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Street: Casinos bad gamble

Analysts at expo say financing cost ignored

Sneaker-clad tourists aren't the only ones to stop making tracks to Las Vegas casinos. Wall Street-types in wingtips have also tired of losing money on the Strip.

That leaves gambling operators to fend for themselves and turns talk of the next gleaming tower into chatter about who may be the first to turn off the lights.


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  • At least that's what three Wall Street analysts had to say Wednesday during the Global Gaming Expo, the gambling industry's biggest trade show and conference.

    "A year ago everybody was begging people to take money and build new buildings, build, build, build," said Joe Fath, an associate portfolio manager at T. Rowe Price. "Most people didn't factor in the cost of financing, that financing is a real cost of doing business."

    Now the money spigot is closed and managers will learn the hard way that running a successful resort isn't as easy as it looked when the cash was pouring in.

    "You look great in a bull market," Fath said. "Unless you are 90 years old and managed in the Great Depression, you never managed through something like this."

    Wall Street is jilting former darlings such as Las Vegas Sands Corp., a company that was once swimming in enough easy money to complete the $1.9 billion Palazzo in January while simultaneously building an Asian gambling empire in Macau.

    Now Las Vegas Sands has halted development of building projects in China and on the Strip and is facing a pay-as-you-go existence, at least in the near term.

    "Las Vegas Sands is the poster child for waiting too long to raise capital," Fath said. "They didn't pay attention to the signs."

    Empire-builders like Las Vegas Sands aren't the only types of companies expected to suffer withdrawal without easy money from Wall Street.

    Harrah's Entertainment scooped up Caesars Entertainment in 2005 and dialed up the debt late in 2006 with a $17 billion deal that took the firm private.

    Within a few years the company had grown from a regional, midmarket casino operator to one of the biggest players in Las Vegas that came to include Caesars Palace, Imperial Palace, Bill's Gamblin' Hall, Rio, Flamingo and Harrah's Las Vegas.

    Now the company is cutting corners to keep everything afloat, a situation that could lead to lost market share if customers don't cotton to the frayed edges.

    Deutsche Bank analyst Bill Lerner told the G2E audience that Harrah's maintenance budget could shrink from around $350 million to as little $40 to $50 million.

    "Some of (Harrah's properties) are already stale," Lerner said.

    Stronger companies will eventually pluck customers from the weak. And companies that can't right their balance sheets will be forced to shed assets.

    "I actually think there will be more of a de-consolidation," said Bryan Slotkin, vice president of Goldman Sachs & Co.

    Slotkin says as the cost of assets falls and hedge funds stabilize there's a good chance big money will return to Las Vegas as quickly as it skipped town.

    "Maybe it is just because hedge fund guys like to gamble they are at the forefront of this," Slotkin said.

    Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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    Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background.

    ...Temujin..han..of..the..Yakka..Mongols... wrote on November 26, 2008 07:11 AM:


    ...All my life I have eat chili bean...

    ...Two years and several moons ago I used to drink two or three slush machine margaritas at Texas Station and Palace Station at the 99 cent price as a house special. Last year they raised the price to two dollars and my friend and I handed the drinks back as their was a noticeable ingredient missing...??-Tequila..We asked for handshaking cocktails.

    ...Two moons ago while waiting for a table at San Lorenzo Restaurant- I walked to the Sports Bar and asked for a Margarita-
    shaken of course- and the bartender charged me five dollars for my last drink at Stations.


    Peter wrote on November 23, 2008 08:12 AM: I think it would be best if wall street would go away completely... The casinos are doing just fine despite some of the the warranted comments about service. Beacuse wall street was looking for unrealistic numbers the strip casinos have been forced to elimante the average joe gambler and made it impossible to stay anywhere close. Bring back the mobsters, people were treated better..


