Four years into running the 1940s-themed casino in North Las Vegas, they are embarking on plans to rebuild the Nevada Palace on Boulder Highway as the second incarnation of the brand. They will likely link their new casino at a racetrack casino in Pennsylvania with some sort of Cannery theme.

Beyond that, who knows? It could be downtown, on the Strip or in Mexico.

Both men have decades of experience in the casino industry. They currently together manage the Rampart Casino in the JW Marriott Hotel for the hotel's Canadian owner under their company Millennium Management.

Paulos has been managing casinos since 1971, and his former positions were at the top ranks of casinos including Circus Circus and the Excalibur. Wortman is also a former Circus Circus executive and has been a longtime co-owner of Nevada Palace.

The two talked with In Business Las Vegas recently about future plans for their brand, plus their take on the locals casino market.

Describe the brand, the Cannery. How do you want it to be seen, and how is it seen right now?

Wortman: I'll give you an example of what the Cannery is and how we I think best describe it. When we first opened the property four years ago, we thought it had a chance to be a special place. We did our own little survey and talked to customers and said: What do you like, what do you not like? If you could describe the Cannery in one word, what would it be? And about 80 people of the people we talked to, and we talked to hundreds of people, described it as "comfortable."

It's a place customers can come to and they feel at home, not only because of the way it's designed, but I think it's a general operating philosophy we have there. The people we work with, they are very accommodating to our customers. That's what the Cannery is. It's a very, very comfortable place to go to. People are not intimidated, they enjoy their time there, and they truly seek to spend time there.

Tell me about those plans.

Wortman: On Boulder Highway we're going to build another facility. We expect to have that started sometime in the next month or two. We expect to open that in summer 2008.

Why did you decide to remake it as the Cannery and not as the Nevada Palace?

Wortman: We like the brand. The Cannery has become very well known in the community. We like that brand. We think that brand has quite a bit of presence to it. We think that brand will be very well accepted down on Boulder Highway.

What all is the renovation going to involve? How much money will it involve? What all are you going to put inside?

Wortman: We are in the process of completing our budget at this point in time. It will be a comparable casino to those on the Boulder Highway and in that competitive marketplace. We're going to have over 2,000 slot machines, over 300 rooms, in the order of five or six restaurants in the facility. It's going to be a very, very, very nice property. It'll be an upgrade to our current Cannery.

An upgrade - you consider it nicer than the current one?

Paulos: Probably what it is a 2008 version of the Cannery. Just like the Excalibur was the 1990 version of Circus Circus.

Why do you plan to invest so much into that property? The Boulder Strip is not seen as the most upscale market.

Wortman: It's not seen as the most upscale place, but if you look at the Boulder Strip and the activity down there, they continue to grow the marketplace. When you look at the metrics in the market that are out there, they have a substantial customer base on the Boulder Highway.

There are three major properties that we consider competitive to Cannery: Boulder Station, Sam's Town and Sunset Station. We think it's a very good location. We're familiar with that marketplace, we've been involved in the market place for a period of time, and we think there's significant opportunity to bring a new property down there.

There are currently 500 machines at the Nevada Palace. This is certainly much larger. It's going to be a much larger facility.

The project will cost somewhere around $250 million.

If this goes well, what do you predict for the future of the Cannery brand?

Wortman: We are looking to expand the Cannery brand. It has been very well accepted. We think it's a brand that not only appeals to the people in the community of Las Vegas and North Las Vegas, but we think that this brand is transformable to just about Anywhere, USA.

Would you keep building in Las Vegas first and then take it out? Or are you just on the verge of going out to the rest of the country?

Wortman: We're looking in Las Vegas first, because we have the plan to build on the Boulder Highway, but we're also looking at opportunities all over.

What markets are appealing to you?

Paulos: We're in the Pennsylvania market. The Cannery brand goes extremely well in the racino market. It's a very good feel, very friendly, very comfortable. With that brand it just goes over and flows very well.

The very interesting thing is that you're calling it the Cannery brand and we have one Cannery facility. That's how well the Cannery has done in terms of what it has meant to the folks who go there. Just by having one facility that normally in and of itself doesn't really create a brand, but it has because of what it's been to the neighborhood and how it has appealed to the general populous. We're very pleased with it, and we hope to expand.

