fourth-quarter las vegas: the good, the bad & the ugly.

Quite a bit going on in the Valley this week. Local media's buzzing with the upcoming opening of MGM Mirage's CityCenter, Some telling quotes from a roundtable discussion at the Global Gaming Expo, and oh yeah, Station Casinos continue to lose money hand over fist.

You can read all about each issue at LVRJ.com, but here are the brass tacks:
Least Surprising Story of the Week
MGM Mirage and Dubai World received its gaming license for Aria, the one-and-only casino at the $8.5 billion, 67-acre CityCenter. Shocking, right? The joint will be open for business next month. Read more.

Boyd's Balls—Crystal or Otherwise—Still Ain't That Great
"If you look out over the next 10 years, you could probably count on one hand the number of new buildings we'll see on the Strip. Frankly, my crystal ball isn't that clear, but there will not be the tremendous amount of new buildings on the Strip." —Keith Smith, CEO, Boyd Gaming
Translation: "Anybody wanna buy a half-built casino?" I'm not trying to be a smart ass, but it's clear Boyd doesn't plan on finishing Echelon. They'll sooner buy a Strip property than complete what was to be the company's crown jewel. You know what that means? Expect to look at dormant Echelon and Fontainebleau sites for years! Read more.

Why, yes, Virginia, casinos also can lose money!
At first glance, it would seem implausible that casinos would lose money. But it's a competitive business, just like restaurants and bars and such. Some profit. Some don't. Station Casinos—catering largely to a local market—had to file bankruptcy. And who might be there to bail them out? Boyd Gaming. Guess we now know Bill Boyd tore open that mattress full of Echelon money and has new ideas for it, no? Read more.

Which is good? Which is bad? Which is ugly? You decide.

citycenter: game changer or sinking ship?

I don't know of too many casinos that can make up a $4 billion shortfall overnight. From the Las Vegas Review Journal:

THE STRIP: CityCenter valued below cost
MGM Mirage: Half-stake in project worth $2.44 billion

By HOWARD STUTZ
CityCenter is worth about half of what it cost MGM Mirage and Dubai World to build the massive Strip development, according to third-party valuation specialists.

In a statement to investors Tuesday, in which MGM Mirage said it was writing down more than $1 billion related to CityCenter, the company estimated the value of its 50 percent ownership in CityCenter at approximately $2.44 billion. The project's total construction budget is $8.5 billion.

"This decision and related market conditions led to the conclusion that the carrying value of the residential inventory is not recoverable," MGM Mirage said in a statement.

MGM Mirage said CityCenter was required to have unnamed third parties review its residential inventory for impairment because of the company's decision to reduce the cost of project's 2,400 residential condominiums by 30 percent.

Also, MGM Mirage's largest shareholder, billionaire Kirk Kerkorian, hinted he might divest himself from the company. Read more.

MGM Mirage
CityCenter

citycenter in jeopardy?

Is the Las Vegas Review Journal guilty of hyperbole, or are they predicting the death of CityCenter? Decide for yourself:

CityCenter future in doubt after Dubai partner sues MGM Mirage
By HOWARD STUTZ

The survival of the $9.1 billion CityCenter development was called into question Monday when the investment arm of the Persian Gulf state of Dubai sued MGM Mirage over concerns about the project’s viability.

According to the lawsuit filed in Delaware Chancery Court, Dubai World, a 50-50 joint venture partner in CityCenter, is asking for unspecified damages and wants to be relieved of its obligations under the companies’ agreement that was struck in August 2007.

Dubai World, which is financing its portion of CityCenter through its Infinity World subsidiary, contends that recent statements by MGM Mirage constitute a breach of the joint-venture pact and has put the project at risk. A spokesman for MGM Mirage was unavailable for comment this morning. As of noon PDT, MGM Mirage had not issued a statement about the legal action.

The lawsuit seemingly took MGM Mirage by surprise. Last week, during the company’s fourth-quarter earnings conference call, MGM Mirage Chairman and CEO Jim Murren was asked about the relationship with Dubai World. “Our relationship with Dubai World is outstanding and has been since August of ’07 when we consummated the joint venture,” Murren said. “They have been steadfast partners.” Read more.

mgm mirage break-up...start the clock.

Looks like MGM Mirage's day just got worse. From the Las Vegas Review Journal:

Dubai partner sues MGM Mirage over CityCenter

DUBAI, United Arab Emirates — The Dubai state-run developer involved in the $8.6 billion CityCenter complex on the Las Vegas Strip says it is suing partner MGM Mirage amid concerns about the project's viability.

Dubai World says subsidiary Infinity World filed the lawsuit in Delaware Chancery Court "to protect its rights and the best interests of the CityCenter project."

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MGM Mirage is struggling under more than $13 billion in debt as it pushes ahead on CityCenter, its largest casino yet.

Infinity says recent statements by MGM Mirage about its future viability constitute a breach of contract and put the CityCenter project at risk.

It says it's asking the court to relieve it of its obligations under the joint venture agreement.

The irony of a casino plowing forward with a semi-risky venture while accruing a mountain of debt is not lost on me. When they started this project, it looked like a license to print money. The economy was soaring. Vegas tourism was at an all-time high and the affluent, young crowd was streaming onto the Strip in droves.

