Gamers feeling the recession

March 04, 2008 7:01 AM
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By David Stratton | Casinos are feeling an economic pinch from the slumping economy, with competitive pressures actually fueling some trash talking among the biggest casino moguls in Las Vegas.

Casino gambling revenue, the amount lost by players, doubled between 1995 and 2006 to $32 billion, according to the American Gaming Association, but that trend has flattened over the past 18 months.

Harrah’s Entertainment, the world’s largest casino company, and Boyd Gaming both posted weaker quarterly earnings last week and both described the economic environment as "challenging."

"Competitive pressures in several markets do not appear likely to lessen in the near term," Oppenheimer analyst David Katz said in a report released last week.

Those companies’ weaker earnings came a day after Pinnacle Entertainment, which operates casinos in regional U.S. markets, posted a wider fourth-quarter loss, mainly because of costs related to opening a new casino. The company said progress on other projects hinged on improved access to credit financing.

Harrah’s, which operates Las Vegas Strip resorts like Caesars Palace and the Flamingo, posted a fourth-quarter loss, burdened by impairment charges and losses at its properties in Illinois and Indiana.

Boyd Gaming, which owns and operates 17 casinos in seven states, posted a 45 percent drop in fourth-quarter profit.

Boyd, which is building a casino resort called Echelon on the Las Vegas Strip, said net income fell to $31.2 million, or 35 cents per share, from $56.3 million, or 64 cents per share, a year earlier. Revenue fell 8.1 percent to $478.6 million, Boyd said.

Despite the softer gaming market, the casino giants are forging ahead with plans for billion-dollar mega resorts.

Sheldon Adelson, the third-richest man in America and chief of the Las Vegas Sands Group, last month opened the largest hotel-and-casino complex ever built – his $4 billion, 7,200-room Italian-themed Venetian & Palazzo on the Vegas Strip, and is planning to build another multi-bil-lion dollar casino hotel complex, with up to 5,000 rooms and 1,000 condominiums.

The 74-year-old Adelson told the London Times last week that, while he may be only 5ft 7in tall, he is still the biggest crap-shooter in town.

"Some casino operators are born more equal than others. We do a better job than the other guys," he said. "So-called rivals may criticize me, but I say: are their properties built yet? Are they making as much as me? Are they as rich as me? No, no and, hell, no."

If it sounded like there was some contempt in Adelson’s tone it may because of the view from his office window, which overlooks Steve Wynn’s hotel/casino, and his new Encore currently under construction.

"Steve Wynn thinks that his pearly white teeth – veneers I think they are – shine very good. He thinks he’s some kind of superior being," Adelson told the London Times, apparently irked by claims that the Palazzo is a cheap copy of Wynn Las Vegas. "But he’s not superior. He is just like anybody else. He puts his pants on one leg at a time, like I do."

Not to be outdone, Wynn took shots of his own, like a trash-talking fighter before a title bout.

Wynn lambasted Adelson as a "Mr Magoo figure" who runs "a Wal-Mart-style operation" and says that Adelson is a man "who harbours a lot of animosity towards a lot of people."

Wow, familiarity actually does breed contempt.

From their view on the south end of the Strip, MGM Mirage executives dismissed both Adelson’s and Wynn’s latest developments as "old-fashioned towers sitting on top of slot machines."

Chairman Terry Lanni’s right-hand man, Alan Feldman, told The Sunday Times: "The days of the traditional Vegas approach – pastiche, themed, cartoonish resorts – are over. It’s about mixed-use property and cutting-edge architecture. That’s what we have at City Center. We’re different. We’re better."

Adelson’s response? "When we eat their lunch, when we take away their customers, they’ll say something different."

The trash-talking may be more than just the usual jockeying for position. Behind the bravado, casino bosses are nervous – and with good reason.

Their giant gamble – probably worth about $30 billion – could scarcely have come at a worse time and could turn into a jackpot-sized bust. Fears of recession, the credit crunch and the sub-prime housing crisis are buffeting the American economy. Consumer spending is down. The Nevada gaming authority said last week that casinos on the Las Vegas Strip won 19% less money from gamblers in the last quarter of last year, compared with 2006.

"It is hard to ignore what looks to be like a deceleration in profitability and rising development costs," said Goldman Sachs analyst Steven Kent.

The Las Vegas Convention and Visitors Authority recently launched a new advertising campaign – "Your Vegas is showing," which is now running alongside the highly successful "What happens in Vegas stays in Vegas."

In the wake of the recent trash-talking animous, maybe the slogan should be, "Your red ink is showing."