Gateway Casinos: Winner Takes All



Climbing to new heights doesn’t faze Dave Gadhia, president of Gateway Casinos, who celebrated his 40th birthday four years ago by scaling Tanzania’s Mount Kilimanjaro with his wife.


For Gadhia, president of Gateway Casinos, B.C.’s second-largest casino company, the trip was also a homecoming; he left Tanzania as a 10-year-old boy and moved to Canada. “I wanted to give a sense of meaning to my return as well as contribute to my adopted country,” he says.

Not a conventional 40th birthday, to be sure, but Gadhia is not a conventional guy. A 14-year veteran of B.C.’s casino industry, Gadhia is proving himself to be among the province’s most adaptable casino magnates, standing at the forefront of a revolution in the province’s multibillion-dollar gaming industry.

Over the past decade, Gadhia has witnessed a dramatic transformation in the province’s casinos as small, dimly lit gambling halls are displaced by massive, high-end casinos featuring a range of entertainment. As Gadhia says, “We are going from the gaming to the entertainment industry.” In this new era, gambling represents just one stream of revenue for B.C. casinos. No longer the seedy gambling halls of the past, today’s casinos are multimillion-dollar complexes featuring hotels, convention facilities, spas, gourmet dining and large-scale concert venues drawing in both tourists and locals. The shift – a dramatic change from only a few years ago – has been a lucrative one, with gross revenues for B.C.’s 19 casinos rising from $628 million in the 2002-03 fiscal year to $1.05 billion in 2005-06. Further proof: the province’s casinos are attracting unprecedented attention from investors, with more than $1 billion either currently invested or earmarked for investment.

But not everyone is benefiting from these dramatic changes. While foreign investment flows into the province and ample construction is under way, some of the old guard have been forced to fold their hands. Prominent among them are Len Libin and Gary Jackson, elder statesmen of the industry with more than 55 years of shared experience. The partners recently sold their 100-per-cent interest in Vancouver’s struggling Edgewater Casino to Paragon Gaming Holding Corp., a Las Vegas-based casino management company.

For independent entrepreneurs like Libin and Jackson, B.C.’s casino industry no longer represents the opportunity it did in the ’80s, when loosening restrictions paved the way for the province’s first gambling halls.

Jackson and Libin see much greater risk today, with the success of a casino tied to a handful of other risky ventures, including hotels, restaurants and concert venues. “How much can you spend on entertainment in the local market?” Jackson asks. Of course, with greater risk comes greater reward, and it’s these spoils that Gadhia – among so many others – has in sight.

At first glance, it would appear that B.C.’s move to fewer but bigger casinos reflects the same consolidation that so many other industries are undergoing, in this -Wal‑Mart world with no more room for the little guy. A fundamental difference exists here: while most consolidation is a consequence of laissez-faire economics, the changes in B.C.’s casinos are, in fact, being driven by the government. The private sector is merely -reacting to a series of savvy, if controversial moves, led by the B.C. Lottery Corp. (BCLC), which manages the gaming industry here. The provincial government’s plan – if all goes as planned – offers some lucrative jackpots for both the BCLC and the casino owners. Suddenly, casino operators who have had only one revenue stream from gambling (shared with the BCLC) are seeing many more appear, which do not have to be shared. And the consolidation is dramatic. According to Gadhia, within two years, Vancouver “will go from 10 crappy casinos to five best-of-class.”

Nobody stands to win bigger than the BCLC, a provincial Crown corporation and the industry’s regulatory body. Casinos have been a winning streak for the BCLC, with revenues it collects now surpassing lottery ticket sales. (Casinos keep 40 per cent of earnings on table games and 25 per cent on slots, turning over the rest to the BCLC.) In July 1997, the B.C. government sent out a request for proposals for additional gaming facilities. In the increasingly competitive global tourism market, B.C. wanted to add value to its casinos by making them legitimate destinations, replete with golf courses, hotels and conference centres. “Destination casinos were intended to interest tourists from outside the region,” says the BCLC ’s Shelley Marsh. “The term ‘destination’ derived from that request for proposals.” That same year, legislation was put forth by NDP Premier Glen Clark, allowing casinos to raise bet limits, offer more table games and, most controversially, legalize slot machines. Slots are extremely lucrative; on a 24-hour shift they require no manpower and keep eight per cent of all money wagered. Slots require no real skill and are known to -beguile gamblers for hours. “Allowing slots was a major industry change,” says Gadhia. “People were apprehensive because slots would mean casinos had a broader range of customers, and that would lead to an increase in the number of people with gaming problems.”[pagebreak]So while the provincial government gave the go-ahead to slots, a handful of municipalities – including Vancouver – objected, stating the province didn’t have the right to force slots on them. A B.C. Supreme Court ruling agreed, so instead of legislating slots into existence, the B.C. government dangled a cash carrot. It was too great to resist, and in 1999 the Union of B.C. Municipalities signed a memorandum of understanding that entitled host municipalities to receive 10 per cent of BCLC casino revenues. Jackson recalls, “One by one, municipalities began to realize that if they came to the table, they could get a piece of the pie.” (Vancouver finally relented in 2005, allowing slots in the Edgewater, breaking a 70-year city ban on the machines.)

