We put your question to David G. Schwartz, director of the Center for Gaming Research at UNLV, and he nominated three properties, all of which resold between May 2006 and December 2008: the Stratosphere Casino Hotel & Tower, the Hard Rock Hotel & Casino, and Treasure Island.
The Stratosphere cost Bob Stupak and Lyle Berman $550 million to build. Carl Icahn gained control of it for $82 million dollars in 1998, by purchasing the property’s debt. In April 2007, he re-sold it to Goldman Sachs for $1.3 billion. That purchase also included both Arizona Charlie’s casinos and the former Flamingo Laughlin (now the Aquarius Casino Resort). Even so, Icahn made a very tidy profit indeed.
Not only that, he timed the sale perfectly, getting out of the Vegas market not long before it went into a downturn. Between overpaying for Icahn’s assets and betting on a slew of other casino projects (Echelon, the Plaza, Crown Las Vegas, Fontainebleau) driving traffic – and property values – northward, Goldman got "played" on the Stratosphere purchase.
Someone else who made out like a bandit was former Hard Rock Hotel & Casino owner Peter Morton. He built the boutique hotel for $80 million in 1995, then put another $100 million into the property four years later. Morgans Hotel Group was sufficiently dazzled that, in 2006, it bought the property for $770 million, an astronomical markup. Morgans’ strategy was reliant on finding a joint-venture partner to take on as much as two-thirds of the cost.
Since the immediate consensus on the HRH deal was that Morgans had vastly overpaid, there weren’t any joint-venture partners to be found. Morgans’ bankers, DLJ Merchant Partners became partner by default. The bank eventually owned 87% of the property by the time Morgans surrendered its dwindling equity stake to lender Brookfield Asset Management and fled town, ending a thoroughly disastrous attempt to penetrate the Vegas market.
Treasure Island cost Steve Wynn approximately $450 million to build, when it opened in 1993. Fifteen years later, MGM Resorts International offloaded it to entrepreneur Phil Ruffin for $775 million. Even when inflation is taken into account, MGM still stood to make a $115 million profit on the transaction (not including any money it had spent on property upgrades). It could be argued that MGM left money on the table by selling to Ruffin at a bargain rate of seven times cash flow, the going rate for a Strip property usually being 10-12X cash flow. However, MGM was desperate for cash to pay for its half of CityCenter, putting Ruffin in the position to drive a hard bargain. Almost three years later, it is still regarded as one of the most astute acquisitions in Strip history.
Other famous casinos may have re-sold for higher than their construction cost. However, in the series of early 21st consolidations that reduced the casino business to a handful of giant companies, the worth of X number of individual properties is rolled into one massive tally. So, for instance, we’ll never know what value MGM assigned Circus Circus when it devoured Mandalay Resort Group in 2004 for $7.9 billion.
