Stiffs & Georges by David McKee | A Las Vegas Advisor Blog
David McKee has been covering the casino industry for over 12 years. He is a three-time Nevada Press Association award-winner, including “Best Investigative or In-depth Story” for his coverage of the downtown Las Vegas casino scene. Former news editor of the Las Vegas Business Press, McKee has also been managing editor of Casino Executive Magazine and Casino Journal.
In what we can expect to be a trend rolled out nationwide, Caesars Entertainment is using its Atlantic City casinos to experiment with cutting back on waitresses. It’s not like we didn’t have fair warning of this: One of the big arguments in favor of server-based slots was that you could make your drink order without waiting for a waitress, all thanks to the machine. That is what is happening now. If the time-and-motion boffins at Caesars like what they see, any outpost of the Roman empire could be next. But it’s not as though the waitstaff is taking this lying down. Local 54 of Unite-Here is protesting, partly because the new regime prevents waitresses to gauge a patron’s level of intoxication before bringing him another drink. (Customers, incidentally, love the new policy.)
Said union research analyst Ben Begleiter, “God forbid that someone is intoxicated and gets in a car and hurts themselves or someone else. Not only is there a liability on the company, there is a potential liability on the server.” The local is taking the matter so seriously that it’s petitioning the Division of Gaming Enforcement to have the policy reversed. No doubt the DGE will hear testimony like that of waitress Eve Davis: “My job is to sit by the bar and wait till a tray has 10 drinks on it, and then I have to run out and deliver them as fast as I can. And I’m timed.” Let’s hope this doesn’t catch on; with the rise of robotic dealers, we’re in serious danger of the casino floor becoming a near-totally depersonalized experience.
* Golden Entertainment is doubling down on its trophy property, the Stratosphere. Golden will invest $140 million in capex improvements. These include a renovation of roughly 1,200 rooms, converting space that was laying fallow into a convention center and adding a pub to the sports book. (Does one’s betting acuity improve whilst inebriated?) CEO Blake Sartini told stock analysts that “the population in the Las Vegas Valley continues to grow to new highs while local unemployment of 4.9 percent is at its lowest level in quite some time and wage growth remains healthy.” While revenue rocketed up, year/year, Golden reported a loss for 2017, blamed upon the costs of assimilating American Casino & Entertainment Properties, the Strat’s parent. The Mandalay Bay Massacre didn’t help business either.
A new bar catering to Millennials will be added to the Stratosphere pod, signage will be changed, as will the check-in desk. Eventually, a new steakhouse, Starbucks, revamped Top of the World and Millennials-targeted gaming area (“Adrenaline”) will be part of the three-year package. Golden continues to sit on 16 nearby, vacant acres but that isn’t meant to imply passivity. We just don’t know what Sartini’s thinking is at the moment. As for Golden’s cash-cow — slot routes — the company is working on a single loyalty card that would unite all its properties. Imagine earning loyalty points at Rocky Gap Resort in Maryland that could be redeemed in Vegas,
* “They’re all just sort of circling around the opportunity and getting ready to pounce,” says H2 Gambling Capital analyst David Henwood, speaking of legislatures in the United States, who are fairly licking their chops at the idea of legalized sports betting. New York, Pennsylvania, New Jersey, Mississippi and West Virginia have already enacted enabling legislation. Henwood’s firm forecasts conservatively that 18 states will ultimately act, over a seven-10-year period, raking in as much as $8 billion. A more liberal estimate is that of Gambling Compliance, which places the number of participating states between 21 and 37, over a five-year timeline, for a $6 billion haul, tops. In the middle is the projection of Eilers & Krejcik Gaming, which predicts 32 legalizations over five years, with $6 billion up for grabs.
Among the companies jockeying for position are Scientific Games (which bought William Hill PLC‘s software provider) and Churchill Downs, which purchased Presque Isle Downs explicitly to get in on the Pennsylvania sports- and Internet-gambling markets. International Game Technology, provider of choice for MGM Resorts International, has experience in Italian sports betting to its credit. Of course, DFS operators can’t be ruled out either. Once the U.S. Supreme Court overturns the Bradley Act it’s going to be Katie, bar the door.
