Which downtown Las Vegas Casino will close first?

Here are the ten downtown Las Vegas Casinos that make over $12 million in gaming revenue last fiscal year. Golden Nugget made over $72 million and has about 1/3 of the downtown rooms.

There are several smaller establishments that made under $12 million, the most famous of which is the Golden Gate (the original hotel in Las Vegas established at the founding in 1906). Also includes Gold Spike, and The Western (the mst run down casino in Las Vegas). The owner of the strip club also owns two slot parlors; La Bayou (original gaming license in 1931) and Mermaids (home of deep fried twinkie).

There are certainly some tough times ahead for these places. There is only a certain amount of $$ to go around, and with the constant new mega resorts opening up its only a quetion of time before we see some casualties.

Doesn't help that a lot of these properties are already leaveraged quite high with debt either. You can run a profitable casino, but if your bill to service your debts is bigger than your profit you are going to have issues as Harrahs is finding out.

Binion's, and not even close. They've already shut down the hotel and some of the food, and the place looks like a ghost town now. They probably would have closed years ago if Harrah's hadn't bought them for their IP (WSOP and Horseshoe) and sold them off a few months later.

Looking at the last decade we see that gaming revenue is now averaging $43 million per month (down from $56 million).
Non gaming revenue is back to $36 million per month where it was eight years earlier.

IMPORTANT POINTS:
* Downtown has been experiencing a very slow steady drop in gaming revenue since 1992. And that is without adjusting for inflation.

*The NGCB includes Stratosphere as a downtown casino so their revenue is mixed into that graph.

*Fiscal year 2006 was a record year for downtown in non-gaming revenue. Lack of capacity on the strip meant that downtown could raise room rates by 40%. The wealthier clients spent more on food and other items. Profits soared to an all time high and a lot of plans were made.

* The drop in gaming revenue started in July 2006, much earlier than the recession began. Reno had a similar early beginning.

* The Bus Rapid Transit project (ACE GOLD) will begin on March 28, 2010. It will make downtown considerably easier to reach by public transportation, and simplify trip to Outlet malls and Furniture trade show building.

* The November 2009 opening of the Rush Tower capped off the $300 million dollar improvement program at the Golden Nugget. Unfortunately Dec 2009 and Jan 2010 have been some of the worst months for gaming revenue. Even table games set a twenty year low. It was hoped that 500 brand new high quality rooms would bring up at least the table games revenue if not the slots. The Rush tower was the first new hotel tower in downtown Las Vegas for 20 years since the Golden Nugget built the Carson Tower in 1989.

Fiscal years run January to December for most Vegas propeties, not July to June.

Boyd owns the California, Main Street Station, and the Fremont.

For Q4 2009 (October - December 2010)

Quote: Boyd Gaming Corp

Our Downtown Las Vegas region reported net revenues of $58.0 million, compared to $60.8 million in the prior year quarter. Adjusted EBITDA for the fourth quarter was $12.2 million, a 7.7% decrease from the $13.3 million reported in the fourth quarter 2008. Stronger operating results at our three downtown properties were offset by lower pricing and higher fuel costs associated with our Hawaiian charter service.

Their EBITDA on their three downtown properties for 2009 was 46.1 million, up from 40.7 million the year before. So I think these three properties are safe.

The Siegel Group owns the Gold Spike and has just undergone major renovations. Siegel's company seems to be in a buying mood and has properties in and outside of Vegas.

The Plaza, Vegas Club, and the Western my still be operated by Navegante Group and owned by the Tameres group. I think this group of casinos is in flux.

TLC owns and operates the Four Queens and Binions which is also a mess, but I think they are going to have a go at it.

The Landry group owns and operates the Golden Nugget, which in my opinion, was a very bad gamble. I don't believe they have the management skills to operate the hotels properly. It will be interesting to see how the new tower does.

The Cortez is probably not going anywhere. It is privately held by the Gaughan family.
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My feeling on the entire gaming industry is that the poorly managed companies without alot of cash will put casinos in peril. That said, even with declining revenues downtown, you can simply cut rates and payroll to make the properties profitable. I think that there are a few properties in peril. But I also think that with the recession taking its turn, the casino operators are going to everything they can to stay in business and prosper again.

Hey Frank,

You've been doing this for some time. I just dug up an article from the Las Vegas Business Press that you starred in over a year ago.

here.

I could have just read that instead of doing all of the research I had to dig on my own. You predicted over a year ago that things were dire for downtown yet they have been able to (barely) manage. It's clear from your feelings that some hotels will close. What's your prediction then?

Quote: boymimbo

Hey Frank,

You've been doing this for some time. I just dug up an article from the Las Vegas Business Press that you starred in over a year ago.

here.

I could have just read that instead of doing all of the research I had to dig on my own. You predicted over a year ago that things were dire for downtown yet they have been able to (barely) manage. It's clear from your feelings that some hotels will close. What's your prediction then?

