David Mckee's Stiffs & Georges - Herbst Gaming

Signs of the Times

Wed, 22 Jul 2009 12:27:00 -0700

Caesars Palace's jumbotron was hawking a poker "tournement [sic]" as of last night. Having an ex-Harvard boffin at the helm evidently doesn't raise a company's I.Q. level. You half-expect that sort of spelling gaffe on the marquee at Terrible's; at Caesars, not so much.

It was wall-to-wall people at the Golden Nugget last night. Which goes to show that a scarifyingly depopulated Riviera on Monday night was not indicative of some citywide malaise. (What it bodes for the Riv is less than reassuring, however.) Nugget owner Tilman Fertitta is really packing them in -- at least in terms of bodies, if not dollars -- particularly the retirees. If Anthony Newley shout-outs are your thing, you'll love headliner Gordie Brown.

Thumbs down, however, to some price-gouging we encountered at The Grille, the Nugget's fast-food joint. Two bucks gets you a soda -- in a thimble. And don't be goin' askin' fer no refills, buckaroo, 'cause they're ain't none. Just skedaddle now afore somebody takes a brandin' iron to yer hide, tenderfoot.

Fertittas reinvest ...

Tue, 07 Jul 2009 16:22:00 -0700

... not in Station Casinos but in Orange County real estate, it would seem. The neighborhood is popular with casino moguls who have run their companies into the ground: A nearby, $35 million crib is a domain whose master is Jerry Herbst, late of Herbst Gaming, recently surrendered to its creditors.

At least Frank J. Fertitta III can argue that he was bargain-shopping, as his Emerald Beach pied-a-terre was purchased for 24% off list price. Station employees, however, aren't likely to be house-hunting anytime soom.

I'm reminded of something Transport Workers Union representative Joe Carbon said last week: "That's what it's about ... the CEOs making their $25 million and the workers having their health plan cut." He wasn't speaking of Station or Herbst specifically but the consequences of poor leadership at both redound primarily to the workforce -- and the creditors.

Atlantic City strip tease; Sheldon sacks the help, etc.

Thu, 02 Jul 2009 12:37:00 -0700

Unfortunately, it does not involve some Cinemax hottie like Kim Dawson but rather Mayor Lorenzo Langford, who's doing a fan dance involving Bader Field. He's had discussions with interested developers -- too interesting to discuss! He'll have "exciting" revelations -- too exciting to reveal! And it will -- brace yourselves -- "have some connection with casino gaming."

Why, you could knock me over with a feather.

Right-sized into oblivion. The workforce at Palazzo-Venetian has fallen below 7,000 with yesterday's purge of 194 employees. "It's an effort to continue to right-size our business," wailed the company. Geez, if they're so intent on trimming the ship, how 'bout asking for a give-back from their $2 Million Man, President Michael A. Leven?

Sands bombs in Bethlehem. Forget those roseate cash-flow projections Sheldon Adelson made when building Pennsylvania's second-most-expensive casino. Revenues at Sands Bethlehem have been in a steady decline since the place opened, reducing it to the #5 casino in the Keystone State.

Primm and proper. Although Sin City Kitties has closed (sniff!), there's still reason aplenty to visit the Herbst Gaming trio of casinos in Primm, Nev., Liz Benston contends. Most of those reasons entail copious freebies ... or at least bargain-basement prices.

The story doesn't mention the single most interesting phenomenon I've observed out there: a higher-than-[Strip]-average number of African-American and Latino players (it's the most integrated casino floor I've set foot upon). But Benston's look-in makes a strong case for those of us who think Herbst CEO Ferenc Szony is the man to turn these places around.

The money quote is from Szony's man in Primm, General Manager Michael Starr, who says, "I have yet to make money on a vacant room in this business." There's but a few CEOs in Vegas who couldn't stand to have that chiseled into their bedroom wall so that it's the first thing they see in the morning and the last thing at night. Those are words of wisdom, Mr. Starr. Long may you flourish.

There's theatre in Vegas. True, you have to poke around behind the dodgy Sportsman's Royal Manor on Boulder Highway to find it sometimes. But the trip to the dark side is definitely worthwhile.

The Trop heist that wasn't

Fri, 26 Jun 2009 14:49:00 -0700

"An improvident indictment." That's what New Jersey officials are calling a case that was quietly quashed in May. Sacked Borgata veep John Conklin and two other men had been charged with plundering the Tropicana Atlantic City's database when they were in the Trop's employ (and when the Trop was still owned by Aztar Corp.).

Closer examination revealed that nothing had been purloined and the data in question was not particularly sensitive, either. All three indictees have been exonerated ... but where does John Conklin go to get his career back?

Phantom redux: Defying the odds, the Venetian's production of Phantom of the Opera celebrated its third anniversary Wednesday night. I jotted down a few observations for CityLife. (Tina Walsh fans, take note.) Having seen the Broadway production -- albeit many years ago -- I'll be the first to allow that it actually improves on the original in a respect or two. Oh, and my CityBlog entry misspells choreographer Gillian Lynne's last name. My apologies.

Two titans of American popular music "played Vegas" last weekend. Actually, Loretta Lynn was in North Las Vegas and Aretha Franklin all the way out in Primm ... not remotely near the Strip. What's wrong with this picture? Or this one ...

Midnight Jim: taking down Big Oil

It's summer and gas prices are -- like, duh! -- on the increase. Gov. Jim Gibbons doth suspect that dark, foul, untoward schemes are afoot. But Midnight Jim assures us he is on the case. I feel safer already.

Gay cowboys. They're queer, they're here and they're at The Rio specifically. A straight-gay coalition turned out in force last night to celebrate its victory over Midnight Jim's benighted opposition to domestic partnerships. (Because that's not how he rolls, y'see.) Speakers included Harrah's Entertainment Vice President Jan Jones, who led the charge on Carson City.

For all the failings of CEO Gary Loveman's stewardship of Harrah's, on his watch the company has expanded its already-enlightened attitude on social issues. It's not just a question of being gay-friendly; it's good business.

Worth -$23 million?

Isle of Blight. Is the woebegone Greek Isles casino-hotel worth less than nothing? In a sense, yes, since it owes $67 million on a book value of $44 million. Even a resale price at book value seems wishful thinking, considering the Isles' chequered history.

Asserts the Las Vegas Sun, "With its strategic location near the Las Vegas Strip and the Las Vegas Convention Center, the Greek Isles and its associated real estate are seen as having long-term value after the recession ends."

Yeah, but it's had that "strategic location" for as long as it's been in existence and the Isles' progress has been a steady one from Bad to Worse. I wouldn't give a plug nickel for the place -- not with Strip land prices in freefall and vast acreage there lying fallow.

Miracles are possible. Work on Marina Bay Sands is, believe or night, a fortnight ahead of schedule. Next step: Hold the line on that (already swollen) $5.4 billion budget.

The waiting continues in the great state of Kansas. Its lottery commission wants another two months to review applications for the Wichita and Kansas City markets. Considering the recent flurry of dropouts (including Vegas' own Golden Gaming), you'd think this would expedite the process. Instead, the coronation is six months away.

Squeeze play. No time is being wasted as Pennsylvania rushes toward expanding into Class III casinos. Two rival proposals to add table games are presently on the table. Casino lobbyist Steve Rittvo is forwarding a plan that would tax new games at 12%. This is projected to generate $165 million for the Keystone State (assuming that slot play concurrently increases sufficiently to generate a $61 million impost).

House Whip William DeWeese (D) counters with a 21% tax, combined with a one-time $10 million/casino fee, for a potential Year One windfall in excess of $300 million. I wish Rittvo luck but fear that solons will -- as they so often do -- gravitate toward the bigger dollar sign. It's an institutional failing.

Neil Bluhm, Philadelphia's Sugar[House] daddy

On a happier note, Neil Bluhm's revised design for his Sugarhouse Casino, on the Philadelphia waterfront, has received the green light from the City of Brotherly Love. Barring further legal mischief by sore loser Donald Trump, this means the project can finally move ahead, with a temporary, 1,700-slot casino slated for a Spring 2010 opening. Hallelujah!

First, some good news

Thu, 16 Apr 2009 18:19:00 -0700

In a refreshing change of pace comes news of a casino that's on schedule for its opening. OK, so it's in Dodge City, Kansas, but we'll take good news wherever we can get it these days. Whoever thought avionics firm Butler National would be the sole casino bidder to make good on its Sunflower State commitment?

How quickly we forget that the original plans for Red Rock Resort called for three condo-hotel towers. Station Casinos was feeling its oats back then, thinking big even as it projected only single-digit ROI at Red Rock as far out as 2011 or longer. Overconfident much?

