As the myth of the "recession-proof" casino industry continues to collapse, it's taking Herbst Gaming down with it.
OK, that's both true and false. The recession has taken a toll on its Midwest properties, one of which is already for sale. But it looks like a lot of the blame resides with ex-President Edward Herbst, who tried to grow the company too fast too soon, meaning that his eponymous company is seriously looking at bankruptcy. The decision to try and absorb both Sands Regent and MGM Mirage's Primm holdings simultaneously has left Herbst Gaming with a crippling debt burden.
The company blames its troubles on new restrictions on smoking in Nevada, which have taken a -19% toll on its slot routes. (Herbst tried to help push through a toothless version of the same initiative, one which would have actually allowed more public smoking, but voters weren't fooled.) But the smoking ban was a done deal when Herbst bought Sands Regent ($149 million) three months later, compounding that by paying almost $400 million for a ragtag trio of casinos at the California border.
Maybe Herbst (the person or the company) thought these acquisitions would act as a hedge against withering slot routes. Instead, slumping slot-route revenues combined with $553 million worth of new property constituted a life-threatening double whammy.
Oh, and Herbst is also blaming SoCal's tribal casinos for contributing to its plight but, again, it should have known and anticipated that when it put most of its chips on Primm. Then again, Herbst thought it could reverse a historical decline in Primm revenues (-$45 million between 2000-03), and the very well-sourced Review-Journal story indicates Herbst execs were aware they were swimming against the tide ... but overconfidently figured they could do what King Canute could not -- bid the tide to reverse itself.
This is the second time in a year (Columbia Sussex being the first) in which a casino company's eyes were bigger than its stomach -- or wallet, rather -- and it may have to ultimately dismantle the castle of cards for which it arguably overpaid. Now Herbst's bond debt is scarcely worth paper on which it's printed.
Over at perpetually struggling Lake Las Vegas, the owner of the Ritz-Carlton resort just made a dash for bankruptcy court, says Bloomberg News (sorry, no link), its creditors snapping at its heels. Almost literally. Village Hotel Investors, a half-billion in debt, had to file Chapter 11 lest its assets start going on the block.
Poor Deutsche Bank. The Lake Las Vegas Ritz-Carlton secures a $103 million loan to Village Hotel Holdings. Not only that, VHH tried to sell it in 2007 but found no takers. Deutsche Bank, you'll recall, is foreclosing on the Cosmopolitan project, now that developer Ian Bruce Eichner has turned out to be all hat and no cattle.
On the brighter side, the consortium owning Planet Hollywood is losing less money than ever. OK, that doesn't sound so great, but the former Aladdin hasn't had a profitable quarter since, oh, forever. Casino revenues are up 9% -- and no wonder, since the casino makeover has been a real triumph of design, making it one of the few on the Strip that looks as hip as it claims to be. And principal owner Robert Earl has done a terrific job of reintegrating the casino with the Strip. It's not 'the casino up on the hill' anymore.
But what's Earl smoking when he says 2007 "was the finish, the clean-out of the Aladdin"? I'm over there a lot (A. Lot.) and the endless retail mall is still one-half Miracle Mile, one-half Desert(ed) Passage. The re-theming isn't anywhere near finished. And that butt-ugly hotel tower will always be there to remind us of the tacky Arabian Nights theme that Jack Sommer and London Clubs jointly foisted upon the Strip.
Oh well. When Earl's people get around to removing the last vestiges of Olde Araby from Desert Mile or Miracle Passage, or whatever you want to call it, he can hold yet another "grand opening." He's done -- what? -- two, three already? What's a few more grand openings among friends?