Guest blogger Jeff in OKC returns, his previous dispatch on Downtown’s Western Casino having proven a smash hit; its fans included Western manager Anthony Santo himself. During his latest visit, he concentrated upon the north end of the Las Vegas Strip, an area whose (dubious) future has been much in the news of late …
Over at Two Way Hard Three, Dr. David G. Schwartz gives an excellent blog post about the Riviera‘s revenue decline over the past five years and how it relates to much of the North Strip’s woes. My version of the North Strip consists of the Riviera, Circus Circus, Slots-A-Fun, Las Vegas Hilton, Sahara and Stratosphere, as well as any unfinished or undeveloped sites (Fontainebleau being the most obvious example).
Although the North Strip casinos have posted losses and stakeholders have also lost some — if not all — of their investments, those losses combined are less than the individual amounts that will not be repaid by South Strip operators MGM Resorts International, Harrah’s/Caesars Entertainment and former Tropicana Las Vegas owner Coumbia Sussex. The Cosmopolitan of Las Vegas will not repay its development cost to Deutsche Bank of the reported $3.9 billion in the next 25 years, or the true $5.9 billion in 35 years plus. The North Strip operators are just like the rest of Southern Nevada; they borrowed too much money against their home during the boom and can’t pay it back. They would be fine if their debt was at 2000 levels, which is what their property is worth.
The other issue the North Strip faces is a lack of leadership during tough times. Virtually all the properties were sold during the boom to people who are not experienced casino operators, or else to corporate investors who don’t have the personal connection. The CEO of Riviera Holdings, William Westerman, had the understanding, but became terminally ill and died last year. The Riviera languished for a couple years while his illness played out and Barry Sternlicht (pictured), CEO of the new owner Starwood Capital, bought the Riviera debt and didn’t foreclose until after Westerman died. I don’t know if this was out of respect, but it was intentional.
The Sahara has been rudderless for 10 years. Owner Bill Bennett died in 2002 after a long illness and his widow had her brother (Al Hummel) run things until they found a buyer. Sam Nazarian, a youthful California developer led an investment group that purchased the Sahara in 2007. They have been either unable or unwilling to reinvest in the property and have scheduled to close it in mid-May. Nazarian’s SBE hotel and nightclub company is geared toward the polar opposite customer base that would be drawn to the Sahara.
The Tom Barrack-led Colony Capital investment group bought the Las Vegas Hilton in 2004 as part of a disjointed casino-investing spree that seemed to have them investing in any gaming deal they could get in on and waiting for something to print money. Their loses on Station Casinos, and the Atlantic City Hilton and Resorts Atlantic City (left) dwarfed their losses from the Las Vegas Hilton.
Circus-Circus has largely been ignored since its merger into then-MGM Mirage in 2005 and has been forced to sit helplessly while any possible Capex money is diverted to the monolithic CityCenter development in the center Strip area. The Stratosphere has always been seen as nondescript; floating offshore in the foggy distance.
The North Strip has become the consolation prize for owners, all of whom have been pretty blunt that they don’t really want to be where they are but it was the only thing they could buy at the time. Or it was too cheap to pass up. Or they were stuck with it in another deal and haven’t been able to palm it off on someone else. Or “I am marking time with this until I can implode it can become the next Steve Wynn!” Every North Strip owner has their eye — and heart — somewhere else.
The North Strip Plan. North Strip operators need to band together and market themselves as a separate area. They may be only a subset but they need to accentuate that theirs is the classic, value-oriented part of the Strip: Vegas like it used to be, without the teeming masses and SoCal twentysomethings crawling out of the clubs. If they don’t have clubs, restaurants and shopping, then sell the positives of better gambling value, and more traditional shows and dining. Advertise in the AARP magazine and target the older market.
Start a “North Strip Shuttle”: Each casino would operate a shuttle bus under the flag of the North Strip Shuttle; the bus will stop at each North Strip property and in the Center- or South Strip, at one of the MGM Resorts properties. MGM is the logical partner due to its ownership of Circus Circus. This is not going to bring a significant number of people from the South Strip but it will raise awareness of the North Strip and help motivate people who want to visit there.
Sahara’s Salvation. I think that Sam Nazarian (left) has personal reason why he hasn’t applied for a casino license. I don’t mean a criminal one, just reasons relating to transparency (or governmental intrusion) that he and his partners aren’t will to share. I doubt he will ever be in a position to apply, for those reasons, and might to decide to move from casino-ownership mode back to his core business: hotels, nightclubs and other hospitality components. I also can’t help but wonder how deep his pockets are: His business is so heavily focused in economically challenged areas of Southern California, South Florida and Southern Nevada.
At some point, your cash needs to flow, which is why I am having trouble believing that Mr. Nazarian and his partners are willing to let the Sahara sit empty for 10 years or more until the market is able to accept any plan for the property. It requires tremendously deep pockets to be able to let a $400 million investment “chill” (incurring property taxes all the while). I see a couple of possible solutions, both of which involve Boyd Gaming. One, Boyd buys the Sahara outright and operates. Boyd is the best choice, frankly, because its older, value-driven customer base is willing to stay in a 1990-quality room. They would probably be OK with tube TVs, so long as they had 27-inch screens. Don’t need any of that iPod and stereo silliness. The Sahara is in better shape than the Tropicana Las Vegas was when the Alex Yemenidjian-led group (Onex Corp.) bought it and could be made over for less money. Boyd has the best fit, customer-base-wise and its lack of a Strip property may be the only sore spot in the company’s operations. There would some bleed-off from the Gold Coast and The Orleans but not crippling or a deal-breaker.
