Facing bad odds, Las Vegas casino companies play the cards they are dealt
Las Vegas (AP) – Major gambling companies‘ ledgers have told the same, sinking story for a year: Fewer people are visiting casinos, their trips are getting shorter and they’re not gambling as much.
Casino construction has slowed or halted from one end of the Las Vegas Strip to the other, more than a dozen projects across the U.S. and abroad have been modified or dropped, and more than 40,000 new rooms in Las Vegas planned by some of the industry’s biggest players are on hold.
Among other bids to entice customers in the lagging economy, casinos across the country also have slashed room rates. But executives are heralding bigger changes than two-for-one deals on rooms as a decade of rapid revenue growth based on physical expansion and easy credit has stopped short.
Industry leaders are following the widespread layoffs, debt reduction and other cost cutting of recent months with calls for innovation and a back-to-basics approach that focuses on delivering a quality at good prices.
Most casino markets in the United States already are saturated, said Jonathan Halkyard, chief financial officer for Harrah’s Entertainment Inc., and operators have to start thinking beyond their next construction project while the economy retrenches, he said.
MGM Mirage Inc. chief executive Jim Murren said he’s seeing small signs that travelers are opening up to Las Vegas again, but not enough to predict when a recovery might happen.
„We have a consumer that is not confident, that has been scared, and has every reason to be scared,“ said Murren, whose company has more casinos on the Las Vegas Strip than any other.
The world’s four largest casino operators — MGM Mirage, Harrah’s, Las Vegas Sands Corp. and Wynn Resorts Ltd., all based in Las Vegas — are preparing to play the hands they have. There are no new plans afoot for new flourishes like the multimillion-dollar volcanoes or fountains that already grace the Strip or for expensive new clubs or hotels built substantially on credit.
„The executives‘ optimism is shaking,“ said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.
Gambling revenue for commercial casinos across the U.S. dropped USD 1.1 billion, or 3.6 percent, to USD 30.2 billion in the first 11 months of 2008 compared with the same period in 2007, according to the American Gaming Association. Many states saw much more dramatic drops, except Pennsylvania, where casino gambling began only in 2007. The figures include only private gambling operations and not, for example, casinos owned by Indian tribes, which also have seen revenue tumble and some of which have cut staff and other costs in response.
In Macau, a Chinese enclave hailed as the next Las Vegas, American casino companies have been cutting table games and slot machines to cope with tightened Chinese visa rules and the recession, said gambling analyst Celeste Mellet Brown of Morgan Stanley Research. Revenue fell 2 percent for the fourth quarter in Macau, Brown said.
Visitor volume in Las Vegas declined 3.8 percent for the first 11 months of 2008 compared with 2007 — meaning 1 million fewer people showed up to gamble, shop and dine out — and revenue here dropped 9.3 percent, according to the Las Vegas Convention and Visitors Authority.
Wynn Resorts was the only operator among the four largest that saw growth between the first three quarters of 2007 and the same period in 2008: Its net income rose 92 percent to USD 369.8 million from USD 192.7 million.
Las Vegas Sands and Harrah’s each lost money during the first nine months of 2008, while MGM Mirage’s profit plunged. Sands lost USD 52.2 million from January through September 2008, after earning USD 76.8 million for same three quarters in 2007. Harrah’s lost USD 415.1 million in the period in 2008 after earning USD 667.2 million in 2007.
MGM Mirage earned USD 292.7 million, down nearly 59 percent from USD 712.21 in the period in 2007, creating some uncertainty, especially in Las Vegas. Murren said he told 2,700 casino managers during two meetings last week that he didn’t know if his company would trim more workers — it has laid off 3,200 since October 2007 — or sell other casinos. It recently sold the Treasure Island for USD 775 million. He also told the managers MGM Mirage may sell noncore assets, including two airplanes and nearly 300 acres of land in Nevada and Atlantic City, N.J., he told The Associated Press.
„If the market doesn’t grow, it’s going to be a market share discussion,“ Murren said in an interview.
The company must stay its course by finishing CityCenter, its USD 8.6 billion project on the Strip, he said. But, instead of borrowing more and spending more, the company is exploring a half-dozen deals around the world in which it will lend out its name and expertise, he said.
„We have vastly under-leveraged brands,“ Murren said. „Who does not know Bellagio, and yet there’s only one Bellagio? And MGM is one of the most recognized brands in the world — a lot of people still think we make movies — and how do you not try to leverage that?“
That sentiment is reverberating through the industry.
„Here’s an idea: How about innovation? I mean if you look at the slot machine, it’s basically the same as it was 75 years ago,“ said Halkyard, the CFO at Harrah’s, the world’s largest gambling company by revenue.
„There has been a shocking lack of innovation around our core product in this industry when compared to virtually any other consumer entertainment product over decades,“ Halkyard told the AP.
Last week, the privately held company — which owns or manages 50 casinos in six countries, including 20,000 rooms in Las Vegas alone — said it would wait for demand to pick up before it finishes more than 600 new rooms at its flagship Caesars Palace on the Strip. Harrah’s has been restructuring its debt and in November withdrew a proposal made with partners to manage a USD 535 million state-owned casino in Kansas.
Instead, Halkyard said the company is experimenting with ideas like sending guests same-day specials at shows, restaurants and clubs by text message.
„Once people are here, it is fierce competition for their attention,“ Halkyard said.
Sands‘ president and chief operating officer, William Weidner, said at a conference this month that his company’s strategy is not changing much, however, in the hope that it can take quick advantage when the economy rebounds.
„But again, we are very mindful of the degree of difficulty,“ Weidner said. „We’re very mindful of how difficult ’09 is going to be, and we’re focused on operating through ’09 as we get into ’10.“
Sands is working to finish developments on time and on budget, he said.
Anthony Marnell III, chairman and CEO of the USD 1 billion M Resort, Spa and Casino to open in March south of the main resort corridor in Las Vegas, said times may have changed forever.
„Two years ago, you didn’t have to differentiate yourself — you could just build a nice, big, brand new building and put a good product out there, and you could charge just about what you wanted for it, and people would pay it and keep coming back for more,“ Marnell said.
Marnell said fewer consumers will tolerate USD 15 martinis, USD 50 filets and USD 2,000 booths in nightclubs.
„The masses … they’re done with it,“ Marnell said. „They are going to stay retracted and conscious of their dollars for a long time.“
Billionaire Steve Wynn’s resorts — including the Wynn Las Vegas, Wynn Macau and Encore in Las Vegas — cater to customers used to expensive drinks. But the Wynn CEO said casino operators run smoothest when they plan prudently.
„There’s nothing up our sleeves here — this is just common sense,“ he told the AP when Wynn opened Encore in December in Las Vegas. He expects to open a USD 700 million Encore resort in Macau by the end of this year.
„Whether you’re talking about the capital structure of the company (or) the way the employees are treated, all that results in the guests being able to trust us to be the same this month and next month,“ he said. „If we can do a good job opening week, when everything is on trial, then sure as hell we’re going to be dandy six months from now.“