For the last couple of decades the news in the business columns has been pretty upbeat for Las Vegas. An unprecedented growth spurt started in the early nineties and except for a couple of hitches here and there it transformed the city into America’s playground and the money seemed to flow like water into the coffers of the casino companies.
But if you need evidence that the recession has hit this city hard, take a look at some of the stories that have come out in just the last couple of weeks:
MGM Mirage is the biggest player in Las Vegas operating high-profile hotels like Bellagio, MGM Grand, Mirage, Mandalay Bay, and many more but last week a raft of stories cropped up suggesting that the company may be considering putting “For Sale” signs on just about everything it owns. They already sold off Treasure Island to billionaire Phil Ruffin and now could be letting go of more. The company is struggling to raise money to finish the (estimated) $11 billion CityCenter project and may be close to defaulting on more than a billion dollars in debt it already has. A deal to secure financing in exchange for running the under-construction Cosmopolitan fell apart and now things are getting so scary that they are willing to sell off assets they swore recently they would never consider letting go of. The biggest question though is who has the cash to buy what they are trying to sell?
The other casino giant Harrah’s Entertainment may be headed for bankruptcy this year according to published reports. Operators of Harrah’s, Caesars, Flamingo, and more in Las Vegas Harrah’s is the largest casino company in the world with dozens of properties. An equity firm took the company private a couple of years ago but now it seems like things are headed into trouble waters as debt piles up and profits drop dramatically.
Station Casinos is the number one locals casino operator with more than a dozen properties around town like Green Valley Ranch, Red Rock Resort, Sunset Station, and more. Earlier this year they announced plans to file for a structured bankruptcy only to find themselves faced with a partial buyout offer from rival Boyd Gaming (Orleans, Suncoast) who wanted to pony up nearly a billion dollars to buy a bunch of Station’s hotels. Station turned down the offer and say they plan to move forward with the bankruptcy but Boyd Gaming says they aren’t giving up that easily and may be back with another offer.
Terrible Herbst is the company that operates Terrible’s casino near The Strip and in other cities plus holds the bulk of the slot route around town, which means they own the slots and video poker machines you see in places like convenience stores and gas stations. Terrible Herbst is also filing for a structured bankruptcy and will break the company up with its creditors taking over the casinos and them keeping the slot route.
The company behind the under construction Fontainebleau could default on debt according to published reports. Analysts say it probably shouldn’t delay the opening of the hotel, currently planned for later this year, but it may open its doors under a massive financial cloud.
The parent company that owns the Riviera has announced that is in technical default on hundreds of millions of dollars of debt. What this means to the legendary Strip hotel is still unclear.
The Hard Rock hotel posted a nearly $300 million loss in 2008 even as they prepare to open a nearly $800 million expansion.
Cannery Casino Resorts, which operates the Cannery and the Eastside Cannery was in negotiations to be bought by an Australian company but that deal has now collapsed. Rumors run rampant that the deal’s death could spell disaster for the company.
As I mentioned in this space a few weeks ago it’s important to understand what is really behind all of this drama. Tourism and gaming revenue are down dramatically in Las Vegas as people find that they have less disposable income and what they do have, they don’t want to spend gambling. But on a day to day basis, most casinos in Vegas are still making money they just aren’t making enough to cover their parent company’s debt.
Almost nothing that you see in Vegas was paid for in cash – it was all financed and we’re talking tens of billions of dollars that creditors are now saying they want back. Just like people who saw their home mortgage payments balloon, the casino companies are now faced with trying to come up with the money to pay their loans and finding themselves short.
So what will Vegas look like at the end of 2009 when, if analysts are correct, we start to come out of the recession?
Well, I don’t have a crystal ball and if I did I’d be using it to try to figure out which slot machine was going to hit. But if I don’t think it take a psychic hotline to predict that there will be some new faces on the Vegas business scene. Most of the casinos in town are owned by a handful of companies after a period of major consolidation. This will head in the other direction as the big companies sell off their assets to smaller gaming companies from other areas of the country or even people who have never been in the gaming business before.
This is totally my opinion not based in anything other than pure speculation but I’d say you’ll probably see new owners for The Mirage, perhaps the Bellagio, at least one of the South Strip casinos like Mandalay Bay or Luxor, and maybe one or two of the Center Strip stalwarts like The Flamingo or Paris.
I’m also going to go out on a limb and suggest that there will be a major hotel casino on The Strip that will close its doors. There are three that I’m thinking of as possibilities that I won’t mention but they are all older properties that have a hard time competing when times are good and their owners may find that it will simply be more cost effective to shut them down.
We’ll reconvene at the end of the year and see if I’m right.
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