Not everything has to be called the Cannery, but it can definitely be linked up very well.

What's the status of the Meadows Racetrack and Casino in Pennsylvania?

Paulos: We're right in the middle of construction of the temporary casino. That'll open sometime in May. That will have 1,800 gaming units. It'll be actually a very pretty facility, but almost instantaneously as we finish the temporary facility, which actually will look very permanent, what we would do is we will start on the permanent casino, so that within 24 months after we opened the temporary we will have the permanent one have its grand opening. We're pretty excited about it. That'll be 3,000 gaming units.

Of course we operate the racetrack which races 208 days a year, standardbred racing. It's a pretty active place.

Can you assess the appetite for gaming in Pennsylvania?

Paulos: It's pretty ravenous right now. There are three facilities open. There, and they're doing all very well. We have the only facility in our area for 100 miles. We'll have 2 million adults within a 50-mile radius. We're pretty excited about those numbers.

People in Pennsylvania have accepted that style of entertainment, and it's something for them to do, something different for them to do. As in Las Vegas, we find locals like that entertainment, they like to socialize. That's what people like to do. Las Vegans are not the only people who like to socialize.

The tax rate in Pennsylvania is very high.

Paulos: It's between 55 and 60 percent depending upon how you calculate it. It is extremely high, so we have to be very careful and very smart on how we do things because you really can't make too many mistakes and all of a sudden it really hurts your bottom line. The one thing is that there are only so many slot machines and so many slot machine units that are permitted in certain sections of the state. As far as population per unit.

They kind of protect you by limiting competition?

Paulos: You're pretty well protected. You do have that.

Does that limit the amount of money you're going to invest in making the casino nice?

Paulos: Without question you have to think about your capital investment. There's no question about it. We're a business and we're looking for a return on investment. There's no question the higher the tax rate the more careful you have to be in spending your dollars. If it was a 30 percent tax rate, would we probably reconsider some of the things we do? Without question.

Wortman: It also affects how you operate and how much you spend for marketing dollars. When 55 to 60 percent of your entire revenue base goes to taxation that means you have 40 to 45 percent to pay all your expenses.

Paulos: You don't get the luxurious casinos out here in Las Vegas paying 60 percent taxes. There really is a tug of war that goes on in those states with the higher tax rates.

Have you ever considered going outside the country? You have mentioned Mexico before.

Wortman: We have considered outside the country. For a long period of time the government of Mexico has considered the possibility of legalizing regulated gaming within the country. They have not yet done that. There certainly is a newly elected government that's in place now. One of the issues they talked about in this new government was the creation of jobs.

There's a six-year term for the president, and there is a chance that he will revitalize the possibility of bringing gaming in. If they do that, then we will certainly look at opportunities down there.

Moving back to Las Vegas, tell me about the Rampart. How long does the lease last for?

Paulos: It lasts for 10 years. It runs out five years from now.

Do you aim to renew that?

Paulos: Yes we do. We have very good relationships with our landlords, Larco Co. out of Canada (the owner of the JW Marriott). We're always in constant communication on how we can improve the product and how we can move forward. We're looking forward to a very long relationship with the Rampart.

What do you mean by improving the product? What are some of the things you've done?

Paulos: For instance, when we first got here the pit area was three-foot low. You had to walk downstairs to go through it and walk upstairs to get out of it. The customers didn't like to do that very much.

I know upgrading is important anyway, but is it especially important now that you have competition with the Red Rock Resort?

Paulos: We've always had competition, and Red Rock just creates more gaming units in the marketplace, so there's less population per gaming unit. We have to keep up, but what we can't do is we can't change the essence of what we are - that intimate, very European-style casino that our customer likes.

We still maintain one of the best utilization numbers of any of the casinos and have the highest market share of our competition. Although there's more competition in the marketplace, the Rampart is still doing extremely well.

Wortman: Because of the loyal customers, because of the way we treat them, and we treat them in the Cannery style.

Did you see a dip of customers when the Red Rock Resort opened?

Paulos: No question the people are going to go and visit the Red Rock. Red Rock is a lovely facility, and obviously for Station it's a very successful facility. They do a very nice job, but so do we. We certainly have a comparable attraction here at the Rampart.