A perspicacious gentleman named Steven R. Brown wrote the following on Facebook in response to my reportage of the apparent shelving of Wynn Paradise Park: “Steve Wynn‘s creativity can be outlandish at times (Like his idea back in the early 90s to turn parts of Downtown Las Vegas into a mini-Venice.) and at times, a stroke of genius (Mirage and Bellagio.). Paradise Park is a mix of the two. The lagoon itself is not a bad concept and would fit in with overall property. The amusement park rides and the giant ape belongs down the street at Circus Circus, not at a high-end resort. Make it something that brings to mind somewhere like the French and Italian Rivera.”
And then to the topic of major-league sports and Sin City …
“MGM Resorts is going to be fighting with a number of cities for an MLS team down the road. The league does plan to expand to 28 teams, but there is no timetable on when the league will open the race for the 27th and 28th teams. The league has 23 teams this season, have already announced the 24th and 25th clubs (Nashville and the long-delayed Miami team, AKA Beckham United) that are slated to start play in 2020 and there is a 26th team that will be awarded to either Sacramento, Detroit or Cincinnati [some] time this year. So presumably two of those cities will be in the running when the league moves forward with adding the 27th and 28th teams, and also expect cities like St. Louis, Phoenix, Raleigh, San Diego, Tampa, and Charlotte to join the race (The current situation with the Columbus Crew could also impact this race as well. If the Crew move to Austin, Columbus could be in the race for one of those last two teams. If the team remains in Columbus, that could trigger an expansion bid in Austin or San Antonio.).” In other words, it’s not the abracadabra that Jim Murrren would have us believe. Thank you, Mr. Brown.
* “Given challenging weather, a difficult January calendar comparison, and a potential malaise post a strong November/December period, regional trends in the 1Q18 to date have been lackluster,” writes Deutsche Bank analyst Carlo Santarelli. This, as ever, leads to the conclusion that March will see the unleashing of Wall Street‘s favorite chimera, “pent-up demand.” Due to its strength in the Las Vegas market, Boyd Gaming is observed to be tracking best relative to Pinnacle Entertainment, Eldorado Resorts and Penn National Gaming. Of the four, Penn is underperforming the most, so Santarelli expects a negative pre-announcement of results, to soften the blow.
* Congratulations to Scientific Games, winner of two award for corporate social responsibility from the International Communitas Awards. In the “Green Initiatives” field, Scientific won the Excellence in Ethical &. Environmental Responsibility Award. It also carried home the Excellence in Corporate Social Responsibility Award for its hurricane-relief work — 32 tons of supplies and $90,000 in cash donations — in Puerto Rico (while the U.S. government twiddled its thumbs). As though all this good news were not enough, Scientific was awarded the contract for the launch of the National Lottery of Kazakhstan, an effort that will encompass 3,000 retailers. Proceeds will go to the Ministry of Sports & Culture, including the Kazakhstan Olympic team. So the next time Kazakhstan ‘medals’ in the Olympics, you will have Scientific to thank for it.
First the good news: Internet gambling revenue was 17.5% last month, grossing $22 million. Golden Nugget continues to wildly dominate this
category, up to 36% of market share. Borgata and Resorts Digital were tied for a distant second with 17% each. Now for the bad news. Terrestrial casinos continued to slump, with the Boardwalk down 9%. Even the big dog, Borgata, was off 5.5%, grossing $55 million. (That looks like a typo but isn’t.) Table games revenue bit the big one, falling 9.5% to $15.5 million, while slot revenues were 3.5% off, to $38 million on flat coin-in. Elsewhere in the market, the Caesars Entertainment portfolio sagged 12.5% for a $60 million. (Note that it takes Caesars three casinos to equal or surpass Borgata.) Caesars Interactive is also suffering, settling into last place with 14.5% of market share.
Citywide, the $124 million in slot revenue was down 6% on 4% less coin-in while tables suffered from both a 12.5% decline in wagering and a 16% drop in wagering. To say the house lost would be right on the money, as it were. Most unfortunate of the casinos was Resorts Atlantic City, tumbling 21% to $12 million. The market’s only bright spot, in fact, was Golden Nugget, up 5% for a $17 million finish. Caesars Atlantic City plummeted 23% to $17.5 million, Bally’s fell 13% ($14 million) and Harrah’s Resort dipped 4%, to $28 million. Tropicana Atlantic City chalked up an impressive $26 million, but even that was an 8.5% decline. We’ll know in a day or two whether adverse weather affected the results (snow in New Jersey is tantamount to a blizzard on the Boardwalk) or whether it’s some form of malaise. Let’s put it this way: If Hard Rock Atlantic City, Ocean Resort and a revived Showboat all hit the market this summer, the market will be well and truly challenged in its elasticity.
