NORTH END GOES SOUTH: Riviera posts first-quarter loss

May. 17, 2010
Copyright Las Vegas Review-Journal

NORTH END GOES SOUTH: Riviera posts first-quarter loss

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Have to start wondering how long these properties will survive. Their savior was the Echelon and F'Blue, and even the Plaza. But none of the properties will come online for years, if ever.

Most of the properties on the strip are still going down in the first quarter of 2010. The Wynn/Encore and Venetian/Palazzo are getting better. Golden Nugget went up. But certain properties are going further and further into operational losses. Hilton, Stratosphere, Riviera, Hooters, and Hard Rock Casino are the worst.

I think this poaching of North Strip customers by Harrah's will prevent them from ever turning a profit again. Once your casino guests have been turned into casino guests you can't make any money.

I have to agree with you Pacomartin. While the room rates at the Circus Circus, Stratosphere, and Riveria might be cheaper then the main strip, I can see people just sleeping there and going South to gamble, eat and play.

I would have to think that the Hilton will start to do better as conventions come back to Las Vegas.

One would think that if you ordered them from most vulnerable to least vulnerable they would be:
1) Circus Circus
2) Riviera
3) Sahara
4) Stratosphere
5) Palace Station
6) Hilton

Circus Circus started running at an operational lost about 8 months ago. With more tourist business people are more likely to wait to eat breakfast until the bus goes 10 minutes to Ceasars.

As I said in the article they have very little ability to fight it. Discounted rooms makes it even more likely people will "motel" there. Convenient bus access doesn't help. Discounting the buffet even lower (it's at $25 now) doesn't help much because people see the $35 City - Wide Harrah's buffet as a cheap way to be able to walk around the strip and still not be far from a meal. If Circus Circus drops the buffet to $15 a person then it is even less likely that they will earn their nut so to speak. The casino needs to make $171 per room at current occupancy rates. If you rent the room for $44 on average, and people buy two buffets, you are only a little halfway there. If people buy t-shirts or gamble a little or buy adventure dome tickets ($25 apiece) you get closer. But the buffet price is critical.

Of course if Circus Circus and Riviera both close down, it may be a short term boost to the other casinos, but they will be even more isolated.

But Hilton you would think would have a core business of convention goers that don't want to pay Marriot or Renaissance prices. Plus the name Hilton doesn't look funny on an expense account like Harrah's or Flamingo.

I did once put one night at a Club Med on an expense account. My boss told me I was crazy.

Frank, I agree with your comments in the article. As evidence, I looked up rates for this weekend (May 21-23). Here are some per night averages:

North Strip:
Sahara $69
Circus Circus $80
Stratosphere $112
Riviera $144

Center/South Strip:
Luxor $125
Harrah's $125
Imperial Palace $130
Tropicana $117
Bally's $144
Planet Hollywood $169

In general, I think it is worth it to pay the extra cost for the better location and amenities of the central/south Strip properties. For those on a tight budget, the Circus Circus and Sahara seem reasonably priced. However, the Riviera is patently ridiculous at $144. The Stratosphere at $112 is also overpriced. If someone came to me wanting a recommendation in the $100-$150 range, I'd suggest the Luxor or Planet Hollywood.

Quote: pacomartin

One would think that if you ordered them from most vulnerable to least vulnerable they would be:
1) Circus Circus
2) Riviera
3) Sahara
4) Stratosphere
5) Palace Station
6) Hilton

I would put Circus Circus between the Sahara and Stratosphere, otherwise I agree. I'll bet you a dinner that the Riviera closes its doors before Circus Circus.

Quote: Wizard

I'll bet you a dinner that the Riviera closes its doors before Circus Circus.

Can I get in on that action?

But I'd like to expand the wager to say "closed or sold".

As ridiculous as the hotel rates are, Riviera gets convention business, so I think it's got a shot at lasting longer than Circus Circus.

If were going for modified wagers, Ill take the Sahara to go (closed or sold) first. From my limited knowledge, short of the NASCAR crowd it doesnt seem to have a hell of a lot going for it anymore.