Well one of the points of the article in the LV Business Press was the these drops in revenues were so severe that they were beyond the ability of just cutting payroll. In FY2009 the downtown casinos cut payroll in one year more than they did in the previous decade, and they barely put a dent in the loss of revenue. Plus cutting payroll often means closing bars, cutting back on food service (not hot food at night), and closing coffee shops and/or hotel towers. You have a cycle at some point, where you begin to lose more revenue because you have fewer services. Because downtown is much older, it is not as efficient as a big local casino on the Boulder strip. It takes more employees to take care of the maze of coffee shops, snack bars, tiny casinos, little bars, steak houses and little shops.



At the time I thought (and was hoping) that the Tamares properties would close (Plaza, Western, Las Vegas Club). Tamares is a European company closely held by Poju Zabludowicz. Poju's father made the family fortune in Jewish armaments, and he himself is a concentration camp survivor. The son diversified into real estate and hotels and made part of his billions in Times Square in New York where he bought the Good Morning America building in the mid '90s.

When Poju went on his spree in Las Vegas it was hoped he was building enough land to build a mega complex. He negotiated the price as early as 2002, and settled in 2004. Unfortunately he is proving to be more of slum lord. The aging properties are renting rooms for $22/room midweek and the health department closed the rooms at the Western. He finally sold Gold spike. However Poju is a very wealthy man, and all the property in downtown Las Vegas is only a few percent of his total net worth. Even if it is losing money he could do this for decades and not collapse.

Four Queens and Binion's is owned by a local man, Terry Caudill, who is trapped because he spent too much money on Binion's in 2008 right at the start of the recession. He just doesn't have the money to support a losing operation for years. Binion's has been in trouble for over a decade now.

Fitzgerald's has been in trouble for years. That was the property I was interested in. I think a geek casino might work on that spot. By geek, I don't mean light swords and laser tag. I mean a casino catering to people who are interested in counting cards and in compositionally dependent strategies in blackjack. I've talked about that in other blogs, where a blackjack table only makes $500/day downtown. I am convinced you can run a stimulating game, that will attract people who want to play $50 and $100 a hand because they will learn something, and still have the tables make much more than $500/day. Fremont is a smaller older casino across the street that makes almost 40% more in revenue because it is better run.

The Boyd casinos (California, Main Street, and Fremont) actually have higher EBITDA than before the recession. They have no debt, loyal clients (2/3 guests are from Hawaii), and were able to cut costs. Their revenue did not fall nearly as bad as most places, because they are already low.

El Cortez is also in good shape for much the same reason. Single ownership since 1963, and stacks of cash in the basement.

The Golden Nugget might start a stockholder's revolt. A fairly successful restaurant group is supporting this casino which is losing money hand over fist. Tillman Fertitta sold the Joe's Crab Shack chain to finance the improvements on this casino. The improvements to the property are top notch, and the place looks beautiful. But you have to remember that MGM-MIRAGE originally sold the property in 2003 for $215 million. Tillman paid over $300 million, and put in another $300 million in improvements. Yet, revenue is back to what it was before he bought the property. The neighborhood just didn't justify that kind of investment. In ten years he could be broke, or a billionaire (he used to be worth $200 million, but I'm not sure what he is worth today). (see my blog under Golden Nugget about flipping casinos).

The Stratosphere is part of the American Casino and Entertainment Group which also owns the two Arizona Charlie's and the Aquarius in Laughlin. The executives of the real estate investment group (subsidiary of Goldman Sachs) that paid $1.3 billion dollars for this company should be taken to the white house and put in stocks so taxpayers can throw rotten tomatoes at them. I can't believe that we bailed this company out. I understand that employees are afraid to ride the subway. Damn straight. Carl Icahn only paid $300 million for these casinos.


DOWNTOWN IS CRITICAL TO THE CITY OF LAS VEGAS
The city limits encompass almost 600K people, a large percentage of the 2 million that live in Clark County. But most casinos are outside of the city limits. Downtown still represents a $billion dollar business and 10K jobs (even if most of them suck).

Stratosphere is considered downtown by the gaming commission. But the outside of Fremont street the only casinos that make over $72 million per year in gaming revenue that are inside the city limits are:
1976 PALACE STATION is just a few blocks from the strip
1989 ARIZONA CHARLIE's DECATUR just went under $72 million for fiscal year 2009
1989 SANTA FE STATION in the northwest
1999 RAMPART CASINO was started by a Swiss company who wanted to build a 5 star hotel, currently owned by Marriot
2000 SUNCOAST CASINO is very near Rampart, and is owned by Boyd Gaming.

That is a very small chunk of the total gaming dollar in Clark County. Even though Oscar Goodman (the mayor) is a very visible vocal national spokesperson, he is actually talking about a business that is not in his political territory. It simply bears the name of Las Vegas.