As the debate continued from 1997 to 1999, a handful of new “destination” casinos opened with an eye to drawing tourists into B.C.’s hinterland: the M.V. Aurora, a tourism vessel, was supposed to sail the Prince Rupert-Vancouver route (but the idea flopped); Jack O’Clubs Gaming Hall with 80 slots and part of an RV-park opened in the Barkerville/Wells area; and the Casino of the Rockies, a First Nations venture in Cranbrook that includes a 127-room hotel, golf course and convention centre, is the only one still operating. In 1999, the Royal City Star, a 75-foot-long, 4,000-ton authentic Mississippi riverboat was towed to New Westminster Quay and became floating casino.

This first generation of B.C. destination casinos attracted gamblers from beyond their immediate communities, and gave them a place to stay, play and explore. They were sparks that would fire a broader tourism concept down the road.

That dramatic flashpoint came in 2003, when the BCLC began a more aggressive push to build world-class casinos. Gadhia calls it “the year when it changed completely.” He continues, “The BCLC made a strategic decision that B.C. should have the best-of-class entertainment centres.” With a huge footprint, these large-scale complexes landed in the suburbs, able to serve city and Fraser Valley clients as well as tourists.

Brian Lynch, BCLC ’s VP of casinos, says, “We wanted places that were exciting to go to. Not just something with slot machines and gaming tables. We wanted to change the vision of the casino to a facility that was an adult entertainment option.” Lynch adds that the destination casino formula is not a new one, but B.C. has its own spin on it. Unlike Las Vegas, where gamblers stay for three or four days, B.C.’s new-age casinos are stopping-off points for travellers who may stay a day before moving on. Gadhia says that the government’s strategic decision “was welcomed by the industry.” Casino companies, he says, had wanted to grow for years. They were simply awaiting the go-ahead.

The current torchbearer of B.C.’s new entertainment-style casino is the River Rock Casino Hotel, a two-year-old, $220-million complex in Richmond. Owned by the Great Canadian Gaming Corp. (GCGC) and set on nine acres of riverbank, it has 220 hotel suites; a 70,000-square-foot casino; what’s billed as Canada’s largest poker room; nine restaurants, bars and lounges; and a $10-million, 1,000-seat theatre that has hosted the likes of Al Green, Julio Iglesias and Peter Frampton.

“It’s all about people and entertainment,” says Howard Blank, GCGC’s VP of media, entertainment and marketing. He started the company 22 years ago as a table-games dealer while in college, and the entertainment-driven formula fits Blank like a finely tailored suit. When he was a student working part-time as a dealer, Blank also dabbled in broadcasting and emceeing – he even introduced the Rolling Stones once at a concert and worked on movie sets. Today, he sidelines as an occasional consultant for local film companies staging casino scenes.

With properties all over Canada, GCGC is significantly larger than Gadhia’s Gateway, but Blank welcomes the competition. “There is a friendly rivalry in the industry,” he says. “Having Gateway in such close proximity makes us look outside that box and expend the energy to be creative.”

A friendly rivalry seems like an apt fit for Gadhia. Known to his employees as “Dave,” Gadhia, now 44 and a father of two boys, 10 and 15, is a lively and engaging personality, known by staff for his ready smile. Gadhia keeps bowls of candy and cookies in virtually every room of his offices. (“It’s a tough place to keep a diet,” quips a staffer.) But beneath his friendly exterior is a cautious and forward-thinking entrepreneur, a chartered accountant with precise judgment and uncanny business savvy.

Gadhia exhibits self-discipline in an industry some say preys on impulsiveness but can also breed it. “There is the real danger of being drawn into the industry’s glamour and over-building,” he says. Gateway’s current expansion – a four-year, $300-million spending spree that started in 2004 – is an aggressive and carefully conceived move into a competitive market. Construction on Gateway’s future crown jewel, Burnaby’s Villa Casino, is well under way. The $155-million resort, opening in 2008, will include 210 hotel rooms, an Italian restaurant, a ballroom overlooking the North Shore and a lounge offering free acts. The 100,000-square-foot casino, with rich wooden tones and a European decor, will have 60 gaming tables, 1,000 slot machines and a 15-table poker room. The Villa, says Gadhia, “will really define who we have become, both in terms of design and customer service.”