* Whatever the knack for running casinos is, “Detroit Dan” Gilbert doesn’t seem to have it in spades. While his Detroit rivals were battling moderate declines, Jack Detroit spiraled down 9% ($25 million). Mind you, that number would be good for third place in Atlantic City. Unfortunately, it’s also third place in Detroit, where MotorCity grossed $38.5 million (-5.5%) and MGM Grand Detroit continued its dominance with $46 million (-5%). Greektown started out as a third-rate facility while MGM went for the brass ring and the market has rewarded the latter accordingly.
* Sands Bethlehem ($24 million, -6%) is going to have to do some catching up at the tables in order to best Parx Casino‘s advantage ($33 million, +6%) in slots revenue. Except for Lady Luck Nemacolin (-13.5%), the slot picture in Pennsylvania was one of small gains and retreats: Mohegan Sun ($16 million, -4.5%), Harrah’s Philadelphia ($17 million, +3%), Presque Isle Downs ($9 million, +1%), The Meadows ($17 million, -3.5%), Mount Airy ($8 million, -8%), Hollywood Casino ($16 million, -6%), Rivers Casino (above, $22.5 million, -2%), SugarHouse ($15 million, -2%), Valley Forge ($7 million, +2.5%).
* While we’re on the subject of slots, Hard Rock Lake Tahoe is revising its slot offerings. It’s introducing a new, high-limit slot room “an exclusive and chic lounge where guests can enjoy machines that offer larger playouts than the slot games on the casino floor.” (Is that code for looser holds?) It’s also adding a four-table gaming area somewhat pretentiously titled Vibe @ The Book, where guests can play blackjack and follow March Madness simultaneously. That sounds like a good idea on management’s part: Distracted players are sure to be sloppier ones too.
What do you do when occupancy declines? Why, raise the resort fees, of course! The odious levies went up 16% in 2016 and 11% last year, for an average of $34/night. Venetian/Palazzo recently upped its impost to $45 and other companies (we’re looking at you, MGM Resorts International) are expected to swiftly follow suit. Deutsche Bank analyst Carlo Santarelli calls resort fees “a healthy baseline for ADR growth.” We call them a low-down, dirty form of highway robbery. In 2016, 39% of room-rate growth was represented by resort fees and at least 46% last year. It looks to be worse still in 2018. No wonder that AirBnb is catching on in Las Vegas. Why get ripped off by the casino barons when you can stay in a nice home, away from the madness of the Las Vegas Strip?
Although, according to Santarelli, Las Vegas Sands has been the main driver of resort-fee increases, is hasn’t done squat for their average daily rates, which remain flat. Maybe customers are onto Sheldon Adelson‘s clip-joint antics. The analyst expects Bellagio to be the next resort-fee escalator, into the same $45/night level as Venetian — “an appropriate benchmark” in Wall Street parlance. In the absence of Steve Wynn, it is now Sheldon Adelson who sets the path that others follow.
Speaking of MGM, it is buying back another 10 million shares from the late Kirk Kerkorian‘s Tracinda Corp. This will reduce the Kerkorian family’s stake in MGM to less than 5% — and MGM will still have $310 million set aside for share redemption.
* Is the newly enabled, overt presence of racism in our society to blame for the fact that Cameron James Kennedy thought it was a dandy idea to put on blackface in order to rob the New York-New York casino cage? I think so. Either way, Kennedy’s makeup job wasn’t quite good enough to fool an eyewitness, nor was it an especially clever notion for Kennedy — a two-time confessed felon — to cut off his ankle monitoring bracelet, the better to go a-robbin’. Kennedy robbed the cage, hailed a cab and bought a $1,500 gold necklace with his ill-gotten gains ($23,000 in total). Thankfully, if Kennedy’s blackface stunt was an attempt to stoke racial tensions, it was a failure.
