When completed in December of this year, Ameristar St. Charles will be the most luxurious hotel in the greater St. Louis area and will be unrivaled by any casino hotel in the Midwest. It will feature an indoor/outdoor swimming pool, a full-service 7,000-square-foot spa, and a 2,000-space parking garage. Upon completion, we expect these new amenities will significantly enhance our St. Charles market share by attracting higher-net-worth gaming guests as well as business travelers to the property. Combined with the property's conference center -- which opened in 2006 -- along with the 130,000-square-foot casino and seven restaurants, Ameristar believes that the level of facility and guest service will be unmatched in the area.

Ameristar's history -- and the history throughout the industry -- is that guests reward quality. The quality that we provide in facilities, product, and service has historically lessened the impact of competitive properties. Combined with Ameristar's friendly atmosphere provided by our team members, we intend to continue to enhance our guest experience with this luxurious and fun destination resort.

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