They like us. They really, really like us. Casinos in Southern Nevada feeling the recession's pinch are suddenly overflowing with newfound lurve for area customers, long taken for granted. Here's what's on offer so far. Satellites like Primm and Mesquite weren't any great shakes during Vegas' halcyon years. Why you'd go out there now when oligopolists Herbst Gaming and Black Gaming have helped run their respective markets into the ground is difficult to fathom. (Primm, at least, has a good outlet mall. Mesquite ... not so much.) Oh, and what's wrong with this "Stay and Play Here" graphic?

Goodman one-ups Adelson. Although he's never exuded warm fuzzies toward the Culinary Union, neither has -- to my knowledge -- Sheldon Adelson called his longtime adversary "evil." So Mayor Oscar Goodman stepped into the breach -- or stepped in something. As for the Culinary, it's got much bigger problems to worry about.

Any company that planned an ultra-high-end Elvis Presley-themed resort (a conceptual disconnect if ever I heard one) doesn't have both oars in the water. This one doesn't have money in the bank, either, and may soon have its Strip parcel sold right out from under it.

Las Vegas' best low-cost attraction is on the move, down the road to 1610 E. Tropicana Ave. If there's a guest list for the grand reopening, Elton John isn't on it.

Megabucks myths exploded

Tue, 14 Apr 2009 11:22:00 -0700

That $33 million jackpot scored by Reno resident Rachael Renée Romanick highlights two fallacies surrounding progressive slot jackpots. The first is the urban legend that Megabucks always "hits" at the newest casino. (It's a useful myth, seeing how it would motivate slot players to flock to, say, M Resort on the perception that Megabucks was about to go into a "hot cycle."*) After all, Ms. Romanick's big win occurred at lowly Terrible's Rail City, a Sparks casino** that's not only practically unknown outside Washoe County, it's in bankruptcy too.

Second, casino executives ought to quit railing -- pardon the pun -- against revenue-participation games and take a minute to kiss the shoes of IGT. After all, it's the latter who's responsible for paying the jackpot. Imagine the difficulty Ms. Romanick might have collecting from stoney-broke Herbst Gaming (owner of Rail City) ... or any of a number of casino companies whose solvency is currently open to debate.

* -- a term that a former editor of mine unforgettably dubbed "useless voodoo"

** -- Is that Herbst CEO Ferenc Szony doing the voice-overs on the Rail City Web site? It sure sounds like him and Szony loves to put a personal touch on his casino promotions.

The Company That Ate Itself

Wed, 01 Apr 2009 17:29:00 -0700

Perhaps it was with dry irony that the Las Vegas Review-Journal's latest Station Casinos story's subhead read, "Company blames economy, poached customers." And by whom might those customers have been poached? By Station Casinos itself! The company's imperial overreach has reduced it to gnawing on its own femur, as each new Station property cannibalizes business from somewhere else in the Fertitta empire.

Bad as the 2008 financials were, 2009 is going to be that much worse once the encroachment of M Resort begins to be felt. Last year, Station's casino revenues fell by 11% and ADRs were down comparably. A 14% slippage in cash flow from 2007 meant that a deal valued at a rose-colored 9.7X EBIDTA is now effectively over 11X cash flow. Even had the Fertitta Brothers not insisted upon carting home a half-billion dollars as part of the buyout, its valuation would still have been quite over-optimistic.

(Even in a boom year, Station's proposal to dilute Aliante Station's revenues with a nearby "Losee Station" would be inexplicable. Given the company's current financial performance, it's an idea quite a few fries short of a Happy Meal.)

Elsewhere in the casinosphere, the closest thing to good news was Planet Hollywood's disclosure that it shaved 40% off of last year's losses, thanks to a nearly 8% revenue increase. More alarmingly, the Las Vegas Hilton -- seemingly the one casino-hotel Colony Capital couldn't ruin -- has swung from a profit to a loss.

It's a business miracle! Losses at soon-to-be-cleft Herbst Gaming widened by 60%. Most of that was driven by a -33% downward spiral in slot-route revenues. By contrast, the ouster of sundry Herbsts in favor of CEO Ferenc Szony appears to have given the company's 15 casinos a boost because, as dowdy as some of those places are, their revenue actually grew 1% last year.

For most companies that might be unremarkable; for Herbst it's a miracle. It also puts paid to the Herbsts' face-saving insinuation that, by keeping the slot routes and parting with the casinos, the family was hanging onto the real goodies. I can't even remember the last time I went into a Terrible's convenience store and saw somebody playing the slots.

Humpty Dumpty had a great fall. The Nevada state budget is a two-legged stool, balanced upon gaming and sales taxes. That stool is getting wobblier by the day. Unfortunately, if the Lege has any solutions, it's keeping them to itself.

Casino apocalypse

Thu, 19 Mar 2009 13:08:00 -0700

I'm deeply imbedded in other projects today. In the meantime, by way of In Business Las Vegas and GamingFloor.com (source of yesterday's Harrah's Entertainment time warp, too) here's the answer to the question, "How many casino failures can you pack into nine minutes?" Watch it and weep.

Case Bets: Macao, Icahn, Atlantic City, MGM Mirage, Sin City Kitties

Tue, 17 Mar 2009 17:17:00 -0700

According to Telegraph correspondent Ben Bland, Macao finds itself in a bind. Peking's efforts to prevent money from being siphoned out of the country have crimped high-roller play, forcing a greater reliance upon mass-market customers. But the recession is cutting into their gambling budgets, too. Who's having the last laugh in all of this? Who else but Stanley Ho? As we're learning, never underestimate old Stan's ability to survive. He's probably found a loophole out of death, too. (But somebody needs to clue Bland in that Celine Dion doesn't play Vegas these days.)

Icahn's in: Well, sorta. Although the former Stratosphere owner is officially making a play for the Tropicana Atlantic City, he wants -- get this -- another six months to close the deal. Since the sale of the Trop was supposed to have been wrapped up 11 months ago, regulatory patience is finally running thin. Keeping the Trop in a 21-month limbo is grossly unfair to its long-suffering employees, too.

Icahn's equivocations could send the Trop caroming straight into the arms of Cordish Co., although it's unclear whether Cordish is still interested. Had chowderheaded, state-appointed trustee Gary Stein -- who was characteristically out of the loop on the Icahn bid -- closed the deal when deals were still to be had, all of this would be ancient history. New Jersey Casino Control Commmission members should be marched off to the woodshed for appointing Stein and then tolerating his interminable (and very expensive) bungling.

Elsewhere in New Jersey, solons have relieved Atlantic City's denizens of their second-class citizen status, albeit with many clauses and exceptions. This was accompanied by the usual howls about casinos wielding untoward influence (they can't even make political donations, which seems blatantly unconstitutional), although "juice" from other industries -- like the sacrosanct horse-racing business -- is implied to be hunky-dory. The horsey set's constant pining for slot machines gets a cold shoulder from the voting public, however.

Remember how I forecast that MGM Mirage's $1.2 billion writeoff of much of the value associated with former Mandalay Resort Group properties was going to kill 4Q08 earnings? Well, it did. However, the company supposedly still doesn't want to take on equity partners in anchor-around-the-neck CityCenter. "I'd be surprised if they dilute the joint venture [with Dubai World]," says a Reuters source. Geez, seems like if they'd "diluted" it with additional partners earlier on, they might not be hawking the family silver to raise completion money. Pride goeth before a ... well, you know.

Literacy-challenged Kitties: There's no better topless show on or off the Strip than the Sin City Kitties, who perform all the way out at Whiskey Pete's (which boasts a surprisingly spacious showroom). OK, I haven't seen Fantasy, probably because Luxor insists on advertising it as "Carrot Top Fantasy." As one wag observed, those are three words that should never inhabit the same sentence.

Anyway, Sin City Kitties is the only topless show I've seen that's predominantly erotic, as opposed to having a good number or three. And none of the girls betrayed signs of "enhancement" on the night we saw it, when it played to an appreciative audience of leathernecks and other servicemen.

However ... somebody needs to inform these pussycats that what they perform is not a "topless review [sic]" -- unless they plan to critique other topless shows from their stage in Primm.

"The Harry Reid Train": The asshat who made this fumbling attempt at an "ambush interview" might want to learn what the "Harry Reid Train" is (or more accurately, isn't) before attempting to smart-mouth Rep. Dina Titus (D-NV). Titus brushes off the uninformed oaf with the contempt he deserves. And hey, that's the "Sin City Express," bucko. Don't go messing up our catchy new brand name.

