Nareed
Nareed
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June 5th, 2010 at 3:37:40 AM permalink
Quote: pacomartin

I seriously doubt that someone staying at the Wynn or Encore is going to buy the city-wide buffet from Harrah's. The dinner buffet at Wynn is $34-38, which as much or more than the all day city wide buffet at Harrah's.



The rich love a great deal as much as the middle class. Sometimes even more. I wouldn't underestimate the attractiveness of the Harrah's buffet offer.

Quote:

But I doubt that Harrah's buffet will attract a lot of people out of the 4-5 diamond resorts (TI, MIRAGE, BELLAGGIO or VENETIAN/PALAZZO, and WYNN/ENCORE). The Excalibur and Luxor have their own all you day buffets.



I know of two people who stay at places like that. They both drooled when I described the Harrah's offer. I know what anecdotal evidence is worth, but it's all I have.
You can visit my blog Kathy's Cooking Corner at kathyscookingcorner.blogspot.mx ... .... When someone offers you friendship with one hand and stabs you in the back with the other, you tend to notice the knife a little bit more.
odiousgambit
odiousgambit
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June 5th, 2010 at 5:54:03 AM permalink
Quote: Nareed

The rich love a great deal as much as the middle class.



I'm always astonished how much this can be true, but one thing for sure is that sheltering a person's assets from taxes often means less or no income from those assets. Thus even wealthy people have some sort of budget if they don't want to be cashing out those assets.
"We thank with brief thanksgiving Whatever gods may be That no man lives forever, That dead men rise up never" Nor any gambler the long run see ever ........apologies to Swinburne for that last line
ruascott
ruascott
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June 5th, 2010 at 8:59:59 AM permalink
Quote: pacomartin

It is pretty difficult to have a negative EBITDA. Even Circus Circus has a positive EBITDA. Wynn also makes the very clear point that they don't want EBITDA to be considered synonymous with cash flow.

But you are correct, the $60M EBITDA is almost as good as the Bellagio.



I totally agree, long-term, you have to get to a positive operating income number. I watched Wynn's interview discussing EBITDA, and I agree that you depreciation is a REAL expense...the IRS wouldn't let you write it off if it wasn't. However, its a strecth to think that $100M a QUARTER of wear and tear is actually being done to their hotels. That's where the accelerated depreciation schedules (MACRS) come into play.

He mentioned in his intereview that they do room renovations every 5 years, at a cost of around $100M. Fine, so that tells me that Wynn LV has actual depreciation -wear and tear on just the rooms - of around $5M/quarter...seems like a reasonable number.

EBITDA goes back to the economic principle of sunk cost. The debt for these resorts is already there and the parent companies have to pay it now regardless of if a property is open or closed. EBITDA tells us whether the parent company would be better off with an open or closed property. For Wynn LV its obviously not even close. For CC or a few others, its really borderline whether they should remain open.
AZDuffman
AZDuffman
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June 5th, 2010 at 9:10:26 AM permalink
Quote: odiousgambit

I'm always astonished how much this can be true, but one thing for sure is that sheltering a person's assets from taxes often means less or no income from those assets. Thus even wealthy people have some sort of budget if they don't want to be cashing out those assets.



Why would this be a suprise? People don't change when they "get rich" but rather still like a good deal. Now, at a certain point a wealthy person will not wait in line for an hour to get gasoline at $.25/gal because some radio station is having a contest. But if you have a better deal at another buffet, hotel, or BJ table the "rich guy" will be just as likely to take it over the other as much as before he made his money.

I know people who earn in the top 1-2% percentile of income. They might have nice things, they don't waste money.

I would think you mostly shelter assets from taxes if those assets were ill-gotten. Though you want to minimize taxes to maximize return, no one keeps the money in the mattress. Other than some emergency traveling money for those who have IRS problems.
Tolerance is the virtue of believing in nothing
FleaStiff
FleaStiff
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June 5th, 2010 at 9:53:01 AM permalink
Quote: ruascott

For CC or a few others, its really borderline whether they should remain open.

There is a difference between the "line" at which a Green-Eye-Shade type would say close the place, the owner of a nearby casino would say close the place and the line at which an employee just hanging onto his job as it is would say close the place.

People have been mumbling about the decline of Circus Circus for quite a while but actual closure will generate headlines and headlines have industry-wide costs associated with them.