Gadhia has much experience to draw from. After starting his career as an accountant with PWC, he was lured away by Gateway in 1992 to help manage the company. At the time, Gateway had limited holdings: two 5,000-square-foot casinos, one in Chinatown and one in New Westminster’s Royal Towers hotel. Within a few years of joining Gateway, Gadhia became a minority owner, with Monique Wilberg, chief operating officer, and Ray McLean, chairman of Gateway, owning the remainder of the company. (They are still investors.)

Through the 1990s, the company grew by acquiring a casino in the West Edmonton Mall and expanding its facilities. In 1997, when the province legalized slots, Gadhia moved quickly to introduce slots to Gateway’s Chinatown casino. On October 3 of that year, Gadhia brought in 200 government-owned slot machines. Some media reports accused Gadhia of sneaking the machines into the casino under the stealth of night, but he denies this. “When you are parking an 18-wheeler, 50-foot trailer on Main Street at night, it’s hard to do it secretly,” he says. In fact, when the city learned of the slots, it immediately demanded their removal. Since the B.C. Supreme Court ruling stated there had to be agreement between the local and provincial governments before slots were installed, Vancouver held the trump card. Twenty-three days later, the slots were removed.[pagebreak]Gateway found itself in an unusual predicament. It was authorized to have slot machines, but was not having any success in Vancouver. Gateway shifted focus to Burnaby, which proved only slightly more willing to house a new casino. In the face of placard-carrying protestors and three public hearings, Gateway opened Burnaby’s first casino in 1999: a 15,000-square-foot casino limited by government regulations to 30 table games and 300 slots. The restrictions, says Gadhia, were “really a way of saying they didn’t want large casinos.”

In 2002, Gateway bought the Lake City Casino Group and -acquired control of its four B.C. Interior casinos. Later that year, with assets and ambitions expanding, Gateway went public as an income trust on the Toronto Stock Exchange. The timing could not have been better; less than one year later, the BCLC began its aggressive push for growth. Gateway was perfectly positioned to ride the wave of industry momentum, leading the trend to consolidate. In 2003, it shut down its Royal Towers and Chinatown Mandarin casinos and built its first mega-casino, the Cascades Casino, a $100-million casino, hotel and convention centre that opened in Langley in 2005.

The expansion continues: in addition to the Burnaby operation, Gateway will close New Westminster’s Royal City Star next year and replace it with the Queensborough Starlight Casino. Plans call for a $100-million, 100,000-square-foot property with 600 slots, 54 gaming tables, 14 poker tables, a show lounge, underground parking for 1,300 and a 25,000-square-foot interactive sports bar. Luck is a funny concept in the casino business. That superstitious belief in the random forces of nature is what drives people to the casino. The house, it seems, preys on bad luck or, more accurately, the absence of luck. And luck always runs dry; that’s why the house always wins. The Edgewater’s Gary Jackson, a compact man with greying hair and an encyclopedic knowledge of the gaming industry, might dispute this axiom. In fact, Jackson is leaving the industry because he believes the odds are shifting in an unfavourable direction. The gambling business is one thing; running hotels, restaurants, and entertainment venues is much riskier business – especially in downtown Vancouver, already packed with nightclubs, hotels, and restaurants.

Along with his partner, Len Libin, Jackson is exiting an industry that bears little resemblance to the one he entered in 1985, when a sliver of a newspaper ad promoting a charity gambling event caught his eye. A UBC business administration graduate, at the time Jackson was working as a coastal fisherman and cannery operator, and his entrepreneurial curiosity was piqued. The event, operated by GCGC, was the first legal gambling event Jackson had seen in B.C. “I couldn’t believe the Socreds would allow gambling,” he says.

Further investigation affirmed what Jackson had suspected: a golden opportunity existed in the province’s burgeoning charity casino sector. “No one is ever going to give you a phone call to tell you that an opportunity exists,” he says. “You pretty well need to visualize where things are going.” Jackson did, and by the summer of 1986 he’d obtained a permit to stage a regular charity casino night. He was not, however, permitted to set up a permanent home base for the casino, but shifted from venue to venue. “You were moving tables and chairs every night. It was a lot of work,” Jackson recalls. “You were really in the moving business.”