Remaining on the topic of things MGM, the new “pool oasis” at Park MGM has been unveiled and it’s quite something. It comprises no fewer than three pools, a heated spa pool and 12 cabanas, six of which are off-limits to the hoi polloi. If your bankroll can handle it, you can nibble on watermelon-and-arugula salad while sipping a Bacardi Dragonberry rum-spikedFrosé topped with ripe strawberries. All this decadence is intended to balance “the energy of Vegas with the sophistication of a European retreat, we’ve created an alluring space that offers a variety of experiences for our guests,” quoth Park MGM President Patrick Miller. In keeping with MGM’s mantra of sustainability, the area “incorporates sustainable horticulture, including a selection of climate-appropriate species to mitigate water usage, and palms and fully grown trees salvaged from the existing site.” Well done.
What if they gave a casino and nobody came? That’s literally what took place in Pennsylvania where the fifth mini-casino license received no bids. Nada. Nix. Bupkes. From this point forward, Valley Forge Casino and Lady Luck Nemacolin will be allowed to bid but ownership of the first is in transition and the second makes so little scratch that it’s hard to see it ponying up the $7.5 million minimum bid. So what happened? Sands Bethlehem was busy selling to the Poarch Band of Creek Indians but what’s your excuse Neil Bluhm, Watouchke “Bob” Manoukian and Caesars Entertainment? Perhaps they are deterred by what is likely to be an investment in excess of $300 million. Penn National Gaming would only say it is “evaluating” whether or not to add a second mini-casino to its fold. Mind you, at some point the process will be opened to out-of-state operators and then it’s anybody’s ballgame. The one sure winner in this is the commonwealth’s treasury, which has banked more than the $100 million the license auctions were expected to bring.
* One group that’s not easily deterred is the Ponca Tribe of Nebraska, which intends to build a casino in Iowa, on the outskirts of Council Bluffs. The project received the blessing of the National Indian Gaming Commission last November but the city fathers of Council Bluffs are recalcitrant. City Attorney Richard Wade argues that the casino site doesn’t qualify as “restored lands.” Worse still (if you’re Council Bluffs), a tribal casino threatens the $11 million in taxes and non-profit contributions it gets from Iowa-licensed casinos.
Tribal Chairman Larry Wright Jr. faults Council Bluffs for going nuclear without trying to negotiate with the tribe. The Ponca casino won’t be small-caliber, either: 2,000 slots and 50 table games. The tribe waited out a decade’s worth of ups and downs in the court system before finally prevailing. They’re not letting Wade’s latest lawsuit slow them any further.
* “People don’t like gaming, but they sure like the revenue that comes from it,” says Louisiana state Sen. Danny Martiny (R), winning our award for hitting the nail on the head. Martiny is among the solons pushing for additional expansion of gambling in Louisiana. We’ve discussed some of the proposals in this space before. Others include upgrading racinos from slots-only facilities to full-blown casinos (how long will it be before “decoupling” is floated by the likes of Churchill Downs?) and legalization of DFS. With Bobby Jindal out of the governor’s mansion (and good riddance), the path looks a little smoother. The main argument against more gambling would seem to be academic research that pegs the disordered-gambling rate in the Bayou State at 3%, half again as high as the national average. (Treatment of problem gamblers is an extremely low-priority issue in Louisiana.)
Gaming expansion is likely to fare better in the upper house, where gaming friendly state Sen. Gary Smith Jr. (D) chairs the relevant committee. His opposite number in the House, state Rep. Sherman Mack (R) will have no truck with the idea, saying, “I’m not in favor of the expansion of gambling.” We’ll see whether ‘expansion’ extends to Caesars’ request for a 36-year extension of its contract at Harrah’s New Orleans. The incentive? Higher payments to the state for the privilege. (Ironically, Caesars has twice pursued lower levies for the casino.) Caesars already has the speaker of the House in its corner and Gov. John Bel Edwards is thought to be sympathetic. Boyd Gaming wants more slots at its two tracks and DFS-friendly supporter Rep. Kirk Talbot (R) favors legalized fantasy sports, saying, “Let’s get it regulated so their winnings can be taxed and have it be above aboard [sic].”
“We like birds and squirrels, not 18-wheelers. This would totally disrupt our lives,” said one rural resident, complaining about the proposal move of a riverboat casino to the Tangipahoa River, so shallow it’s not even navigable. That surrealistic proposal and many others will be hitting the Lege right about now. Let’s see if Louisiana lawmakers have it more together than their Florida counterparts.