The one thing we have is we have that feel that people get when they come in here that they're not in this giant, immense facility. It's this nice, boutique casino that people love to come to.

Can you talk to me about the locals market as a whole? Where do you see it going?

Wortman: I think the locals market has proven to be very, very resilient and very, very, very strong. We have at least from our perspective, we have been lucky enough to have year-over-year gains for quite a period of time.

We've had at the Cannery significant year-over-year growth since we opened the property. We have been very, very, very successful at Rampart as well. There are concerns in the marketplace that the locals market is slowing down, and I think that's just new supply into the marketplace.

We see more people moving into the community, moving in at the same rates as before, so we see this marketplace getting larger and larger. I don't think there should be any concern about the local market.

I went to the community meeting Station Casinos had for their Aliante Station. Everybody there said they wanted it to be as nice as Red Rock. Station said: "Well, it's not going to be that nice." Do you think the locals market will be able to sustain a higher level for new properties than they did a few years ago?

Wortman: I think they will absolutely sustain or try to develop properties at a higher level than a few years ago. Will they develop properties at the investment level that Red Rock is? I rather doubt that. I think that investment level at a locals casino is extraordinary, and it's a beautiful, beautiful place. I think that locals casinos into the future are always going to be much more complex, a bit larger than, a bit nicer than, they originally started out to be. But I think there will be fiscal restraints on how much they spend.

Paulos: Everybody has their level of return on investment. And it's very difficult. In every marketplace within the entire valley there are a number of subset marketplaces, and not every one has the same socioeconomic scenarios.

You've got to play to that. There are casinos that were built that were one thing, they had a complete facelift and were not very successful after the makeover because they went past the comfort level of their consumer. You've got to be very careful and you want to guard against that. I completely agree with Bill: Are we going to see many more Red Rocks to invest that kind of money? I doubt it.

Wortman: I think two very, very good examples of locals casinos built to meet the market are Green Valley Ranch, which is very, very successful. It's a beautiful place, well designed, and not inexpensive to build. That met the market in that particular location. That particular property may not have met a market elsewhere. It may have not met the market on the Boulder Highway.

The Cannery was built in North Las Vegas. It has absolutely met the market that we calculated for North Las Vegas. It is, as we said, a place that is very comfortable for our customers at the hotel there and the customer base there.

We look at a facility and we look at what the market is and what kind of product we construct to meet the market. I think our competitors are doing that now. Station has come out and said their new product at Aliante will not be Red Rock. Red Rock would not meet that market at Aliante.

What about the downtown casinos? Does that ever play into concerns about competition?

Wortman: No, it doesn't play into our concerns about competition. We certainly have followed what's going on downtown and we will continue to follow what's going on downtown. There are different theories about whether downtown will have a rebirth. You can see as we speak there are things happening in the downtown area that point to downtown making a comeback assuming that they've gone anywhere.

We will look at downtown as an opportunity actually.

As you expand, you'll have to add more management, right? Tell me about your new corporate office. (The office opened after the interview took place.)

Paulos: Our office is to house the staff we now have, and we have them spread out. (We were) spread out at two locations and it (was) rather difficult.

We have a staff, but we're very lean. We don't believe in everybody wearing one hat. We all wear a few. Everybody likes that, and everybody gets involved in what we do.

People say we're like a family. We really are like a family. What we're doing is we're streamlining what we do to make it better. Because the two decision makers are technically right here, we can move pretty quickly.

Wortman: One of the things that we do is obviously when we expand our business we're going to expand our staff, but it's more specific to the location. We want to put human resources in play where they have impact with those customers, and that is at the location.

We allow our general managers some autonomy. We hire them because they're talented, we put them in place and we don't want them to have strings. We want them to be able to take control of and really feel comfortable that it's their facility. Our staffing is a bit different to some our competitors where they build a large corporate staff.

Paulos: It's very important for us being in the business as long as we have, we've made the mistake, or at least I have, of thinking you can operate all the facilities the same way. You can't. Quite frankly this market right here where the Rampart is is a different market than eight miles away where the Cannery is and different than a market in Pennsylvania. Our general managers are the captains of their ships without question.

I bet they appreciate that.

