Question of the Day May 6, 2016
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Q:In a recent QoD you indicated that the performance of the SLS was "dismal." Could you please quantify this as well as what it means for the future of this property and the development of the north Strip?
A:Nothing is easy when discussing SLS Las Vegas, whose management and financial structure were so complicated it took the Nevada Gaming Control Board four hours to comb through them in a public hearing. Also, local coverage of casinos having been hit by Sheldon Adelson's purchase of the Las Vegas Review-Journal, we have lost one of our most-reliable sources of insight into SLS (and other) matters.
SLS was a dog from the get-go, losing $46 million in its first five weeks of operation, starting in August 2014. The early signs of trouble had already set in by the following month, when the freshly opened resort closed its buffet (a promised return has yet to materialize), shortened the operating hours of The Griddle coffee shop (later to close it altogether), and cut back on the number of evenings that Foxtail nightclub was open. New President Scott Kreeger tried to spin the smallness of the casino and top-heavy emphasis on nightclubs (three) as a positive: "We’re offering an experience that is much more wholesome than just slot machines and table games," he told the Las Vegas Sun. The buffet closure was rationalized as caused by "seasonality" and "a temporary thing." Its fate now is to be re-purposed as meeting space, something of which Las Vegas can't seem to get enough.
We didn't get our first dollar-and-cents glimpse of how bad things were at SLS until June 2015, when the casino-hotel had been open almost a year. During the opening quarter of 2015, the former Sahara had grossed only $37 million and lost $35 million. The red ink was so deep that parent Stockbridge Capital Partners (which specializes in high-risk investments) had to subsidize SLS to the tune of over $5 million "to be used for operations of the property." In other words, SLS was having trouble meeting its payroll. Stockbridge (under)estimated it would have to subsidize SLS as much as $40 million by the end of the year.
About the best news that Stockbridge had was that it had taken out a new loan on SLS and had negotiated the interest rate down to 8.5 percent from 13 percent. "We’re in a very favorable financial position. We have some of the lowest debt terms on the Strip," Kreeger crowed. He overlooked the fact that SLS was generating a negative return on investment, with cash flow more than $15 million in the red. (To put that in context, The Cosmopolitan of Las Vegas was still losing money at the time but had a positive cash flow of $29.5 million.) Food and beverage were the best drivers of SLS revenue ($16 million), with the casino ($9 million) bringing up the rear.
Another problem is that SLS Las Vegas sits in not-so-splendid isolation at the north end of the Strip. At the time of its opening, executives were pinning their hopes on walk-in business from Resorts World Las Vegas, which will take three years to build and hasn't started anything more than vestigial site work yet. Even less help can be expected from the All-Net Arena, which R-J columnist Howard Stutz called "a pipe dream" and which was entirely predicated on debt financing. Lenders have snapped their wallets shut after SLS bombed and T-Mobile Arena, on the south Strip, has made a second Strip arena pretty much redundant. (All-Debt, er, All-Net Arena would have sat next door to SLS, on the old Wet 'n Wild site.) Now the SLS brainstrust is counting on the nearby Lucky Dragon Casino, slowly nearing completion and firmly aimed at the Asian market, to come to their rescue.
Kreeger speculated in July 2015 that it might take 18 months to two years for SLS Las Vegas to achieve its potential. But, given the amount of money Stockbridge is having to pour into the place, does it have that long? At its rate of decline to date, bankruptcy seems more a question of when than if. Asked if SLS was making a dent in the locals casino market, Station Casinos CFO Marc Falcone said it had "zero impact" on Palace Station. (When last heard from, the SLS marketing department was staging a promotion in tandem with local convenience-store chain Green Valley Grocery -- a far cry from its celebrity-studded opening days.) And, as though realizing that Las Vegas was saturated with electronic dance music, nightclub Life was converted to what the Sun at the time called "a venue that will offer a more diverse entertainment lineup than just dancing and DJs" and The Foundry has made good on that promise, with a calendar of comedy and live-music events.
Sunday, we'll conclude with the sad story of Sam "Sammyboy" Nazarian's adventures in Sin City and how the future looks for SLS. In the version of this answer posted earlier, we said "come back tomorrow," but we'd forgotten that Saturday will feature the results of our last Reader Poll; QoD will resume May 8, with the concluding half of this answer, so apologies for any confusion.
This dinner show features daring horsemanship, stunning costumes, and great food.
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