Quote: Wizard

I would put Circus Circus between the Sahara and Stratosphere, otherwise I agree. I'll bet you a dinner that the Riviera closes its doors before Circus Circus.

I put Circus circus as the most vulnerable to poaching because it is already running at an operational loss about double that of Riviera (by percent). Riviera has has 1 out of 6 customers as corporate customers who are not free to wander around. But dollar wise the loss at Circus Circus is just noise compared to what MGM is losing at Aria. The corporation may absorb this loss just to avoid the publicity.

The Riviera Corporation has nothing to fall back on and is already in bankruptcy negotiations.

Same thing with Sahara and Stratosphere. They are backed by so much money that they may not close simply because they can afford to stay open. If you sell the properties you have to realize the capital loss, and simply closing down means you still have fixed costs which could be worse than the current operational losses.

Quote: DJTeddyBear

Can I get in on that action?

But I'd like to expand the wager to say "closed or sold".

As ridiculous as the hotel rates are, Riviera gets convention business, so I think it's got a shot at lasting longer than Circus Circus.

I'd be happy to offer the same wager to you, but I decline the "or sold" counter-offer. Just because a property is sold doesn't necessarily mean it was financially troubled.

That is a good point about the Riviera conventions. I've been to casino chip collector shows there. However, it wouldn't surprise me if better located properties start undercutting Riviera convention space fees, even at a loss, to poach that business.

Quote: Wizard

I'd be happy to offer the same wager to you, but I decline the "or sold" counter-offer. Just because a property is sold doesn't necessarily mean it was financially troubled.

That is a good point about the Riviera conventions. I've been to casino chip collector shows there. However, it wouldn't surprise me if better located properties start undercutting Riviera convention space fees, even at a loss, to poach that business.

Understood. I revoke the 'or sold' clause.

I've got the Riviera staying open for business longer than Circus Circus.

And we're leaving Slots-O-Fun out of this, right? If Circus closes, but Slots stays open, the bet is still satisfied, right?

Quote: DJTeddyBear

Understood. I revoke the 'or sold' clause.

I've got the Riviera staying open for business longer than Circus Circus.

And we're leaving Slots-O-Fun out of this, right? If Circus closes, but Slots stays open, the bet is still satisfied, right?

Agreed! The bet will be resolved when either Circus Circus or Riviera permanently close their doors, including after an ownership change. The physical doors are the crux of the bet. We'll have to be gentlemen if it results in a Lady Luck kind of situation, which I think is equivalent to permanently closing. Agreed, Slots-O-Fun has nothing to do with it. The dinner shall be at a location of the choice of the winner. Are the added terms agreeable?

Do we put in a time limit for resolution? How about price limit on the dinner?

Lady Luck situation? You mean that the temporary closure turned permanent, or that despite being closed, it's still open for the timeshares?

(IS it still open for the timeshares? Wikipedia thinks so...)



(This is starting to sound like some lawyers got involved. LOL.)

May I humbly suggest that you resolve it when the doors close. They are still arguing that Castaways at the corner of Boulder Hwy and Fremont was not permanent, and they intend to rebuild and re-open at some time in the future and that's been over six years.

I don't think it matters to your bet, but MGM MIRAGE changed the licenses since last summer so that SLOTS-A-FUN no longer has a separate license (it's now just part of Circus Circus). I suppose they could close the main building, and the license just applies to the smaller building.

IS there a convention or something going on at the convention center this weekend? The north end hotels were considerably cheaper than the south end back in March.

I see no way that CC is closing. I think you are misreading their financials. You need to look at the EBITDA numbers, not the operating income/loss. CC has a positive EBITDA of $1.7 Million in the Q1 2010. This is the only number that matters from an operational decision making standpoint of whether to remain open or close.

This means CC is contributing about $6.8M (annualized) to MGM to cover MGM's debt and taxes. Operating loss includes non-cash expenses of depreciation and ammoritization. Non-cash expenses are irrelevant to management, in fact they are good things in that they reduce the firm's taxable income.

Quote: ruascott

IS there a convention or something going on at the convention center this weekend? The north end hotels were considerably cheaper than the south end back in March.

