Steve Friess - Home Page

Nov. 21, 2008

Las Vegas casino giants feeling the financial crisis

By STEVE FRIESS

LAS VEGAS— UNTIL this economic downturn, the one place that seemed less impacted by hard times was the world's gambling capital.

Yet times are tough even for Las Vegas casinos, as for every other sector of the ailing US economy.

"When we look back historically, this is one of the most severe downturns we've ever seen," said industry analyst Brian Gordon of Applied Analysis. "Wall Street is responding much more sharply, but a lot of that is based on concerns about how a global recession will hit gaming and leisure travel."

The most recent data paints a grim picture that's expected to get grimmer before it gets better. September 2008 saw 10.1 per cent fewer visitors in Las Vegas than September 2007, and those who came paid 21 per cent less per room night, according to the Las Vegas Convention and Visitors Authority. Casinos on the Strip raked in 5.2 per cent less in gaming revenue compared to a year ago.

As a result, the stock market has punished every major publicly traded gaming company. Las Vegas Sands (LVS) is down 95 per cent, Wynn Resorts (WYNN) is down 71 per cent, MGM Mirage (MGM) is down 88 per cent and Boyd Gaming (BYD) is down 90 per cent since last year.

Las Vegas Sands' shaky position was highlighted earlier this month when CEO and majority shareholder Sheldon Adelson announced layoffs of 11,000 construction workers in Macau, where the company has been building an Asian version of the Las Vegas Strip with plans for eight major hotel-casinos. The company has also halted construction projects in Las Vegas and Pennsylvania.

Mr Adelson, who a year ago was named by Forbes Magazine the third wealthiest man in the US when LVS was riding high, has lost an estimated $US34 billion in the decline.

Las Vegas Sands isn't the only company feeling the pain. Boyd Gaming halted construction of its $US5 billion Echelon project on the Strip earlier this year and has said it is unlikely to resume at least until late 2009. Harrah's Entertainment and Station Casinos are facing looming deadlines on debt service payments and have halted plans for redevelopment or expansions indefinitely.

MGM Mirage, the largest US gaming company with 10 resorts on the Strip, has shed about 8.0 per cent of its workforce in Nevada or about 3,200 full-time equivalent positions. The company is moving ahead with an $US11.2 billion, five-skyscraper complex on the Las Vegas Strip, but sales of condominium units at the centre have stalled.

In the third quarter of 2008, the company took reservations on just 32; about 1300 remain to be sold. MGM Mirage also has frozen plans to build a second resort in Macau and to develop a large swath of vacant land at the north end of the Strip.

"What we are experiencing now is unique," said Alan Feldman, senior vice president for MGM Mirage, referring to consumer confidence levels sinking to historic lows.

"Things weren't great this year but they were holding their own. Then in July and August we really started to feel some pressure and the bottom started to drop out in September," he said.

That also wasn't such a big problem in past downturns. Today, Las Vegas resorts earn more than 60 per cent of their revenues from non-gaming sources such as hotel rooms, shopping, dining and entertainment. The last time there was a significant, lasting downturn, in the early 1990s, non-gaming revenue amounted to about 42 per cent.

In past recessions, then, people still found Las Vegas affordable to visit.

"Historically, Las Vegas was a low-cost destination and only the gambling was expensive," said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. "In more recent times, the price attractiveness of Las Vegas -- rooms, things other than gambling -- has increased. We may not seem as much of a price competitive destination as we were in the past."

###

Go to list of Agence France Press articles

Go to list of Publications