Sands Bethlehem‘s buyers are letting no grass grow beneath their feet. The Poarch Bank of Creek Indians will rename the megaresort Wind Creek Bethlehem. It remains to be seen whether they’ll have to deal with unionizing the work force: So far only security personnel are represented — the first union contract Las Vegas Sands ever signed. Wall Street continues to wax skeptical on the deal, with Jeffries analyst David Katz not budging off his “Hold” rating for LVS: “Given the company’s prior efforts to sell the property, increasing competition in the Northeast, and Pennsylvania’s recent legislative rulings, we believe the announcement is modestly positive for the shares but does not alter our neutral stance on the shares.”
Added Joseph Weinert of Spectrum Gaming Group, “A lot of people in the industry are going to be watching to see if this tribe has the resources, experience and expertise to at least maintain its performance level — if not improve it.” Nevertheless, the Poarch Creek Band feels that Sands Bethlehem throws off enough free capital to accelerate paying down the $1.3 billion purchase price, the biggest in Lehigh Valley history. There’s hope that Poarch Creek will make good on some unkept Sands promises, like the conversion of No. 2 Machine Shop into a Bass Pro Shops. One site has lain fallow so long that Bethlehem Mayor Robert Donchez is mulling using eminent domain in order to repurpose it. Casino President Brian Carr can rest easy: He and his management team are expected to be kept in place by the new owners,
* Despite the best efforts of Sands and Caesars Entertainment, casino gambling in Brazil is a no-go. The Brazilian cabinet voted down legalized gambling by a 13-2 margin, a crushing defeat in what had looked like a very promising market.
* Casino legalization in Japan is a poky little puppy and the ruling Liberal Democratic Partywould like to move things along, with the goal of opening casino resorts before 2025. According to GGR Asia, LDP “lawmakers agreed that without a change of approach by the government, it would be beyond 2025 before any casinos could launch.” There is some tension within the LDP between the government, which would place a hard cap on casino floor space for instance, and the casino steering group, which would like some wiggle room on casino mandates. The steering group is also against limiting the initial grant of megaresorts to three, fearing that regional markets will be left out in the cold. However, the crucial Komeito Party says that such a concession would be “extremely hard” to achieve. Other sticking points include the steering group’s desire for only a monthly limit on visits by Japanese citizens, while the government would like to keep casino patronage to 3X per week. Why do we think the Komeito Party will get the final say on all this? History.
* Settlement of a longstanding lawsuit between Wynn Resorts and Universal Entertainment may have been good news to Wynn investors but was bad news for Universal shareholders. The amount of the settlement was lower than expected and less to severe shrinkage of Universal’s market capitalization.
* Actor Kiefer Sutherland is performing at Red Rock Resort on April 28. However, if you were hoping for recitation of Jack Bauer‘s most dramatic moments from 24 you’ll go away disappointed. The event is part of a rollout for Sutherland’s new Down a Hole C&W album.
Never underestimate the power of electronic bingo. It’s the capital derived therefrom that’s enabling the Poarch Band of Creek Indians to make a $1.3 billion purchase of Sands Bethlehem. The tribe is succeeding where Tropicana Entertainment and MGM Resorts International failed. Sheldon Adelson said, “Sands Bethlehem has become one of the leading regional entertainment and gaming destinations in the United States and we are extremely proud of the positive contributions the property has made for Bethlehem,” without explaining his motives for selling. However, it was always the red-headed stepchild of the Las Vegas Sands family so maybe the price was finally right.
Although the Poarch Band’s Wind Creek Hospitalityalready owns poker rooms in Florida, casinos in the Caribbean (on Aruba and Curaçao) and three Alabama casinos (and even manages the Wa She Shu Casino in rural Nevada), the acquisition of Sands Bethlehem settles any remaining doubt as to whether they’re a force with which to be reckoned. “They’ve developed some nice facilities in Alabama. This obviously is a major leap for the tribe, not just in terms of the size and performance of the asset, but also stepping into the U.S. commercial gaming industry,” said Spectrum Gaming Group‘s Joseph Weinert.
Since the approval process could take as long as a year, Wind Creek is out of the mini-casino derby unless Adelson buys one for them … which isn’t out of the question. One Wall Street analyst, John Cunnane, was skeptical, given Wind Creek’s inexperience with table games, Sands’ meat and drink. “This is jumping into the pool at the deepest end,” he told a reporter.