My next scenario is more far-fetched but it has positives: Boyd operates the Sahara but does not buy it. Boyd could do any version of a lease, lease-purchase, revenue split, etc. It could give Boyd the Strip presence mentioned before, generate revenue for SBE and have a dual benefit … Boyd could cultivate a Strip customer base ready to move over to Echelon when the economy allows resumption of it — which could be the same time SBE is ready to implode the Sahara and rebuild onsite.
It’d sure be nice if a deal could be made before May 16.
When I was out there four weeks ago, I set foot in the Riv (as well as Slots-A-Fun and Circus Circus) for the first time in nearly 7 years. Once I stepped inside the casino at the Riv, I barely recognized the place. The casino looked somewhat sharp and up to date, but it was missing the excitement. Much like the casinos on Fremont Street, the Riv has a “party pit”, this one themed to go along with the Crazy Girls show. Now it wasn’t open on a Thursday afternoon around lunchtime, so I assume this is either an evenings only or a weekends only gaming area. I had a nice lunch at the Queen Vic, which was rather dead during the time I was there, and that’s a shame.
Slots-A-Fun and Circus Circus was pretty much as I remembered them my very first trip to Vegas in 2004.
The casinos on the northern end of the Strip definitely need a shot in the arm, as there’s not much to attract the punters down that way unless they’re staying at the Riv or Circus Circus because of some budget vacation package they booked. I actually ventured to that part of the Strip from Downtown because I wanted to check out the Queen Vic and then decided (for shits and giggles) to venture into Circus Circus (which is tolerable if you are under the influence of drugs or alcohol).
The Sahara is salvageable; however finding the party willing to do so may be tough. I do like the idea of bringing in Boyd Gaming, however, the more likely possibility may be someone like Pinnacle. Unfortunately, I have a feeling that the Sahara is going to be the Strip’s version of the Lady Luck.
I think Boyd Gaming or Penn National Gaming could buy the Sahara. The price might be between $150 million and $175 million dollars. I am not sure if Mr. Nazarian wants to sell the Sahara for that amount but who knows.
Thanks for taking the time to write this Jeff in OKC.
When I was in Vegas last year, I ventured from the MGM Grand where I stayed up to the North end of the strip. Honestly, it was not very inviting – kinda scary at times especially around the Slots of Fun area. I agree with the plan in the article to cater to the older crowds from yesteryear. I know downtown was trying to do this for awhile , but lately seem to be going the way of the south end of the strip to cater to 20 & 30 somethings.
I think Las Vegas has an untapped market into the crowd the article is referring to above.
Jeff, always enjoy your posts. It’s tough to market the North Strip as the value oriented area during these times when even the high end South Strip properties are giving such deals on rooms. Your idea that the operators band together is good, but they’re such an odd assortment of owners, it’s hard to see them work together on anything. I always liked the Las Hilton when it was one of the best properties in town, competing with Caesars Palace. This was before Steve Wynn built The Mirage. Wish someone like Steve would buy The Hilton and get the LV Country Club to be part of the deal. It could be a nice place again.
Very nice post Jeff. I do like the idea of the North side resorts banding together, and I think they absolutely do need to do something like this, the resorts feel inaccessible right now even though in reality I know they aren’t, but there is that perception they need to battle.
As you also mentioned, they need to target the market currently underserved, baby boomer retirement money is just as green as hip californian trust fund kids. Plus I think there is a big opportunity from a marketing standpoint to tie it to recession. Focus on the renovations (CC, Riv, and Strat all have had some remodels done recently) talk about the value and position themselves as the antithesis to the high end resorts.
How about a shot of Strat’s rooms and some other resort focused shots, cut out as the catch phrase “Only your wallet knows the difference” and then the Stratosphere or something like that.
Sorry folks, but I sure don’t see any carrot to dangle that would attract anyone to these properties. Just too many other choices in modern and overbuilt Las Vegas. Why would baby boomers or anyone want to stay at one of those places when for a few bucks more you can stay somewhere way more exciting and high-end. The only possible positive I can see are good odds and games, but those are not even a marketing strategy except for Casino Royale. The economic downturn has shuffled the deck in Las Vegas, and now Darwinism is what we are left with.
Great post – I hope a few decision-makers read it.
From your mouth to God’s ear, Cortez.
Unfortunately,you can lead a horse’s ass to ‘oughta’, but you can’t make it think.
Great post, Jeff. I took a tour of the North Strip demise last July and never made it past Riviera and Circus Circus. It was just too depressing. I think there’s hope for the properties up there, but it’s a long way off. As an observer of Boyd, I think (and as a stockholder, I hope) the company would like a Strip presence. I don’t think the Sahara would do it, even if it’s tailor made for Boyd’s primary demographic. It’s hard to even call anything north of Encore the Strip anymore. Boyd would do well to bide its time with the Echelon property and make its mark there.