By that fall, GCGC had become the first operator to land a permanent home in a Vancouver hotel. It signalled the end of the set-up-and-tear-down days. Jackson’s own application for a permanent casino at Richards and Davie in downtown Vancouver was approved as well, and in March 1987 he opened the Golden Nugget Casino (later renamed the Royal Diamond). With location issues resolved, Jackson still relied on a government lottery draw to know which nights and how many days he was permitted to be open in any given month. It was hard to turn a profit, and two-dollar bet limits and narrow margins didn’t help. In contrast with Las Vegas, where casinos retain 90 per cent of revenues, Jackson only retained 40 per cent, with 10 per cent going to government and 50 per cent to charities.

Through the late 1980s and ’90s, betting limits rose slowly, but casinos were still severely limited by government restrictions. Jackson calls it the era of “sawdust joints,” small casinos with little focus on ambiance or decor. The margins were slim, but reliable.

The 2003 BCLC decision to consolidate smaller casinos into “best-of-class” large-scale properties spurred a change for Libin, who owned South Vancouver’s Grand Casino housed in the Blue Boy Hotel, and Jackson saw an opportunity to merge operations. The two had known each other for 20 years, meeting weekly for coffee and to talk shop. In 2004, a partnership was formed as Jackson and Libin merged two smaller operations into the Edgewater. The 65,000-square-foot leased casino perched on the edge of False Creek opened in the spring of 2005. Originally billed as Vancouver’s only destination casino, it was expected to draw locals and tourists. When it opened, the Edgewater had 48 gaming tables and 600 slots, and investors had high hopes, expecting 2005 revenues of $225 million. [pagebreak]However, a series of snafus associated with city bylaws – difficulties with the liquor license, parking and signage – and the proximity of the River Rock, only 20 minutes away, meant that the Edgewater fell $50 million short of expectations.

In May 2006, Jackson and Libin faced $29 million in debts, and filed for bankruptcy protection under the Companies’ Creditors Arrangement Act to restructure their -finances. At that time, the pair was approached by Paragon Gaming, whose president, Diana Bennett, is the daughter of Circus Circus founder and Las Vegas magnate, the late William Bennett. The sale, which was -approved in August, is not Paragon’s first -venture in Western Canada. The company has extensive management contracts with First Nations groups in Alberta.

Paragon has promised a handful of things that Jackson and Libin have not been able to deliver, including a restaurant, an adjoining charity bingo facility and better signage. Paragon has also promised to develop a new permanent casino site rather than the Edgewater’s current leased home. Libin says that once the sale is completed, creditors will receive 100 per cent on the dollar and “there will be something left over for Gary and me.”

There is something admirable in the way Jackson and Libin ran their business, but something naive as well. Jackson did not draw a salary for six years. He and Libin, as required by city hall, initiated a program in conjunction with a local hiring service and community service organization in which 15 per cent of all staff was hired from the downtown core. Many have gone through substance-abuse programs or job training to achieve skills, and others are single parents. “The bottom line is that they come with a bit more baggage than regular employees,” Jackson says. “But in the end, you are supplying someone with a job and they are rebuilding self-esteem.” Admirable, no doubt. But it doesn’t guarantee success in today’s competitive casino business.

With all their experience, Jackson, 61, and Libin, 59, would have little difficulty finding senior positions elsewhere in an industry that’s booming, but neither is interested. Tight-lipped about the details, Jackson says he’s already working on a new venture in the energy sector, but he admits he’ll miss the Edgewater. “I have thought about that quite a bit lately and I guess I will for a while,” he says. “But, like anything else, you heal and move on.” Libin says he’ll move on to work with his casino interests in Washington State.

Neither Jackson nor Libin is bitter about the industry’s new direction, and Jackson acknowledges that the public will no doubt embrace the entertainment casino concept. “The industry will become accepted,” he believes, as the evolution continues toward the new type of venue, which could house up to 10 of the old-style casinos and is far different than the business he entered 20 years ago. “What we did in 1986 will never happen again.”

And as the era closes on the old-style casinos, signs are emerging that the new concept is meeting success. The River Rock, for example, has signed a deal with Conquest Vacations, the largest wholesaler of Las Vegas programs, to use the hotel as a stopover.

In August, Gadhia, an avid cyclist, returned to Vancouver after tackling portions of the Tour de France route to resume a race of a different kind. He’ll need the endurance. As B.C.’s casino industry continues to boom, the competition is only going to get fiercer.

Whether riding his bike, climbing a mountain or building a casino empire, Gadhia says he’s ready for it.