All the major Strip operations could afford to charge high prices for rooms, dinner, entertainment, etc. They were trying to push all the penny slot players and nickel blackjack players downtown with all the other riff-raff.

But now, MGM stock is barely worth the paper it's printed on.

I'm not celebrating MGM's recent misfortune. It disappoints me to no end. But it's worth noting all the corporate monsters of the Strip have only themselves to blame. Goliath smote Goliath.

Start the clock on the breakup of MGM Mirage.

the strip for sale?

Could the current recession spur a return to individual-owned Strip resorts? One former casino owner (and soon-to-be owner of Treasure Island) seems to think so.

From LasVegasNow.com:

One Casino Does Well, Despite Recession

(Phil Ruffin) believes his pending purchase of the Treasure Island is a great long-term investment, citing its attractive selling price of $775 million, its premier location on the Strip, its recent renovation, and its lack of debt.

In fact, Ruffin says debt is what's doing in the Strip's corporate conglomerates right now, "The problem is all that debt that is just piled on. They can't pay the debt service so all the banks are going to have to restructure that debt."

Ruffin says that will likely mean a dilution of ownership and a return, in part, to days past in Las Vegas, where there were more individual casino owners and a more personal touch, "You got a lot more personal attention. The owner was right there on the property and could make instant decisions. That's why I'll have my office located inside the TI." Read more.

Am I the only one who noted the irony of a casino being in debt up to its own eyeballs? Seriously! These places are licenses to print money! I digress.

I'll be interested to see if Harrah's and MGM-Mirage sell off any properties during the economic downturn. It's no secret Las Vegas is hurting right now. You don't even have to listen to Phil Ruffin talk of it. I know people on the front lines in Las Vegas and they'll tell you it's slow right now. Everyone's in survival mode.

I'd like to think it'll get better before the end of the year, but that's looking less and less likely.

I wonder if you'll see more folks like Phil Ruffin and Steve Wynn out there this year; individuals who want to own a piece of the Strip. Now may be the time for some prime real estate in the desert.

"...eight straight months of declining revenue on the las vegas strip..."

I shouldn't be so harsh on Boyd Gaming, though. It's not like they're alone in this economic mess. The Big Three in Vegas--Las Vegas Sands Corp., MGM Mirage and Wynn Resorts Ltd.--are getting clobbered in the markets.

From Bloomberg.com:

Las Vegas Sands, MGM, Wynn May Signal 'Ugly' 2009
By Beth Jinks

Oct. 27 (Bloomberg) -- Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Mirage, the three largest U.S. casino companies, may signal an "ugly" year ahead as gamblers curb casino trips and betting from Las Vegas to Macau.

Eight straight months of declining gambling revenue on the Las Vegas Strip and tightened visa limits by authorities in Macau, the only place in China where casinos are legal, eroded third-quarter profits, said Dennis Forst, an analyst at KeyBanc Capital Markets in El Segundo, California.

Shares of Wynn, controlled by billionaire Steve Wynn, have dropped 67 percent this year. Sands shares plunged 23 percent on Oct. 24, bringing its year-to-date decline to 94 percent and forcing it to relinquish its ranking as the biggest U.S. casino company by market value to Wynn.

No. 2 MGM Mirage, majority owned by Kirk Kerkorian, has fallen 87 percent. Penn has shed 79 percent, while Melco Crown Entertainment Ltd. has lost 72 percent. Read more.

I'm no economist, but Vegas will come back. It may take a year or two, but it'll come back. Gaming/travel/tourism are not recession-proof industries, you know. What I'm most curious of, though, is which hotel-casinos in Vegas will fold. The Big Three have deep enough pockets to survive. Harrah's is THE biggest casino company in the world, so they're probably safe. But it's going to be the little guys and outliers who lose. Are there any left in Vegas? Not many, but a few.

2009 promises to be nothing if not exhilarating.

no bonus for mgm mirage.

Looks like I picked a bad time to start thinking about moving to Vegas. From the Las Vegas Review Journal:

MGM Mirage employees to miss bonus
Cash program out because company 'unlikely' to meet profit goals for 2008
By HOWARD STUTZ

MGM Mirage told its workers Monday that it was eliminating this year's cash bonus program, which is based on achieving a certain level of profitability.

"It is unlikely we are going to meet those goals this year," MGM Mirage spokesman Gordon Absher said.

The company's cash bonuses differed for all employees and the company did not say what the triggering points were for each level. Absher said the casino operator wouldn't say how much it was saving by eliminating the bonus program for 2008. Read more.

This isn't terribly surprising news. Vegas profits have been down all year. Nevertheless, it does show the economy is affecting everyone.

labor dispute?

Another labor dispute in Vegas? Hmm....from the Las Vegas Review Journal:

Walkout possible if MGM Mirage, Perini don't address workers' concerns

Union workers "will take action tonight," including a possible walkout, if MGM Mirage and Perini Building Co. do not take action by midnight tonight to address safety concerns at the $9 billion CityCenter construction site, Steve Ross, secretary-treasurer of the Southern Nevada Building and Construction Trades Council, said today.

On Saturday, a sixth worker was killed on the CityCenter construction site since work began in early 2007. Read more.

If you haven't seen the CityCenter construction site, it's positively monstrous. It's like they're building a whole new city on The Strip.