Yesterday, I got a hint that Something Big was going to be announced in today’s Boyd Gaming earnings report. Little did I suspect it would be the completely unprecedented (in my recollection) step of halting a megaresort project in mid-stream and taking 9-12 months to see how the tourism and credit markets shake out. This was a gutsy call, one certain to provoke depression in the local media and perhaps panic investors.
To its great credit, Wall Street not only rolled with the news, it even heaved a collective sigh of relief, rewarding Boyd with a 20% stock price increase in a single day’s trading. Seems that analysts not only doubted Boyd’s ability to pull the project off but feared it would capsize the company, never mind adding to a coming capacity glut along Las Vegas Boulevard. (Perhaps those are the same analysts who want Boyd to sell the land — worth as much as $3 billion — and quit the Strip.)
If I had to guess — and I do, because Boyd is being a bit coy about the timeline of its decision — I’d hazard that it was General Growth Properties‘ 18-month postponement of the High Street mall component that forced the issue. The planned mall anchors the southeast corner of the project and its absence would leave a conspicuous gap, to put it mildly. Then subtract the Mondrian and Delano hotels on the property’s south side, and you’ve wiped the slate clean of most everything on the left side of the above rendering (borrowed from VegasTodayAndTomorrow.com).
Morgans Hotel Group has thrown in the towel on obtaining financing for its two-hotel commitment, making Morgans the skunk at the picnic. It played tattle-tale, rushing out the news of Echelon’s freeze 90 minutes prior to Boyd’s own announcement. The high-end hotelier even had the gumption to issue a press release implying that it was Boyd’s fault the pieces didn’t come together. Boyd came through with its equity, in the form of the land, but Morgans could never get its ducks in a row.
In a sense, the fate of the Mondrian/Delano component was sealed when playboy (ex-)CEO Ed Scheetz went haring off course and bought the Hard Rock Hotel & Casino, for reasons still unclear. (It goes with the rest of Morgans’ portfolio about as well as white shoes with a charcoal gray business suit.) Maybe Scheetz felt a need to outdo predecessor Ian Schrager.
Ed Scheetz, master of disaster
Extended to the limit by its Hard Rock purchase, not to mention a costly series of upgrades and expansions, Morgans seemed to lose sight of its preexisting commitment to Echelon. Instead of wrapping up financing for Mondrian and Delano while the markets were still flush, the company dithered around with trying to fix a property (the Hard Rock) that wasn’t broken and pursuing a Nevada gaming license.
Boyd has indicated that it’s in ongoing talks with Morgans, but that sounds like whistling past the graveyard. Morgans was the first of Boyd’s joint-venture partners to drop the ball, long before GGP did, and Boyd would be well shot of the hotelier that can’t make up its mind. Even now, after initially talking about jacking up ADRs and repositioning the Hard Rock for Morgans’ customer upscale base, it’s done a full 180 and is going into business with porn stars.
If you can filter out the anti-casino rhetoric, Hugh Jackson has an interesting take on What Went Wrong: “... over the years, as Boyd kept making noises about what it would ultimately do with the Stardust site, the company’s eyes just kept growing and growing, and the obsession to become one of the cool kids on the Strip became, well, palpable. It was almost as if Boyd somehow felt that its hitherto dependable revenue model …. was somehow inferior, or distasteful, and in any case not snazzy and glamorous …”
That analysis assumes that something like Stardust 2.0 would cut it on today’s Strip and I don’t for a minute think it would. Just remember what an anachronism the New Frontier became: a stinky dive that was like a B- or C-level locals joint that had been supersized and mistakenly plunked across from the stylish Desert Inn. I don’t know if Boyd bit off more than it could chew (at least in an inflationary market driven by myriad rival condo and hotel markets) but its JV partners sure did.
With Borgata and Water Club in Atlantic City, Boyd has proven twice over that it can execute a high-end property. And even if it were to throw in the towel on Echelon (possibly forever dooming the company to second-tier status in the eyes of the industry and media), this is the worst time to fling 65 acres or so of Strip land onto the market, especially with other properties — Riviera, Tropicana, San Remo/Hooters — going begging.
It took some cojones to make this move. But it was the right one and it’s good to see Wall Street lining up in support.