Do I have some fond memories of Circus Circus? Sure! Did I enjoy my trips there long long ago? Sure. (Mostly). Would I ever go back there. Not a chance! Do I want it to close? No.
odiousgambit
odiousgambit
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June 5th, 2010 at 9:58:52 AM permalink
Quote: AZDuffman

I would think you mostly shelter assets from taxes if those assets were ill-gotten.



Just to illustrate, you might buy Sotheby's level art. Those assets appreciate in value, but you pay no taxes till you sell. Even switching to stocks from bonds is a sort of tax shelter. So I think you are getting the wrong impression from the word "shelter".
"We thank with brief thanksgiving Whatever gods may be That no man lives forever, That dead men rise up never" Nor any gambler the long run see ever ........apologies to Swinburne for that last line
pacomartin
pacomartin
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June 5th, 2010 at 12:53:18 PM permalink
Quote: FleaStiff

There is a difference between the "line" at which a Green-Eye-Shade type would say close the place, the owner of a nearby casino would say close the place and the line at which an employee just hanging onto his job as it is would say close the place.

People have been mumbling about the decline of Circus Circus for quite a while but actual closure will generate headlines and headlines have industry-wide costs associated with them.

Do I have some fond memories of Circus Circus? Sure! Did I enjoy my trips there long long ago? Sure. (Mostly). Would I ever go back there. Not a chance! Do I want it to close? No.





Year Air Psgrs Visitors Delegates Rooms Occup
2000 36,865,866 35,849,691 10.75% 124,270 89.10%
2001 35,179,960 35,017,317 14.32% 126,610 84.70%
2002 35,009,011 35,071,504 14.56% 126,787 84.00%
2003 36,265,932 35,540,126 15.92% 130,482 85.00%
2004 41,441,531 37,388,781 15.31% 131,503 88.60%
2005 44,267,370 38,566,717 15.99% 133,186 89.20%
2006 46,304,376 38,914,889 16.21% 132,605 89.70%
2007 47,729,527 39,196,761 15.84% 132,947 90.40%
2008 44,074,642 37,481,552 15.74% 140,529 86.00%
2009 40,469,012 36,351,469 12.36% 148,941 81.50%

The USAirways loss was the bulk of the lost passengers into McCarran. Visitors are back at the 2003-2004 level and the drop in convention business is profound. Massive room discounts to even get this many visitors.

You make an interesting comment about the desirability of closing some places.

The table really illustrates the massive oversupply of rooms in the Vegas region. The planes are not coming back anytime soon. The train is still five years away, at best.

There are really no healthy companies at all. Steve Wynn opening the Encore and combined complex making less revenue with two buildings than with a single building is pretty shocking.

If you look at the table it seems that if room closings in the tens of thousands are necessary so that recovery won't take more than a decade. Circus Circus and Riviera don't add to the energy level of the strip at all anymore. The Plaza and Vegas Club with 1500 rooms for downtown going for as little as $20 a night makes it difficult for the other properties to stay profitable.

Station Casinos is auctioning 4 casinos plus 7 slot clubs for a minimum outlay of over $800 million. Three of these casinos are on one four mile stretch of Rancho Blvd. Talk about overcapacity.

Green-Eye-Shade type is a reference you don't hear very often.
People may have been complaining about Circus Circus for a long time but revenue from 2008 to 2009 dropped from $250 million to $200 million which means that they are now running at an operational loss no matter how much cost cutting they can do. They still have a positive EBITDA however.
FleaStiff
FleaStiff
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June 5th, 2010 at 2:25:00 PM permalink
Massive oversupply of rooms ...
I trust you mean in relation to visitors, but then ofcourse locals would be happy to have rooms too for such things as StayCations or DUI-avoidance.

So I wonder if you have any numbers as to what a visitor is and what a hotel room is?

Do you think a MicroTell would be a good idea in Vegas? The rooms are about the size of a spacious jail cell.
Do you think a hotel that did not have to replace furniture all the time would do well? Such as ruggedized plastic that gets steam cleaned as if it were an outdoor stadium?
What about a hotel that offered spacious rooms and a nice plasma TV but no marble?
You mention the plaza's 1500 rooms, but not one of those is any threat to the Venetian.