    Michael, common hotel worker(currently unemployed) wrote on November 21, 2008 12:15 AM: I almost completely agree with DMCVegas, I have worked for the last 15 years for the MGM hotel.
    I watched Gamal Aziz and Terry Lanni turn our once friendly,welcomes you with open-arms hotel and casino into a snobby, customer-analyzing, give em nothing resort!
    As a bartender, we were highly discouraged if not blatantly denied access to any employment in any of the high-end restaurants. The trend is city-wide with most places routinely discriminating against 35+year olds to service the common $175 meals for 2!!!
    Well, this exclusion is finally biting their rears because most customers are uncomfortable with snot-nose models turning their noses up at them!
    The powers that be think we are all Hollywood these days....or should be!
    The late-night club mentality with bottle service averaging $750 or more spilled over into the main stream and I kid you not...go to an average strip hotel and your Martini or favorite cocktail will cost you $12 and MORE!
    REDICULOUS!
    Vegas turned it's back on mainstream America and now we are paying for it.
    I can tell you this...no matter how bad the economy gets average folk will continue to drink and gamble, if you give them a reason to.


    John wrote on November 20, 2008 01:31 PM: Its all wrong...how would MGM or LVS or crappy Harrah's Ent shed assets when nobody can get the money? I really see some hotels becoming storage rooms very soon, it is going to happen folks take off the rose colored glasses and see this how it is. sadly, they truly did out up some beautiful buildings.


    casinocon wrote on November 20, 2008 12:23 PM: Oh, how the mighty have fallen! De-consolidation will be the silver lining in all this. When the big two break up and smaller operators re-focus on the AVERAGE customer, Joe "I want a free beer and a cheap steak dinner, and to feel like a big shot" six pack, then things will stabilize. When we can ALL enjoy the Strip again, instead of being ostracized, when MGM sheds some properties and actually welcomes me (a local) with free RFB and play, things won't look so bad. Back to the good ole days!


    Moses wrote on November 20, 2008 11:17 AM: As it is written, so shall it be done.


    David wrote on November 20, 2008 11:10 AM: Station casinos is biting the hand that feeds thewm in elimiating jobs at their casinos. Where do they think their customer base comes from? Casinos eliminate jobs, they eliminate customers as well.

    To add insult to injury, Stations sent jobs overseas after eliminating their reservations department employees here.


    Don't Kill the Messenger wrote on November 20, 2008 11:03 AM: Memo to DMCVEGAS: What part of Jeann & John do you not understand fool. By the by, who died, and left you captain over here. It is an opinion dude, you sound like a very nice "pink-hand" type esoteric San fransicko moron. No, I am not letting it go.



    I miss that Kitschy Vegas wrote on November 20, 2008 10:05 AM: DMCVegas - you hit the nail on the head - you are absolutely correct in stating that the casinos have killed thier own business off but not only with the tourist clientle but with the locals as well. Those "young fools in charge" alienated thier local base. I have not been on the strip for YEARS ever since Treasure Island changed to the T.I. and brought in that ridiculous "sirens of T.I." show and the same for any Stations property - they used to be a locals place but forget it now you have to have $$$$ and be one of "the pretty people" - go to one of thier clubs with the overpriced cover charge and drinks or eat at one of the overpriced steak houses. Try getting into Tao one night - if you want a table there is a $200 plus "bottle charge" - try going to see Bette Midler at starting prices of $250 each or one of the Cirque shows at $150 a pop - then go play a few machines that are so tight you can dump $200 in 20 minutes and get nothing not even a little bit of winnings to let you play for a while longer. Yes those young fools in charge have certainly ruined the image of the old "kitschy" vegas - the days when you could hang on the strip - maybe even lose your shirt gambling but you had an inexpensive room an inexpensive QUALITY meal and saw a "kitschy" lounge show (comped of course)and at least when you went home you had stories to tell (and not tell) and you couldnt wait to come back.


    Casino Worker wrote on November 20, 2008 09:38 AM: Wall Street pillaged and plundered the Las Vegas strip. I find it funny how the old timers I work with prefer the Mob over the corporations. When the Mob ran Vegas, they took care of their guest. They didn't issue you a number, they knew your name. The casino boss didn't have to look you up on a computer to issue you a comp. It's a simple business plan, take care of your guest and they will take care of you. Instead,these greedy corporations nickel and dime every person that walks through their doors. Ironically, greed will be their downfall.

    Vegas has some serious restructuring to do in order to become successful again. I think this will require de-consolidation like the article mentioned.


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