Paulos: It's their responsibility. We give them the latitude to do what's necessary for them to be successful and for their staffs to be successful. What we do with our corporate staff is to provide a guideline. We continue to provide them with a new look and help them with our philosophy, because our philosophy of business will always be the same no matter where we are. But there's no question operational-wise that you have to change from market to market, because you stub your toe if you don't.

What is it like managing the Meadows? How often do you travel there?

Paulos: I'm there at least once a month. Again, now we have cell phones, we have faxes, we have e-mails, we have telecommunications. For instance one of the big things in our corporate office is we're going to have teleconferencing. We'll be able to sit down, look at our general manager, our staff in Pennsylvania, and it's just like we're there.

What is the status of your deal in New Hampshire?

Wortman: We are interested in New Hampshire. We have entered into an option to buy a racetrack in New Hampshire, and we have an interest. Certainly slot gaming, video lottery poker has not been approved by the legislative process, but we certainly have an interest in areas that make sense in New Hampshire.

What attracts you to racinos?

Wortman: Racinos are one of the largest growing sectors of our business. Racinos are usually in locations that don't have significant competition. When approved they're usually in a state that approves gaming on a limited basis, and that limited basis is video lottery terminals at racinos primarily. Pennsylvania expanded that a bit. When you look at a state the size of Pennsylvania there are somewhere on the order of 14 licenses, and seven are racinos.

So that's one of the advantages to that. Quite frankly that's why the tax rates are as high as they are because there is such limited competition.

Paulos: In a business model sense there are normally places that have been in the area for a very long time. They were at one time the major focal point of entertainment in their respective areas, so you have a built-in attraction. Now what you're going to do is you're going to take it and combine it with another form of entertainment and just create more excitement in that marketplace. It's a fun venue to work on and to get people to come to.

Wortman: The other thing that happens in racinos in many locations now is that with the introduction with VLTs (video lottery terminals) you're able to reconstruct jobs in the area, you're able to reconstruct the facilities. The equine business hasn't had the best time over the past several years.

Many states that have allowed racino VLTs require a supplement to the purses. The supplement to the purses not only helps the racing side of the business, but the VLTs allow you to rebuild and reconstruct the facility and create more jobs in that area. There are many, many positive benefits that come to an area that for many years have had racing.

I know that horsemen's associations are very desperate.

Paulos: They are. The truth of the matter is that in many areas of the country the horsemen barely make a living wage living at these tracks and it's very difficult for them.

People don't realize that (racing) is just a small segment of that industry, let alone the farm raising and the training. It's a major industry in many, many states that people don't realize. It just continues to cascade down and (VLTs) benefits a large, large number of folks. It really does help.

Do you see slots or VLTs at horse tracks being kind of a gateway to expanded gambling in certain states, like Pennsylvania or maybe Arkansas?

Wortman: Slots at racetracks, that's expanded gaming as it is. Remember that the racetracks itself, one of the things appealing about racinos is that they've had gaming a long period of time because people bet on horse races.

They also bet on races from other locations that are televised into that site. It is within the community for a long period of time. That in itself is expanded gaming.

It has happened where racinos have subsequent to VLT introduction have expanded past that to other kinds of gaming, for example table games, but that hasn't happened often. It may happen in West Virginia.

Are you worried that some of the limits on slot competition might go away if residents decide that gambling has worked OK and decide to allow more in the state?

Paulos: You always have to be aware, cognizant that that's going to happen. Most states legislate it and to make a change in the super majority in the house and senate, it's very difficult to change.

Wortman: From an economic model most states that have restricted gaming, restricted to the extent that there's not that many locations, when they have tax rates that are 50 percent it's difficult to make investments in that if there are too many locations.

Everybody has that kind of threshold as to what kinds of returns they're going to take, and they have to factor in the tax rates and what they're going to earn in a location. With those tax rates our industry and other industries could not handle free competition. It wouldn't work.

Paulos: You look at New Jersey. How long has New Jersey talked about putting slot machines at the Meadowlands. Illinois has talked about their 10th casino for a very long time. It's very difficult to get that on. Again it's because you've go to be very careful about the economic viability of those guys who have already been participating there.

Wortman: They could ruin their business by allowing too many licenses.

In your expansion plans have you ever considered going to the Strip?

Wortman: We have considered going to the Strip. We have looked at potential parcels on Las Vegas Boulevard. We have not found what we wanted, but we certainly have looked in that area.