Case Bets: Harrah's & Herbst

Mon, 16 Mar 2009 17:38:00 -0700

Even if Harrah's Entertainment crashes and burns (read: files bankruptcy), never fear: LBO monarchs Texas Pacific and Apollo Management will still be calling the shots. There's a lovely thought; the very guys who drove Harrah's pell-mell into the ditch -- eradicating literally billions of dollars from the balance sheets -- will retain an iron grip upon the steering wheel.

Another delighted Harrah's bondholder.

Is this what private equity has come to? Run up insupportable debts, make bondholders take a Yul Brynner haircut, and waltz away with the physical assets for pennies on the dollar? The nicest word I can think of for that scenario is "irresponsible."

The house loses: The Herbst family won't even get to keep its anchor casino on Flamingo Road under the terms of a settlement announced last week. Herbst Gaming is trying to spin it as a "win" that it's keeping it slot routes. Too bad Herbst can't have it both ways, as the company's blamed the effects of Nevada's newish smoking restrictions (and thus a decline in slot-route revenues) for much of the company's misfortunes -- something I've been hearing from inside Herbst, too.

If the bondholders are carting off the 15 Herbst casinos, it's because that's where the real money is to be made (even if it was colossally dumb of Herbst to pay nearly $350 million -- a mind-blowing 11.6X cash flow -- for a trio of run-down Primm Valley casinos).* If the slot routes are the golden goose the Herbsts now wish us to believe, no way the family would get to keep them. After all, it's the route revenues which have fallen at a steeper rate than the casino ones.

* -- even after a $67 million "goodwill" writedown, Herbst still paid a taken-to-the-cleaners 9.4X EBITDA for the Primm trio.

At least there's good news via the grapevine -- a rumor making the rounds that CEO Ferenc Szony will be staying with the casino portfolio, running the show on behalf of the creditors. Szony was brought in as Mr. Fix-It after the Herbst Brothers dug the company into an enormous hole. From what I've seen out there at Primm, he's making quite a push-back effort, even if neither the condition of the properties themselves nor Herbst's cash flows gives him the ammo he really needs. If Szony indeed gets that vote of confidence, it gives the ex-Herbst casinos a fighting chance.

Puff the Magic Accountant

Fri, 06 Mar 2009 14:02:00 -0700

He may live by the sea but he appears to have been moonlighting at Harrah's Entertainment, with an assist from his special friend, the Goodwill Fairy, bearer of a gargantuan, $5.5 billion writedown. As it's explained in the Las Vegas Sun, that preliminary 4Q08 statement comes off like a lot of smoke and mirrors -- and Harrah's is under the cone of silence, due to its current buyback offer.

I've been beavering away on this most of the morning, trying to get a better handle on it and some of the mystic accounting incantations so beloved by Wall Street. But a pressing project means I'll have to stash my unsatisfied curiosity until next week. However, in light of Herbst Gaming's 100% write-off of the "goodwill" associated with its purchase of three raggle-taggle Primm casinos from MGM Mirage, that term has been known to perform double-duty as a nice, face-saving eupehmism for, "We got hosed on that deal, didn't we?"

I can definitively state that the "goodwill" associated with S&G is precisely $0.00 US, because that's how much we paid to acquire the name. Sadly, it also means we can't write it off on our taxes this year. Drat!

This is your industry on crack

Tue, 03 Mar 2009 18:06:00 -0700

Finally, someone (in this case, Liz Benston) has written the definitive user-friendly analysis of how the casino industry crashed and burned. To try and quote the salient points would require little short of reprinting the entire article (to say nothing of its copious charts).

In essence -- as run through the S&G juicer -- we're dealing with an industry that could be said to have lost its marbles four to five years ago. As I've contended on the Vegas Gang podcasts, captains of the casino industry, borne aloft on a bubble of illusory "wealth," mistook a bubble for a baseline. Instead of paying down debt on acquisitions, they doubled down on extra-super-megaresorts and wholly unncessary LBOs.

And now that the party's ended, the resultant hangover is shaking out the business like a case of the DTs. The irony is that Strip revenues have reverted to 2005 levels ... back when business was pretty darn 'phat,' and MGM Mirage and Harrah's Entertainment were so flush they were able to devour Mandalay Resort Group and Park Place Entertainment, respectively, with scarcely a burp.

One of the few things now standing between insolvent casino companies -- a group that may soon include both Harrah's and MGM -- and outright disaster is that gaming has become "too big to fail." In an otherwise normal economy, collapsing companies like Herbst Gaming, Black Gaming, Colony Capital and even big shots like Station Casinos would probably be staring receivership in the face. But extraordinary forbearance -- in more than one sense of the term -- by lenders is keeping the lights on and the doors open. The bankers and bond markets have obviously decided it's better to keep their wobbly dance partners upright than let gravity take its course. Lord knows, the seismic impact of a cascading series of casino bankruptcies beggars the imagination and not in a good way.

Into this maelstrom, is flung the news that two companies are going to miss their scheduled 10-K filings. In the case of Pinnacle Entertainment, they need some extra time to perform mark-to-market ledger-demain, writing down $275 million-$330 million. J.P. Morgan analysts are sanguine, though, partly because of an 18% increase in fourth-quarter revenue. Also, although Pinnacle's net loss may be as high as $308 million, other results "should be above expectations, reflective of PNK’s strong Louisiana performance at Lake Charles, stable New Orleans trends, and a ramp at Lumiere [Place] in St. Louis. Trends that, generally, should continue."

Also playing for time is MGM Mirage. According to the Sun, last week's draw-down of credit has tapped out the company's liquidity, a statement confirmed in a J.P. Morgan note. Contrarily, the Review-Journal implies there's plenty left.

(Update: MGM tells me, no, there isn't and I was wrong to have concluded otherwise last week. Error duly noted. Self-flagellation in progress.)

Whatever the case, Wall Street is sounding like it's accepted that Chapter 11 is all but inevitable. Slightly less apocalyptic scenarios still include potential defaults, debt-for-equity swaps that would surely cost Kirk Kerkorian his majority ownership, asset sales, a restructured balance sheet and a $7 billion note that's less of a balloon payment than an incoming Hindenberg.

Or, as Morgan analysts write, per their wait-and-see strategy: "We expect to hear from MGM over the next few weeks, and suspect it is or shortly will be working with its banks on amending its bank covenants (leverage covenants now likely tripped after drawing down debt last week and hoarding cash) and looking to restructure its bank debt, among the other options MGM is considering (asset sales, amending CityCenter, etc.)."

Emendations to CityCenter? That would be an extremely bitter pill for MGM to swallow. First the Harmon truncation, now this prospect. In a totally unscientific measurement, page views of our online image gallery of Aria and Vdara were barely a ripple compared to the levels of interest manifested in Encore, M Resort and, good golly, even the Cabana Suites at the El Cortez -- all of which have vastly outpaced Aria/Vdara in viewership. Like I said, unscientific but who'da thunk we'd see an El Cortez ≥ CityCenter equation?

And we still haven't touched upon today's earnings report from Isle of Capri (half good, half bad) or the latest round in the Station-vs.-Boyd catfight, chock full of hissing and spitting. We live in interesting times, to be sure, regardless of whether that's a blessing or a curse.

MGM kisses $1.2 billion goodbye

Fri, 09 Jan 2009 18:44:00 -0700

Sneaking the news out late on Friday (after the markets close, heh heh), MGM Mirage is writing off $1.2 billion in 4Q08. So the the fourth quarter is down the toilet ~~and perhaps the whole fiscal year along with it~~. MGM is attributing $1.2 billion of the writeoff to "goodwill" from its Mandalay Resort Group purchase. ~~plus $47 million toward Mirage Resorts. (I'd say if you "only" overpaid $47 million for six-pack of Steve Wynn properties, plus beaucoup land in Atlantic City, you got a good deal.)~~

MGM Mirage shareholders watch their money go up in flames.

"Goodwill is the amount exceeding fair market value that is paid for an acquisition," reports The Associated Press. Which is MGM's fancy way of saying, "We overspent" (big-time, in the case of Mandalay) and that it's having buyers remorse about Mandalay Bay, Excalibur, Luxor and Tunica's Gold Strike. One of the most famous "goodwill" writeoffs -- perhaps the most famous -- was the bath taken by stakeholders in the AOL/Time-Warner conglomeration, after AOL's value proved to be nowhere near as high as it had been talked up.

At least the Herbst Gaming fraternity can take some cold comfort from today's news. After all, they just had to jettison all the "imaginary value" ... er, "goodwill" associated with their acquisition of three Primm Valley casinos from MGM, a deal in which Herbst got taken to the cleaners and then put through the trouser press for good measure.

