MBAs and Deferred Maintenance

There is much to consider in valuation. With corporate shell games and stock market valuation tied to executive compensation, often the actual condition of an asset is not relevant. Reno real estate interests seem to value casinos as real estate, not gaming licenses. It may be the same way in Las Vegas where MBAs mismanage properties.

Las Vegas is no longer viewing itself as The Casino Is The Only Profit Center. Rooms, restaurants, nightclubs, even swimming pools are now profit centers.

With Hedge Funds, Private Equity Funds, Leveraged Buy Outs and other Wall Street oriented ploys in play, one wonders about casinos.

We all know that Deferred Maintenance is often an indicator of a forth coming failure. There are various reasons. You throw whitewash and consultant-studies at a bridge and hope it stays standing until after the next election and it becomes a problem to the next administration. The Mayor of NYC defers maintenance on the subways in the hopes that by the time the problem re-emerges, he will be in the Governor's Mansion and it will be a headache for successor Mayors.

Paring costs looks great on a balance sheet but one wonders why do they want to make a balance sheet look attractive? What is their time scale? Do the MBAs know that the rats are about desert the sinking ship?

I encountered a blog-entry about Las Vegas and a visit to the Flaminogo.

The first night of the trip was at the Flamingo in one of the newly renovated "Fab" rooms. I proceed to the far elevators near the buffet and find only 1 of 8 working with about 25 people waiting. After about 10 minutes, they get a second one running and finally make it up to the room on the 17th floor.

The elevators never were fully working and the ones that were working were filthy. One had a completely busted control panel that barely stayed closed. In a town that should be all about top-notch hospitality, this was quite frankly an embarrassment. It is not confined to Flamingo either. This is my second stay at a Caesars Entertainment property in the last month and Rio was in a similar state of disrepair. This company spends big bucks constantly ripping up their casino floors to add and remove restaurants but have completely ignored basic routine maintenance.
........
So what does that blog entry make me think of?
Just what MBA bean counter is deferring elevator maintenance? You've got eight elevators. Just what is the cost of operating them? Salaries? Don't be daft! Nobody earns a living by operating those things anymore. The electricity used by the light bulbs inside an elevator? The actual electro-hydraulic equipment?

Why would someone run an elevator bank at absolutely minimal levels? Are some elevators being cannibalized for parts? Just when do the MBAs expect to abandon ship?

Hey, that's the strip - don't expect very much and you will only be slightly disappointed when you get almost nothing. Strip means all amenities have been stripped - get it? But it's a great place to draw all the undesirables away from the outlying places.

Quote: dm

But it's a great place to draw all the undesirables away from the outlying places.

Oh, I get it. Tourists really are Donkeys. They come to "Vegas" to give money in Strip poker rooms to locals and those Donkeys don't mind grafitti, cigarette butts, decrepit rooms, old junky furniture or accommodations more befitting a barnyard.

Do you know how much elevator repairmen make? About
$75K a year on average. Its one of the highest paying jobs
you can get without a college degree. So a casino puts
it off and puts it off till only a couple are working.

Quote: dm

Hey, that's the strip - don't expect very much and you will only be slightly disappointed when you get almost nothing. Strip means all amenities have been stripped - get it? But it's a great place to draw all the undesirables away from the outlying places.

Now that is a profoundly clueless post.

I have zero complaints about the conditions of the two properties I stay at on the strip: Bellagio and MGM Grand.

I understand that Aria is swell, too.

You need to quit slumming.

Quote: EvenBob

Do you know how much elevator repairmen make?

Usually such services are contracted out via some maintenance contract so that a service call is rather minimal in relation to what has already been paid. Perhaps it is a sensible cost savings but it seems to me that inadequate numbers of elevators would be an annoyance to gamblers. So we are back at square one: why are so many Evil Empire properties being run into the ground or atleast why does it look that way?

Quote: FleaStiff

Usually such services are contracted out via some maintenance contract

Its still costly, especially if parts need to be
replaced as I'm sure is the case. Elevators
are routinely inspected by the state and there
are fines if they aren't properly maintained.
Its much easier to put it off and let it sit
there not being used, especially if you're
strapped for cash.

Quote: FleaStiff

So we are back at square one: why are so many Evil Empire properties being run into the ground or atleast why does it look that way?

IMHO it could be a sign of a few different things, none good.

An example here in Pittsburgh was the collapse of the steel mills just about 20 years ago. They were outdated. After it happened strories came about how much they had ignored equipment for 15-20 years. Superintendents who were used to say replacing 10% of machines a year so none were over 10 years old were told "put it off." This bumped profits short-term as they rode that wave and picked the bones of obsolete facilities.

Another example is Pan-AM (the real one, not the reborn ones.) Some guy wanted to turn it around so he sent in his group to run the numbers. They naturally needed office space and were amazed that they could not be given a few hundred square feet to use because Pan Am no longer controlled it. Then the saw some maintainence workers trimming frayed carpet with razor blades. The money for maintainence was not there!

Or it could be like a boss or two I had when I ran the pest control company. One saw my equipment and said, "this is the best equipped branch I have ever seen!" And he said that in a bad way, as saying, "why are you buying all this stuff?" Now, I didn't have enough to even do the job right and he said I needed less.

So it could be riding the wave down; no cash; or hammerhead running the place.

I am agree with your post

The Evil Empire benefits a few at the expense all else... Why else would they be "the Evil Empire"?