What do visitors really want?
Four young frat rats just want a crash pad with cold beer and hot strippers.
A family of four may have gamblers but it may also have a gawker or some teenagers that want something more than a motel room. Some women want a restaurant when they go to Vegas with their husbands and a bar or club when they go to Vegas with "The Girls". Some people go to Vegas and NEVER gamble.

What can hotels do with existing rooms?
Well how about a liquor industry trade show ... that offers DUI-avoidance rooms with admission to the sampling floor of the trade show?
Some casinos try to offer a Romantic Couples weekend: Emphasis on Two: Two mints, two simultaneous spa treatments, two breakfasts sent to the room, etc.
Some casinos offer Sports Rooms or atleast market their rooms to sports enthusiasts.

I don't know if terms such as hotel rooms or visitors are precisely defined enough. In Primm, I think midweek hotel rooms were either closed or given away free because the casinos were so desperate for gamblers. Its getting people with money into the room and then getting that money into the casino that is the goal.

Online gaming, Indian casinos, ... air travel indignities and delays: maybe those hotels are truly white elephants already. Or maybe the hotel owners just have to really market those rooms well. Look at all the people who complain about stingy comps? Why are casinos so reluctant to say Comp All The Rooms and be done with it.

I've heard that golf courses in Primm are great bargains and have bargain prices for casino employees, but I've never heard of a Golfer's Shuttle Bus that leaves from the Strip taking players to Primm. Each member of a foursome must drive separately. Would a casino in Primm be better off to rent a bus to get golfers? Look at all those low budget Pole Party Pits? Those one dollar and five dollar tables are always full. Why not give the room away and hope that five dollar player stays longer than otherwise. The room is not bringing in any revenue when its empty!
ruascott
ruascott
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June 5th, 2010 at 5:12:23 PM permalink
Quote: pacomartin


You make an interesting comment about the desirability of closing some places.

The table really illustrates the massive oversupply of rooms in the Vegas region. The planes are not coming back anytime soon. The train is still five years away, at best.



I think the numbers that we see for this year will determine how massive the oversupply is. We're at levels in entire economy, whether thats LV or any where else, that this country hasn't seen since the late 70s-early 80s. From your chart, I see that occupency rates were down to 84% in 2001, following the dot.com colapse (and then 9/11.) Of course, even then unemployement was nowhere near the levels of today. I don't live in LV, so you may well know better than I, but the antecdotal reports I've seen indicate that numbers have been improving since last year.

Now, I'll say this as a farily low-roller consumer. I think LV in the past few years really lost its "value vacation" identity for a lot of middle class folks. Instead it was all about bottle service at the infinite number of strip night-clubs, rediculously high-priced restaurants, and continued gouging of customers with things like "resort fees".
Sure, you can stay at a low-priced strip hotel like the Riv or CC, but if you go out wandering elsewhere, you need to dip into your pocket. $8+ cocktails are the norm at many of the strip resorts (if you aren't playing of course), and those prices are equitable with any other upper-scale vacaction destination in the country. Problem is, what made LV so popular for so many decades was its image of a great value destination. I can get price gouged in a lot prettier/more interesting places in this country - Tahoe, Colorado Rockies, Miami, NYC. When I come to Vegas, I want good value on EVERYTHING (food, gaming odds, drinks, etc...) and a clean place to lay my head. I'll give props to downtown, as Freemont St is sticking to this model.
pacomartin
pacomartin
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June 5th, 2010 at 7:52:06 PM permalink
Quote: ruascott


I don't live in LV, so you may well know better than I, but the antecdotal reports I've seen indicate that numbers have been improving since last year.




Anecdotally the reports are that things are improving, but if you look at hard number the improvement is fairly fragile. Much of the recovery in gaming has been solely in baccarat. In 2-4 days time the report for April will be released. What is significant about April is that in the last ten days of april, the Macau Encore and the Sands Singapore casinos opened. If the majority of baccarat players are global high rollers, and mostly Asian, then we may hear a massive sucking sound as these two new resorts pull away the big players.


In particular Singapore does not have the huge tax percentage of Macau. The biggest savings grace of Vegas has been the low tax rate which allowed Steve Wynn and Sheldon Adelson to take the time to fly the highest rollers to Vegas where they could gamble at a lower tax rate than Macau. Now they can take them to Singapore at much lower cost. In addition the casino at Singapore blows most of the buildings in Vegas out of the water for WOW factor, making it the most desirable place to go.


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