Could this revaluation of six of its 10 Strip properties (including Bellagio, The Mirage and the soon-to-be-Ruffinized Treasure Island), plus one in Mississippi, be CEO Jim Murren's way of hanging out the "For Sale" sign? I'll leave that debate to wiser heads than mine.

Is Blu-Ray worth it? I dunno but maybe this guy does. Have a great weekend.

21

Wed, 31 Dec 2008 11:39:00 -0700

That's the number of predictions for 2009 issued by Spectrum Gaming Group, an Atlantic City-based outfit. They are, in no particular order:

• Advancements in technology that impact revenues and cut costs will continue to be attractive to operators even in an economic downturn.

Continued ...

• ... conversion of racetracks to racinos, as well as non-gaming expansions to existing racinos.

• ... elimination of jobs, both through cuts and attrition.

• ... moratorium on development of big-box gaming resorts due to economic downturn.

• Convenience-based gaming continues to achieve better year-over-year results than destination-based gaming.

• Corporate and property debt restructuring in wake of declining revenues.

• Eastern European countries will increase their efforts to meet EU regulations, including smoking bans.

• Gaming companies increase efforts to export their brands globally.

• Gaming equipment manufacturers continue to invest in games that appeal to a younger demographic, including lotteries, bingo and server-based technology.

• Increased legislative acceptance of allowing the deduction of issued electronic promotional gaming credits from the gross revenue tax/fee calculation.

• Increased use of electronic games, including the emergence of scalable electronic table games in which players at different locations on the floor wager on a single outcome.

• Increasing alliances between commercial gaming operators and outside investors, as well as between commercial and tribal operators.

• Internet gambling in U.S. will be a hot federal issue for the new administration and Congress; gaming companies will fund lobbying efforts on both sides.

• Major gaming operators commence deleveraging by selling off properties to emerging operators.

• More pronounced shift in market share among suppliers as operators attempt to shift away from IGT participation games.

• Native American tribal gaming revenue estimates remain on track to surpass U.S. commercial gaming totals.

• Prices for hotel rooms, shows and food and beverage will return to lower levels at large gaming resorts as operators need to fill their properties.

• Slow but continual advancement toward server-based gaming, as operators remain skeptical as to the potential financial returns on investment.

• States consider expanding or legalizing casino-style gaming to help fill state budget gaps.

• Support from China to ease visa restrictions, increasing flow of visitors into Macau.

• Uncertainty in various European countries concerning regulation, thus increasing cases being referred to the European Court of Justice.

We'll have to check back in a year, God willing, and see how clear Spectrum's crystal ball proved to be. There's nothing on that list that strikes me as off the beam and much of its seems dead on target. The only "WTF?" comes courtesy of a Spectrum exec who told a reporter, "In times like this, it's not like these are company-specific problems that can be attributed to some glaringly bad decision by the company."

I respectfully beg to differ. Choosing unreliable and/or overcommitted business partners (Boyd Gaming) was a decision. Opening in far-flung markets while your core properties were losing market share (Isle of Capri) was a decision. Taking on preposterous amounts of debt (Harrah's Entertainment) or simply assuming more debt than your cash flow and lavish spending tendencies can support (Station Casinos) were decisions. Trying to build metaresorts all at once (Boyd, MGM Mirage) was a decision. Rashly demolishing the Atlantic City Sands and thereby leaving yourself with empty, non-revenue-producing land (Pinnacle Entertainment), that's a decision.

Launching major projects that aren't fully capitalized (Las Vegas Sands, Cosmopolitan, Majestic Star) is a decision. Stubbdornly jeopardizing the license of the property that generates 40% of your cash flow (Columbia Sussex) is a decision. Making not one, but two major acquisitions at a time when your cash cow -- slot routes -- is giving less milk and then overpaying for some of the new assets (Herbst Gaming) is a decision.

Opening a $2.3 billion, years-in-the-making megaresort at the nadir-to-date of the economy (Wynn Las Vegas)? Now that, that was not a decision. That's playing the hand you were dealt.

Las Vegas, winter wonderland

Fri, 19 Dec 2008 11:58:00 -0700

On Wednesday night -- after far too many glasses of wine -- I went to sleep in Las Vegas ...

... and woke up in Reno:

Photos courtesy of Erik Kabik/RETNA.

Update: The storm may have been the best thing that's happened to Whiskey Pete's in living memory (unless you count Sin City Kitties).

Analyst: Station, Harrah's "worthless"

Tue, 16 Dec 2008 13:22:00 -0700

James Packer can kiss $414 million goodbye, according to a Citigroup analyst who writes that Crown Ltd.'s ownership stakes in Station Casinos and Harrah's Entertainment are now "worthless." That's according to a Sydney Morning Herald story picked up by the Las Vegas Review-Journal. (The R-J needs to retitle its "Business Matter" blog "Gaming & Tourism," because the rest of its business desk isn't doing squat, blog-wise.)

Harrah's, Station, Isle of Capri Casinos and a few others are in the situation faced by the submariners of Das Boot. Their U-boats are stuck in a crash drive, headed for the bottom of the Straits of Gibraltar and nearing "crush depth." Those three have got some time but Herbst Gaming is probably hearing the hull plates crumpling right about now. Whoever believed that three mostly rundown Primm Valley casinos were worth $131 million apiece (on top of an undigested $119 million Sands Regent acquisition, to boot) certainly ought to be shot out the nearest torpedo tube.

Case Bets: Stanley Ho in Vegas?, HRH grows but Morgans shrinks

Thu, 11 Dec 2008 13:47:00 -0700

A local columnist raises the spectre of Stanley Ho getting back-door access into Las Vegas via James Packer's acquisition of Cannery Resorts. This isn't the first time I've heard this question raised and, call me complacent, but I believe it stems from confusion. Namely, a conflation of Crown Ltd., the umbrella under which Packer's U.S. casino investments are huddled, and Melco Crown Entertainment, his joint venture with Lawrence Ho, son of dear old Stan.

While the Packer and Ho heirs do business together in Macao (and belatedly tried to get into Singapore), there hasn't been a whiff of Lawrence Ho being involved in Packer's U.S. ventures. (Obviously, because we're talking about discrete companies here.) Concern about Stanley Ho getting his mitts into Cannery are not only a stretch, but far more of one than the worries that were aired when MGM Mirage built a casino in Macao that was half-financed with money borrowed -- by Pansy Ho -- from the ancient casino vizier.

Doom, gloom in context. While the headlines are full of apocalyptic pronouncements on the subject of October's Nevada casino revenue decline, note where it says these numbers are the lowest "since April 2005." That was when the Las Vegas economy was on an upward trend that would make "bargain" and "Strip" virtually oxymoronic. So 2005's good numbers become 2008's panic-inducers ... of course, Las Vegas' ability to sustain its ensuing merge-n-splurge spree (and the ensuing Excedrin headache of ebt) on 2005-level revenues is a whole 'nother story.

April '05 would postdate the point in our economy where Americans started saving money at a negative rate and living off credit. At the time (i.e., March of that year), then-Council of Economic Advisers Chairman Ben Bernanke said, as recounted in the Dec. 1, 2008 issue of The New Yorker, "the main source of imbalance in the global economy was not excess spending at home but, rather, excess saving in China ... "

Darn those party-pooping Chinese! Everything would be just ducky if it weren't for them! But seriously, folks ...

Hindsight being 20/20, this was probably the point where the casino industry ought to have recognized that the U.S. economy (goaded by three-plus years of easy-money policies at the Federal Reserve) was on an unsustainable course and started curbing its growth projections -- and development plans. Instead, it stomped on the gas pedal and we got (in no particular order) leveraged buyouts of Station Casinos and Harrah's Entertainment, crazy land inflation on the Strip -- peaking at over $40 million/acre, CityCenter, Echelon, Palazzo, Viva, umpteen failed or undersold condo projects, bankruptcy at Tropicana Entertainment and the Cosmopolitan, potential bankruptcy at Herbst Gaming and Isle of Capri, and now a loud screeching sound as the brakes are belatedly applied.

Morgans' Faustian pact. What doth it profit Morgans Hotel Group to acquire the Hard Rock Hotel & Casino only to sell it back to the bank in little bits and pieces? Morgans' stake in the exponentially expanding HRH barely exceeds 14% and is on track to get smaller still. Some of us thought from the start that Morgans had bitten more than it could chew. Or, to look at it another way, what a long, strange trip Morgans has taken to wind up with a glorified management contract.