# May 14-May 22 - US Open 10-Ball Championship - Riviera Hotel & Casino - 6,000 people

Probably not the best time to take a review on Riviera room rates.

Quote: pacomartin

# May 14-May 22 - US Open 10-Ball Championship - Riviera Hotel & Casino - 6,000 people

Probably not the best time to take a review on Riviera room rates.

Ah, that makes sense then. The Riv was like $39/night back in March during the week, and something like $79 on the weekend.

I went back and looked, it appears that MGM has only been releasing the individual property results for the last two quarters. Before that it was just Strip and Non-Strip properties. But anyway, CC had a postive EBITDA for both of the last 2 quarters.

Since I had my nerdy accounting hat on, I clicked over to RHC's site to see the Riv's SEC filings. They also had a positive $2.8M in EBITDA for 1Q10.

None of this of course means that these properties are doing well by any stretch. But they are never going to close them as long as they generating some postive cash flow to cover their interest. BTW, the Riv is still not generating enough cash to cover their interest payments, and they have huge debt that appears to be coming due...hence the BK restructuring.

But alas, the good news is that as bad as things are, they are still generating operating profit. Of course if the revenue numbers continue on their downward trend, who knows.

They reported $55 for last quarter, Strat reported $46, and Circus Circus reported $44 for the year 2009 (they didn't report for the quarter).

Sahara doesn't report, but they haven't re-opened their buffet, and they are running the $1 room specials.

Hilton reported a 9% decline in room rates, but they didn't include average daily room rates and occupancy numbers in the filing.

But 2,956 rooms at $20.8 million is $78 REVPAR, but that is not counting the 300 suites. I don't think it is that much higher than the other properties.

The stickiness of Sticker Shock?

>"Here are some per night averages:
North Strip:
Sahara $69
Circus Circus $80
Stratosphere $112
Riviera $144
Center/South Strip:
Luxor $125
Harrah's $125
Imperial Palace $130
Tropicana $117
Bally's $144
Planet Hollywood $169 ..."


These are the prices that appear on the car window ... but just how valid are they?
Car models compete on image and I imagine hotels in Vegas compete on their Tier Image as well as their Geography, not just on sticker price for the room.

We have these quoted rates that are adjustable by that ever-hated Resort Fee, by actual comps, by hoped-for comps, by three-day sales, by Internet Specials, by Twitter Specials and by Mobile Phone Specials. Heck, I don't know what a sticker price for a hotel room means anymore and that doesn't even involve all these aggregator deals wherein airfare, rooms and rental cars are sold as a package. Nor are we even considering hotel packages such as those that offer golfing tie-ins. It is beyond my math skills to factor in reservations-lag, but most people do make reservations well in advance so there is a difference between "spot" prices and "futures" prices.

>I think it is worth it to pay the extra cost for the better location and amenities.
That's fine, but some couples have kids and will be gambling in shifts so they don't want to trek away from the oasis of their room. Or some people just know they are largely going to gamble where they stay, be it by logistical obligations or sheer habit. Some go casino hoping as a matter of routine and would never consider staying put. Some enjoy pubic transit and others would not hop onto a bus even to escape gunfire. And some who might regularly ride buses won't be inclined to do it while on vacation! So I'm not certain that geography's effect on travel time and travel cost is precisely known.

Upthread there was a discussion of buffet prices and buffet geography. Again, we have a mix of customers. Some are content with one hotel's buffet and some want to wander around and graze all over town. Some will in fact stay put but somehow place value on their ability to wander even if they acknowledge to themselves that they probably won't use it. Some consider the buffet critical some consider it simply a part of their other expenses such as Teen Age Arcade or Movie Theater charges. And let us not forget that buffets compete on reputation which tends to lag well behind the reality of cost-cutting measures. Look how the Wynn has been able to maintain its buffet pricing but has apparently been suffering very short lines and considerable adverse commentary.

Closed?
I understand there is a firm that specializes in operating "closed" casinos in such a manner that the license is kept active. I would agree that everyone knows a casino is closed even if only the politicians and lawyers think it is open.