Chrysler cars getting worse? Yup, it looks like another triumph for private equity buyouts.

What'$ in a name?

Wed, 10 Dec 2008 14:59:00 -0700

A reader recently enquired as to what became of the plan to re-name Harrah's Entertainment as Caesars Entertainment. When I asked Harrah's as to whether that was still on, no response was forthcoming.

My questioner wanted to know, "Do you think Harrah's shelved the plan to rename the company to Caesars partly because they might like to sell Caesars if the price were high enough ... Does going up market with the company image become a hindrance in these tough times?"

Second question first: This is actually a great time to be a casino patron, provided you've got a modicum of discretionary income. I was working on next year's iteration of the Pocketbook of Values today and the offers for 2009 are much better, IMO. Also, we've been seeing a barrage of bargain-oriented marketing messages from MGM Mirage, "freecations" at Herbst Gaming's Primm Valley trio of casino-hotels, plus a Harrah's Las Vegas promo for its comedy club that -- after you factored in the value of Improv tickets and buffet admission -- actually paid customers to stay there, to the tune of $1.50/person. (Some will argue that Harrah's should pay people to stay at its titular Las Vegas property.)

So, yeah, unless you're Steve Wynn, a "snob appeal" message doesn't have much traction these days. The people who can afford a high-end Vegas experience are already here; it's the other demographics we have to worry about. Even Las Vegas Sands -- hardly the image of a consumer-oriented company -- is expanding its loyalty program (Club Grazie) beyond a casino-only proposition. Expenses charged to your Palazzo or Venetian room will now earn points as well.

As to the greater fungibility of the Caesars name if it's only attached to single properties and not the whole company ... absolutely. Who'd want to buy a spun-off Caesars Atlantic City, say, if you had to forfeit or sub-license the Caesars brand? Putting any Harrah's-to-Caesars plan on hold avoids all manner of red tape and legal rigamarole, as well as keeping the option open of unloading those lucratively branded Caesars properties.

Of course, given that a strategy at Harrah's these days has the lifespan of a soap bubble, who knows if that just another of CEO Gary Loveman's will o' the wisp ideas, flung out for public consumption, then quickly forgotten. Indeed, to speak of "strategy" in the same sentence as "Harrah's" is oxymoronic, as the company doesn't evince any -- unless flailing about in every direction like a spastic octopus constitutes "strategy."

Which brought to mind another Loveman idea, mooted and apparently discarded, that of concentrating Harrah's around three brands (Caesars, Harrah's and Horseshoe), which would be designated as its "core" brands. It currently carries 11 on its masthead and has several others. Re-branding Bally's Las Vegas as a Horsehoe was floated -- though mostly razzed -- and Harrah's squandered a capital opportunity to bring the Horseshoe name back to Vegas when it redubbed the Barbary Coast with the generic "Bill's" brand.

An effort to maximize the Caesars brand moved but in fits and starts. So far it's consisted of taking it off the Glory of Rome riverboat casino in Indiana and putting it onto the former Casino Windsor, in Ontario. Harrah's Jacqueline Peterson says, "I can't put a price tag on how much it costs because so much more went into these properties than just marquee and business card changes ... there were new spaces created and upgrades made throughout."

Asked about the "core brand" concept, she was understandably flummoxed. "We have no intention of becoming three brands and we need look no further than Las Vegas to understand why that wouldn't work[:] we have eight distinctive properties here and renaming those into just three names would be silly and really confusing for customers." Of course, during the five minutes that the Harrah's/Caesars/Horseshoe-centric strategy lasted, it was thought that Imperial Palace wasn't long for this world (this was back in 2005, remember) and the Barbary Coast was still firmly within the Boyd Gaming orbit.

If Loveman has more brands than his company can exploit, he's neither alone nor the first. What used to be Caesars Entertainment (née Park Place Entertainment) went through three CEOs without ever cracking that particular nut.

So, is the Caesars brand up for grabs? I'd be very much surprised if it weren't, although that would be one of the most extreme measures Harrah's could take in order to lighten its colossal debt burden.

Collapse in Kansas; Herbst is toast

Fri, 05 Dec 2008 11:20:00 -0700

And then there was one.

A Cordish Co./Kansas Speedway joint venture has pulled the chicken switch on a $400 million casino project. This leaves avionics firm Butler National Service Corp., with its Dodge City concession, as the only company with an ongoing casino project in Kansas -- Penn National, Harrah's Entertainment and now Cordish having walked away from the other three concessions. Project head Joseph Weinberg wants to build a casino-first, amenities-later version of what had been proposed. Of course, in order to do that, the bidding process will have to be re-started from scratch. Also, Weinberg's plan assumes that Cordish gets the nod a second time and, were I a member of the Kansas Lottery's board, I'd be getting pretty fed up with the diva-dom displayed by some of the casino applicants.

On the other hand, if a company as well-regarded as Cordish can't get its Speedway casino financed, that makes it easier to excuse Harrah's exit from the Sunflower State. The Lottery says it is willing to"invite applicants to apply with proposals they feel fit the current economic climate." [read: "smaller budgets"]. That, combined with the sudden availability of Sumner County, opens the door wide for Penn National. If the Lottery's board wants to give Penn the Sumner/Cherokee County parlay it requested (and lower the budget for the latter), Penn is the one company that could execute the projects out of cash on hand. Or is it saving its pennies for a Vegas Strip property now?

Across the border, the clever chaps at Pinnacle Entertainment have found a loophole in Missouri law that might enable them to open yet another casino market. Revenues at the old President riverboat, on the St. Louis waterfront, are down somewhere in the bilge water. But Pinnacle has a discrete gaming license for the ship and an option on some land toward the northern end of St. Louis, near the Chain of Rocks Bridge. There, it proposes to essentially dry-dock the President.

Since Missouri law doesn't expressly forbid what Pinnacle is contemplating, the company could open a new market in the state, even though the number of licenses remains frozen at 13. Smooth move. But it's not one that's going to sit well with the backers of Sugar Creek and Cape Girardeau projects that were frozen out when Missourians voted for the license cap last month. And it underscores the perils of shutting the door to new competition, as Pinnacle and Ameristar Casinos are beginning to treat Missouri as their private fiefdom.

Already, Ameristar veep Troy Stremming -- the architect of the freeze -- is huffing that Missourians dare not let Sugar Creek get into the game: “We don’t want to get into a situation where we are over-saturating the market and cannibalizing existing destination facilities.” No, but it's hunky-dory to let Stremming's buddies at Pinnacle have three St. Louis-area locations instead of their current two. No oversaturation or cannibalization there, huh? At least Stremming won't have the casinos-in-Kanas bogeyman to brandish anymore, now that all but one of those projects has collapsed.

Hope for Harrah's. The Chinese government is experimenting with parimutuel wagering on horse races. If the ChiComms can be persuaded to extend the sport of kings to Macao, maybe Harrah's can make serious use of that golf course it purchased and which is now ineligible for casino development. Frank Fahrenkopf couldn't resist mentioning that white elephant during his joint appearance with Harrah's CEO Gary Loveman during G2E. Judging from some of Fahrenkopf's subtle rapier thrusts and Loveman's harrumphing response, there seems little love lost between the twosome.

Herbst Watch, Day Two. The Magic 8 Ball (in the guise of Liz Benston) says bankruptcy likely for Herbst Gaming, which is in default on $1.27 billion of debt. This has been in the cards for Herbst ever since it got taken to the cleaners by MGM Mirage for some Primm, Nev., casinos that had seen better days (like, maybe 10 years ago). Benston's description of the $394 million boondoggle is "ill-advised." Understatement doesn't get any better than that, my friends.

Casino bailout no joke

Thu, 04 Dec 2008 15:53:00 -0700

American Gaming Association President Frank Fahrenkopf may have made light of it at G2E. But the days of joking about a federal bailout are officially over. New Jersey Gov. Jon Corzine (D), during an Atlantic City visit, made some vague rumblings about the necessity for aid which "stops this slide ... I mean, we don't need to wait until there's a 30% decline in revenues and there's another series of layoffs in Atlantic City or in the financial services industry that undermine the overall health and well-being of the American people."

So it begins; not with the ringing of a bell but the rattling of a tin cup. But remember, when federal business-relief money was being directed at the Gulf Coast in the wake of Hurricane Katrina, bluenoses in Congress made sure to 'redline' casinos out of the list of intended beneficiaries.

Isle slows down. Expansion of the Biloxi Isle of Capri Casino is on the backburner again, in another manifestation of the company's newfound prudence. Unfortunately, that wasn't enough to save Isle from having its credit rating cut.

Herbst Watch, Day One. Yesterday was D-Day for overextended Herbst Gaming. Still no word on what went down.

G2E scuttlebutt

Mon, 24 Nov 2008 15:56:00 -0700

Could Herbst Gaming President Ferenc Szony be headed to the Cosmopolitan? That was one of the rumors bruited about at G2E last week. It would make sense. Szony, one of S&G's favorite gaming executives, is no stranger to operating in difficult markets. Right now he's got the unenviable task of pulling the Herbst Gaming jalopy out of the deep ditch into which the Herbst brothers piled it.

Also, the Cosmo still has no gambling expertise on board, a glaring omission for a casino-based property that's already got more than a couple of strikes against it. In Reno, Szony's had to keep the Sands Regent afloat in an out-of-the-corridor location and a declining market ... and by all accounts, he's succeeded. He's got the right stuff, casino-wise, and should have been running a Strip property years ago. If the Szony-to-Cosmo rumor isn't true, it should be.

Fontaine-blown? While over at the Convention Center, I heard a dire forecast regarding the future of Fontainebleau Las Vegas. Namely, its splendid isolation, surrounded by various 'failsinos' like Crown Las Vegas and Echelon, may result in very attenuated business. One greatly hopes otherwise, but don't discount the James Packer Factor: The Aussie heir has displayed a reverse Midas Touch of late and he's a key Fontainebleau investor.

Not a Harrah's property.

The 11% Solution. More grim news from G2E -- Harrah's Entertainment is contemplating cutting its maintenance budget by as much as 89%. Considering the disgustingly filthy condition of the Harrah's Las Vegas parking garage last Thursday night, I believe it. That place looked like it hadn't been swept up in weeks, if not months (though the casino itself was quite spic-n-span). The hobo encampment near LVA HQ is quite tidy and well-policed by comparison.

So Frank P. in Negaunee, if you're reading this ... beware!

The Casino That Quality Forgot

Fri, 14 Nov 2008 18:39:00 -0700

Sometimes business takes me to the far-flung outposts of the casino biz. Such was the case last weekend in Primm, Nev.

The Better Half and I stayed overnight at Whiskey Pete's, one of the flagship properties of Herbst Gaming. Room rates there are advertised as starting at $27.95 and I'd say even that's a mite steep.

For instance, we had a "deluxe" room and, if you look at it on the Web site, you're seeing almost the entire room. Like everything in the hotel except the wallpaper and some light fixtures in the hall, it doesn't look like it's been touched in 10 years. The air conditioning/heating unit rattles something fierce even on its lowest setting and the shower next door set off quite a hullabaloo of its own.

To get ice from the ice machine, you have to insert your key card. Even then, you only get about half a (small) bucket. And no seconds, either! You'll take what they give you and you'll like it, buster. And although there's a coffee maker and two styrofoam cups in the bathroom, there's no coffee to make.

We think we lost a sweater in the room but can't be sure because -- as of six days later -- we were told the room still hadn't been cleaned. So if you're on the 19th floor in a westward-facing room and you find a dark blue turtleneck, that'll be my attire you're admiring.

The breakfast menu in the coffee shop looks inviting. I say "looks" because that's all we could do. We were waved over to the front counter, then studiously ignored for 15 minutes before we got up and left. To rub in the indignity, we made it over to McDonald's, across the interstate, just as the breakfast menu was being switched over to lunch. Sunday was not our lucky day.

Herbst has gotten a few things right, like becoming more high-profile and frequent in its entertainment offerings. Also, while the populace on the casino floor had dropped from our previous visit this fall, marketing outreach is clearly at work. It was the most heavily integrated casino crowd I've seen in the Las Vegas area, meaning that Herbst is doing an excellent job of getting its message out to the black and latino communities.

But it's difficult to see what MGM Mirage ever saw (or spent) in these places or why Herbst blew nearly $400 million to acquire them. The latter folly may yet prove Herbst's undoing. MGM Mirage was, I'm sure, chortling all the way to the bank after that sale closed.

Oh well, at least our room had a spectacular view across the mud flats, toward the distant mountains of California. The sight of a solid line of cars streaming down I-15 toward Sin City never fails to impress.

Quote of the Day

Mon, 10 Nov 2008 12:01:00 -0700

"Donald Trump's buying Buffalo Bill's, did you know that? He's buying Buffalo Bill's and going to turn it into an amusement park." -- overheard on the Whiskey Pete's monorail Saturday afternoon.

Difficult to believe? Yes. A metaphor of Trump's downward mobility? No question.

Harrah's: Pssst! Don't tell anybody!

Fri, 15 Aug 2008 13:25:00 -0700

Apollo Management Group is putting a brave face on a massive writedown in the value of Harrah's Entertainment. Which, like, totally explains why it snuck the news out the side door by dint of announcing it via subsidary Apollo Alternative Assets, which -- according to the Financial Times -- trades on the Amsterdam market. Yeah, dump the news over in Europe; nobody'll notice.

Right?

Wrong. And if you read to the end, you'll see that Apollo really knows how to pick 'em: Realogy, Countrywide, Linens 'n Things. I've seen kennels that had fewer dogs in them. The Daily Telegraph reports that co-owner Texas Pacific Group "is believed to have written off a similar amount," bringing the total writedown to $600 million.

"The gaming industry has attractive long-term fundamentals," argues Apollo bigwig Josh Harris, "and we believe we acquired a leading company in the industry."

Yes, it does, and yes, they did. Neither of which means that Apollo or TPG has evinced any long-term strategy for Harrah's other than sweating Diamond members' comps. Hunkering down and retiring debt is prudent but begs the question of why Apollo/TPG made the deal in the first place.

Curtains for Herbst? Losses at Herbst Gaming increased 44X over this time last year, as the company's ill-advised purchase of three Primm, Nev. casinos continues to be a millstone around the company's neck. (Ongoing erosion of slot-route revenue isn't helping, either.) Herbst wrote off any "goodwill" -- which in my experience is Wall Street-speak for "imaginary value" -- associated with the Primm troika.

A source familiar with Herbst told me last winter that the company had no experience that prepared it for the Primm market and thus didn't have a business model for exploiting it. A sale of Herbst Gaming remains on the table, but as always the $64K question is, Who's in a buying mode?

Hooters gets a lift. The orange-hued casino had a profitable quarter, believe it or not. Management credits staff reductions and other economy moves for the turnaround (meaning that a casino known for poor service and minimal amenities is probably getting worse). But I strongly suspect that a $5.5 million breakup fee from will'o the wisp suitor Hedwigs Las Vegas Top Tier made all the difference and Hooters will be back in the red or maybe breaking even next quarter, depending on just how bargain-hungry the market is.

More bankruptcies predicted

Tue, 12 Aug 2008 12:26:00 -0700

Financial Week weighs in the casino industry's current doldrums, amplifying the newly recurrent refrain that the revenue diversification which we thought would shield Las Vegas and other destination markets from the bad times is instead increasing its exposure to same. A gentleman over at RateVegas.com/blog was asking why Boyd Gaming said Echelon didn't "make sense" without its retail-mall and boutique-hotel components.

I was a bit stumped for an answer. Aesthetically, Echelon might have looked lopsided if it had opened without those amenities. But, with a bit more foresight, Boyd might have advisedly split the project into phases and mothballed the more troubled southern half before any significant work was done. (Sort of the way Sheldon Adelson once planned to launch successive "Venetian" and "Lido" resorts -- a plan that came a-cropper betwixt the Venetian's craptacular opening, the '01 recession and the post-9/11 blight.)

Such a bifurcation of Echelon would have left the core of the project, including the casino and the Anschutz Entertainment Group-steered concert hall, intact. Hugh Jackson's previously-cited analysis that Boyd got caught up in emulating CityCenter and consequently bit off more than it could chew seems especially pertinent to this aspect of Echelon's freeze. Or, as my Mom used to tell me at the buffet line, "Your eyes are bigger than your stomach."

Of course, we don't have access to whatever financial models Boyd used to determine that the mall, and the Mondrian and Delano hotels planned by attention-deficient Morgans Hotel Group were essential to project's fiscal health. Morgans' contribution can't have been that integral, seeing as Boyd stated publicly that it wasn't necessary that Mondrian and Delano open alongside the rest of Echelon. (Of course, that was back when there was still a slim hope that Morgans could raise the money, so positive thinking was the order of the day.)

Boyd ultimately made the right call and is, again, to be congratulated for going through with what could have been a humiliating decision. I just can't help wondering if coming to that realization sooner might have meant keep at least part of Echelon moving forward for the time being.