About the definition of "closed," if there is any dispute, a casino will be deemed closed if we walk up to the front door, and it is closed and locked, or the door no longer exists (as might happen if the property goes immediatly to implosion, like the Dunes). The value of the free dinner shall not exceed $50.

The sources of the prices I listed earlier was Travelocity. Agreed, the honest thing to do would be to include resort fees, and any other mandatory fee, but I don't wish to change to topic.

Riviera should bring back GLOW! (Gorgeous Ladies of Wrestling) :D

I guess the reason I am hesitant to make a bet, is that it is so seldom that a casino actually closes down for non performance. Key Largo certainly closed down, and Binion's closed for a few months. A handful of very small casinos close down and are replaced with stores or condominiums. Casinos are closed and demolished but only because a newer and bigger casino is announced for the property. Now in a few cases we have yet to see the casino, and people are speculating as to when another one will appear (New Frontier, Stardust, Castaways, etc.).

In the case of the original strip casino (El Rancho Vegas) it burned down 50 years ago. But the site is still cleared, and they keep talking about building a new casino on the site. MGM announced it was going to build a casino there 3 years partnered with the owners of the Atlantis casino hotel in the Bahamas.

Most normal business close not long after they cease to make money. But there seems to be no reasonable way to predict when a casino will close.

Okay, no bet. Any other takers?

Quote: Wizard

Okay, no bet. Any other takers?

I hope you didn't write me off because I was offline for a few hours.

There are so many facets to this, including a definition of 'closed'.

Quote: Wizard

The value of the free dinner shall not exceed $50.

Then again, for a mere $50, I'd be just as happy to buy dinner for the opportunity of spending dinner with the Wiz, without concern for the resolution of the bet. If the bet ever resolves, winner gets bragging rights.

Although I'm still juggling flight options, I should be in Vegas from 9/19 to 9/25. The convention is 9/21 to 9/23.

Whaddaya think? Wanna have dinner one night?

Sorry, I read pacomartin's comment, but incorrectly attributed it to you in my head. I should be around those dates and would be happy to have dinner with the #1 poster. Shall we bet honor on the Riviera/Circus Circus thing as well?

Dinner with the Wiz, and honor on the line.

It almost makes me wanna come to Vegas sooner than September.


See ya then.

I will take the bet that none of them will close within the next year. Will anyone give me odds on that?

Man, oh, man. I am glad nobody took me up on that bet. The Sahara closed on May 16 of last year. I would have lost the bet by three days!

Quote: teddys

Man, oh, man. I am glad nobody took me up on that bet. The Sahara closed on May 16 of last year. I would have lost the bet by three days!

With visitor levels back to pre-recession levels, maybe these low end places can re-open. Stratosphere is slowly pulling out of the hole. Still not worth a fraction of the billion dollars that Goldman Sachs paid for it, but revenue is going up.

The thing you have to give Riviera credit for, whether it's working or not, is the effort they are making to attract players to the North end. It's almost like an exec there tapped into this forum for ideas and actually utilized them. The question remains of whether you can turn a sow's ear into a silk purse with good games alone.

Also a lot of strip properties, started by the Wynn I think, have made a conscience decision to not offer mega discounts or comps like they used to. I have gotten lucky and gotten a couple of free nights, but the Harrah's properties that I used to get a comp room at always now are charging me about $50-$75 a night. People that were comped to that level now might be paying full price. The Wynn comps only their big time players now. If this business decision continues, I could see down strip or downtown casinos benefiting from it.

Vegas has already a lost of ton of high rollers to Macau, because they were too scared to let the whales play.
Now they are losing a lot of medium rollers because they are so cheap with the comps and discounts.

I agree with you 100%. It's too bad they can't see it themselves.

Quote: WongBo

Vegas has already a lost of ton of high rollers to Macau, because they were too scared to let the whales play.
Now they are losing a lot of medium rollers because they are so cheap with the comps and discounts.

Agreed. I'm forgoing a Las Vegas trip this weekend to drive down to Tunica, since I can get the entire weekend comped, in a relatively nice room as well. Last year I could get Caesars Augustus Tower free over a weekend; this year (with more play than last year and the previous year), I can't even get IP free.