Does this look like a $5 billion project to you?

Further down in the Financial Week piece, it forecasts bankruptices for Indiana's usual market laggard, French Lick Resort & Casino, and for Herbst Gaming, which has missed two interest payments. (News that got little, if any, play around here.) Meanwhile, Elad Properties and IDB Group must know something we don't, because they've got their Plaza project budgeted at $4.75 billion-$6.75 billion, once land costs are backed out.

Whatever crystal ball they're using, some folks in Las Vegas would like to borrow it, probably starting with Jim Murren. After all, Moody's is predicting we're going to have endure another year of this slump before the good times return.

Knee-jerk Journalism 101. Our local papers don't usually make it a practice to deride the very conventioneers upon whose patronage we're so reliant. However, exceptions are annually made for the people attending the porn-industry show and the ones who turn out for the Star Trek Convention at the Las Vegas Hilton.

Hence the Las Vegas Sun is treating us to the obligatory "Let's make fun of these strange Trekkies" story. What really puzzles me is that a story about a concert that took place on Saturday didn't run until Tuesday morning. Evidently the rapid-response capabilities of a Web-based business model are as nothing when pitted against human indolence.

Update: The Las Vegas Review-Journal's Doug Elfman shows how this kind of story can and should be done. Bravo, Mr. Elfman.

Honey, I shrank Lake Las Vegas

Wed, 30 Jul 2008 12:57:00 -0700

Saying that a potentially ruptured pipe could drain Lake Las Vegas and turn it into one big-ass mud puddle in the desert conjures up quite an image. It's also effective rhetoric if you're trying to stampede the bankruptcy court into approving a $127 million loan, no questions asked (or at least answered). If asked to make a bet, I'd place my wager with the Nevada state engineer who puts the chances of a big sucking sound at Lake Las Vegas "way out there." (The big sucking sound that is the resort community's financial future is another matter entirely.)

And, if it does happen, the first thought that sprang to my mind was the same one that Steve Friess had, namely that the A-list likes of Celine Dion and Natalie Gulbis won't be any too thrilled "to live around a big, smelly pit full of stuff that reckless boaters have been pitching overboard for years." Heck, I tried wading out there recently and the lake water is pretty dodgy as it is.

Lake LV is starting to look like the second coming of The Resort at Summerlin, which some may remember as Swiss Casinos' vastly overbudgeted venture into the suburban Vegas market. (Its casino is now managed by the Cannery Resorts folks.) Problems like excessive cost and executive hubris aside, R@S failed in large part because it tried to create a market out of thin air: Palm Springs-style golf vacations which would involve coming to Vegas but staying well away from the Strip. As a business model, it didn't live up the hype.

I've held off saying this for a long time, but Lake LV displays some of the same symptoms. It's too close to the Strip to qualify as a getaway and yet far enough away to make it a real hassle if you want to stay out there and yet still experience Sin City at its finest. (The jury's still out on whether similar factors will dampen Red Rock Resort's high-end aspirations, making it "just" an extremely swanky locals casino with fantastic meeting facilities.)

Not to put too fine a point on it: It's a pain in the ass to get to Lake LV and some of that appears to be literally by design. Its landscaping and narrow, winding approach connote exclusivity, as does much else there (like the flighty retail offerings). You half-expect snipers hidden in the rocks to pick off vehicles deemed insufficiently chi-chi. So the local market is unlikely to embrace or even have much use for it. After all, you'd have to be a mighty hardcore player to drive all the way out to Casino MonteLago (above) when it entails bypassing numerous gambling options, including Fiesta Henderson, to get there.

Palms Springs is Palm Springs in large part because it is isolated. You couldn't achieve something like that, say, just 17 miles outside of San Diego. Same with Lake LV, R@S, etc. Being simultaneously of and yet slightly away from Las Vegas isn't working out so far. Lake LV wants to be a tourist magnet and a hideout for the super-rich, but having it both ways is proving a tightrope act without a net -- or maybe just without a lake, if that pipe doesn't hold.

Penitentiary Station. Did you know that inmates at the Nevada State Prison (the former site of the Warm Springs Hotel) used to be allowed to gamble? It's true (see sidebar). Then some spoilsport went and outlawed it in 1967.

Now, it seems to me that with the state facing a revenue crunch and a governor who'd rather close prisons than raise taxes, that our lawmakers have been overlooking an opportunity: Bring back the craps games in the Big House! Heck, throw in some slots while you're at it. Make the holds real tight, too, because it's not like your customer base can take its business elsewhere.

Besides, it might shut up all those soreheads who write to the newspaper to complain that prisoners get paid to make license plates, etc., instead of being used as slave labor or as fodder for medical experiments. Convicts' wages would just be going right back into the state treasury -- after United Coin or whomever takes its cut, of course. Maybe it'd be the business opportunity that snaps slot-route operator Herbst Gaming out of its doldrums. Why, it's a state/private sector win-win!

And I thought my cats were heavy. You could put my threesome on the scale together and they'd still be outweighed by 44-lb. Princess Chunk, found "waddling around" Voorhees, N.J., last weekend. Sounds like some feral cats -- well, one anyway -- have been eating even better than ones who have a predictable source of food and three squares a day.

"Casino Bonds Crush Harrah's"

Tue, 03 Jun 2008 17:13:00 -0700

That's Bloomberg, bearing the dire news that casino junk-bond debt is "generating the worst return for investors as companies from ... Harrah's Entertainment Inc. to Herbst Gaming Inc. risk bankruptcy under the weight of their debt." With a return of 10%, casino junk bonds "are the biggest losers this year."

Who knew? "It was viewed very much as a safe haven," says one portfolio manager, referring to an industry long perceived as recession-proof -- a bubble that has burst this year. Aforesaid manager has seen his company take a bath on Donald Trump's casino debt, and is foreswearing taking on any Harrah's or Station Casinos bonds, given the size of their respective debt loads.

Other clunkers are identified as Columbia Sussex (whose debtholders want CEO William J. Yung III's head on a platter), Greektown Casino (scrambling to keep its license) and Herbst Gaming, which has received a "going concern" notice from Deloitte & Touche, and whose debt is plunging in value.

In the cases of Harrah's and Station, one of the rationales for privatization was that it would enable the companies to pursue new development at their own discretion, without having to answer to Wall Street. Instead, each is handcuffed. Given the evidence of market glut on Las Vegas' locals scene, maybe it's best for Station that there will be a four-year lull after Aliante Station opens. But it's a shame that the company's push into the Reno market -- one that could use new product of Station-level quality -- is now on indefinite hold.

$1 billion for the Trop? Although that nice, round number was floated by Larry Klatzkin recently, there's no evidence (yet) that the New Jersey Casino Control Commission has cracked the "B" mark in its attempts to re-sell the once-lucrative resort. And while Tropicana Entertainment co-President Scott Butera may scapegoat Garden State regulators for not getting a higher price point for the Trop, one analysis places the blame for the mammoth hotel-casino's reduced curb appeal on Columbia Sussex's reign of error, which cratered revenues at the property. That erratic interregnum certainly infuriated a veteran regulator, who takes a few swings at 'ColSux' on his way out the door, saying "They flunked Casino Management 101, as far as I'm concerned."

Third time's the charm. Two general managers fled Casino Aztar during Columbia Sussex's first year of ownership. Now a third has jumped ship ... but merely to another ColSux operation. Considering that Mike Jones was back in Lake Tahoe by the time the news broke, and that he used to be Bill Yung's GM of the MontBleu and Horizon casinos there, one's best guess would have to be that he's been putting in charge of turning those two around (especially the embattled Horizon), but I'll let you know for certain as soon as I do.

No official announcement has yet been made. (But you can find the settlement of the Columbia Sussex/Park Cattle litigation, posted under a rather odd link.)

Steve Friess continues to poll his readers on the coolest names in Vegas. Interestingly, nobody has yet voted for Ka, the narrative-driven Cirque du Soleil show directed by Robert LePage that even Cirque-skeptics like myself can enjoy. But apparently there is no "Ka" in "cool."

It reminds me of one of the most famous lines from Stargate SG-1 (in the episode, "The First Ones"), where we learn that the primitive race of Unas express their displeasure with vehement utterances of "Ka!", prompting the ever-patient Dr. Daniel Jackson to reply, "Now don't say 'ka!' until you've tried it."

Same as it ever was?

Fri, 02 May 2008 11:49:00 -0700

Nothing lasts. I'm finding that out the hard way as the acid in the paper labels in my CD collection eat through the discs, gradually rendering them unplayable and sending me into a race between preservation and catastrophe. (When last I checked, catastrophe was several furlongs ahead.)

Then again, when I revisit a casino and it seems different to me -- and not in the sense that they've removed a favorite amenity or added a new one -- I have to wonder if things merely seemed better or actually were better than they are now. For instance, three of us went to the Flamingo buffet Sunday night. I'd remembered it as being good value for the money (unless you count the plasticene-looking sugar-free dessert offerings).

However, with greater experience -- and, sadly, sometimes a greater waistline -- comes the realization that one can achieve far greater gustatory satisfaction at the premier locals' casinos, such as Sunset Station and Green Valley Ranch. A recent LVA survey of Strip buffets didn't even deign to sample the Flamingo's, based on previous disappointments, so I'd say that it probably hasn't gotten worse -- most everyone else has raised the bar.

If you're in the Huntington Press neck of the woods, the revamped seafood buffet at The Rio is definitely worth the wait (for a lengthier appraisal, see the current issue of LVA). The one at the Palms, however, I'd count as my biggest buffet disappointment so far. I would never expect such a humdrum offering from George Maloof, especially in a casino-resort that is comfortably above average is so many respects.

The Significant Other and I both got sick after trying South Point's buffet, so that one's permanently off our list. (LVA readers give it very high marks, though -- much better by far than the El Cortez's dire 2.5 rating.) However, the most abysmal buffet of a so-called "major" casino is surely the one at the Tropicana, a really sorry sampling. However ... the big, logo-stamped paper napkins are quite sturdy and double exceptionally well as handkerchiefs. So go for the napkins, stay (if you dare) for the food.

Speaking of memories, some of the old Casino Executive crowd used to motor over to Arizona Charlie's Boulder for lunch (again, for the buffet; Terrible's was closer but one experiment with it was enough for us). I hadn't darkened the door of A.C.'s Boulder in quite a while, so we headed up there last night for some high-stakes bingo -- do I know how to roll or what?

It was a profitable evening for my girlfriend's adorable Mom, who came out $495 bucks ahead. However, either A.C.'s Boulder used to be seedier than I remembered or previous owner American Casino Entertainment Properties (read: Carl Icahn) has been letting it run downhill fast. To call the amenities "spartan" would be an insult to Spartans.

And a memo to management: Your HVAC system ain't gettin' the job done. Cigarette smoke is jammed up one's nostrils the moment you step through the door and the sensation never abates. I felt like I'd smoked a whole pack all at once. If you miss Nevada Palace, you'll feel right at home here. As CheapoVegas.com used to say of the inaptly named Palace, "Not only can I cut the smoke in this joint with a knife, I can butter it too."

So if those Pocketbook of Values coupons for Arizona Charlie's Boulder are burning a whole in your pocket, by all means, spend 'em while you got 'em. Just leave your lungs at home.

Speaking of the Flamingo, we got to try one of the revamped "Go" rooms. The beds are plenty comfy and the bathroom is spacious (and reverberant). We also had a birds-eye view of the Bellagio fountain show. On the minus side, the decor is what you'd find in an early-Seventies Playboy décor feature, if that's your thing, and the selection of in-room TV channels might be described as "rudimentary." Then again, these places don't stay in business by having you lounge around in bed watching Sunday Night Baseball.

Gold Coast update. I just got off the phone with Boyd Gaming, which says that the shoeshine stand at the Gold Coast was underutilized, so they're brainstorming new uses for that space. So I guess you'd better pack a shoeshine kit if you're going to be staying in the Palms-Gold Coast-Rio corridor.

Terrible times for Terrible's, Lake Las Vegas

Wed, 02 Apr 2008 13:57:00 -0700

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?

Case Bets: Herbst, Vegas' mystery tribal casino

Fri, 14 Mar 2008 12:52:00 -0700

With Herbst Gaming floundering, company President Ed Herbst has done the smart thing and stepped aside in favor of COO Ferenc Szony (Herbst stays on as CEO and board chairman, though). Szony, a personable executive with a history of staying afloat in a difficult market (Reno) is just what Herbst Gaming needs right now. He's also got a sizable dash of promotional flair, possibly inherited from his showbiz parents.

Whatever the reason, he's been able to keep the Sands Regency in downtown Reno going despite its being an a facility d'une certain age and out of the central casino corridor, to boot. Herbst is being hammered on a variety of fronts: two large buyouts in quick succession; a harsh winter in the Midwest that kept gamblers at home; stagnation in small casino markets; higher gas prices; truncated slot-route revenues (I almost never see players at the slots in my neighborhood Herbst affiliate anymore). At least one irate player isn't the least bit sorry about Herbst's current misfortune.

Another reason Herbst is struggling, I gather, is its difficulty integrating its Primm, Nev., operations (late of MGM Mirage) into its business model. It's not a locals market, nor even a drive-in market so much as a drive-through market, and Herbst is supposedly having a hard time making a go of an operation unlike any other in its portfolio. Also, when I visited there last Memorial Day, some of the facilities were in dire need of sprucing up, while the staff seemed slack and indifferent.

A change was in order and Herbst Gaming now has the right man on the job.

Phantom land deals on South Strip? Could this enigmatic purchase be in any way related (perhaps in stalking-horse fashion) to the Vegas tribal casino touted by Shoshone and Muckleshoot tribes but disdained by the Seminoles. The locations are roughly compatible: I-15 and Windmill Lane, although not quite identical, if you study this mystery video.

The film-ette employs a modified version of the old Ellis Gaming logo, although that company is now Epic Gaming and former prexy Shawn Ellis appears to be freelancing. And the notion of far, far, far out-of-state tribes getting federal permission to open a casino on the Vegas Strip is -- to put it charitably -- a stretch. Not impossible. Just highly unlikely.

'Terrible' timing

Mon, 03 Mar 2008 19:40:00 -0700

By golly, it seems like a mere nine days ago that a local newspaper story was reporting disproportionately strong lottery sales at a California-border store owned by Herbst Gaming. "Since taking over the store, the location's total lottery ticket sales have been more than $8.9 million," said the newspaper, although Herbst executives refused to take any of the credit that was being foisted upon them. "It's something to which we haven't given much thought," disclaimed one.

Fast-forward six days and it turns out Herbst is "evaluating financial strategic alternatives," with the help of Goldman Sachs. Why? It would seem that Nevada's partial ban on smoking in public places (aka Question 5) has delivered a dagger thrust to Herbst's slot routes, whose performance is off by one-fifth. Which partly answers the question of how slot routes would fare in Question 5's aftermath.

Last week, it also emerged that one of the moves being contemplated is the sale of some or all of Herbst's casino empire, mostly amassed in the last 14 months through the absorption of three castoff MGM Mirage properties in rural Nevada and the Sands Regent brand. That's a debt load that Herbst can ill-afford to carry if its slots routes continue to tank.

Standard & Poor's cut Herbt's credit rating to CCC today, in part because of "continued weak operating performance at the company's riverboat and land-based casinos." Already WHO-TV, in Des Moines, Iowa, is reporting that one casino is openly for sale. It reminds me of another company that grew too fast too soon ...

Columbia Sussex driving out business? A 104-year-old hardware store and a paint store are shutting down and (in the case of the paint store) moving, all to make room for a casino that might be built if the Kentucky state senate and the voters of the Bluegrass State approve a proposal currently before lawmakers. Oh, and if Covington, Ky., is awarded one of the nine licenses and if that license goes to Columbia Sussex. If not, Columbia Sussex owner William Yung III will have himself a $7 million collection of empty buildings, albeit at the mouth of a freeway exit. So it's not totally a spin of the roulette wheel. Just mostly.

And now for some positive thinking. Naysayers who freak at the thought of a 9.75% casino tax rate might want to consider the influx of investment -- albeit somewhat attenuated at the moment -- into Atlantic City, where the tax rate is 9.5%. MGM Mirage isn't wavering from its high-profile commitment and not only is Penn National willing to go all in, it's wagering that it can lure three other casino companies ... provided it gets all of Bader Field as a precondition.

True, Pinnacle Entertainment is hesitating and the Curtis Bashaw/Wallace Barr project seems to have been indefinitely back-burnered. But, in the former instance, icy credit markets are primarily to blame. As for the latter, the Bashaw/Barr duo is presently in the hunt for the Atlantic City Tropicana, which would make a good strategic fit with Bashaw's Chelsea Hotel redevelopment. So it's far too early to pronounce Barr & Bashaw's south-Boardwalk casino-hotel D.O.A. ... unless they land the Trop, in which case a nice little 'flip' awaits them.

Whoever thought Atlantic City would be the Land of Opportunity?