The announcement was so closely guarded that Sands didn’t bring it up at the JP Morgan investor forum. Mostly LVS underlings talked about Macao, where anticipated labor-cost increases are expected to be offset by higher gaming revenue, which “will be driven by greater transportation infrastructure, more hotel inventory, and Chinese consumers’ greater propensity to travel.” Next year will see major disruption at Sands Cotai Central as it converted into The Londoner. In additional to the Sands Bethlehem windfall, which analyst Joseph Greff expects to be plowed into Asia, the company continues to look for takers for its Marina Bay Sands retail mall, for which the company only was $2 billion, maybe three.
Sands thinks Japan will be a gaming market second only to Macao and that the political will is there to get it done by June. The company “sees a lot of support within Japan to get something done and move forward with convention based integrated resorts. The company would be interested in Osaka, Tokyo, and Yokohama, and estimates a property in any of these cities could generate $10b in revenue.” That sounds like a stretch — but maybe not if the Komeito Party gets its wish to confine Japanese gambling to three megaresorts. Since Prime Minister Shinzo Abe can’t get anything done in the Diet without Komeito’s assent, the minority party stands a good chance of getting its wish. “For Komeito, I think it will be extremely hard to go higher than three,” said a key party member. “If it goes well we could increase it a bit. Komeito is not saying three should be the limit forever, but let’s try three to start with.” At least Komeito is tractable to low taxes, the better to compensate for entrance fees, which the party thinks should be higher than Abe’s proposed $19.
* MGM Springfield will have a long runway, as the Foxwoods Resort Casino/Mohegan Sun satellite casino won’t be ready until December 2019 at the earliest. And that’s assuming that the federal government doesn’t intervene nor that Gov. Dannel Malloy (D) doesn’t make construction contingent upon explicit federal approval. “Here’s the bottom line: We know that we are on the right side of this,” opined Mohegan Tribal Chairman Kevin Brown. Even so, Brown better have some ‘wow’ factor in his new casino, the better to get Connecticut residents out of the habit of driving past it to Springfield. One journalist thinks we could be looking at a 2026 opening, at best. Said Connecticut Post Associate Editor Dan Haar, “it could take eight years to slog through two federal lawsuits, financing and actual construction.”
* Authorities say that two-time felon Joseph Whit Moody qualifies twice over for the Black Book and we think the Nevada Gaming Commission should throw it at him. Moody’s M.O. is to prey on elderly women at ATMs or ticket-redemption machines, distracting them as he grabs their money. Such brazen activity is made easier when the victims are tourists who don’t want to travel back to Las Vegas to testify in a criminal trial. Senior Deputy Attorney General John Michela said that Moody, who has two burglaries and three petty larcenies on his rap sheet, “seems to be incapable of staying out of trouble in Nevada casinos.” Preach it, brother.
* A driver “high on drugs” rammed his car into the Stratosphere this morning. We’ve been hit by a car and it’s no fun. We wish The Strat a speedy recovery.
Steve Wynn‘s executive chair isn’t even cold yet and already Wynn Resorts is shifting its priorities, evidently. Yesterday Deutsche Bank analyst Carlo Santarelli wrote that he believes the company “is likely to complete its convention space at Paradise Park and move to Wynn West, leaving the Paradise Park hotel and lagoon project for further consideration.” So say goodbye to nightly fireworks, free ice cream and giant apes, animatronic or otherwise. And take a good look at that rendering of Wynn Paradise Park because you’re probably never going to see it again. Wynn Resorts, if Santarelli is right, is moving away from the experimental, sometimes daffy things that Steve Wynn would initiate and towards what it understands: another hotel-casino on the Strip. Here’s hoping they try some new ideas in architecture and that Wynn West won’t look like the afterbirth of the amours of Wynn Las Vegas and Encore. It’s a good thing the company didn’t completely rip up the golf course, lest that acreage remain fallow. In an unrelated (?) development, Dr. Ray Irani abruptly resigned from the board of directors, while Alvin Shoemaker will step down at the end of his term.
In a piece of good news for WYNN shareholders, the company settled its lawsuit with Universal Entertainment, removing what Santarelli called “the single biggest financial overhang … The settlement marks the end of the 6 year legal battle over the redemption of Mr. [Kazuo] Okada’s stake and ends all litigation between the parties.” With both Okada and Steve Wynn out of the picture, it doubtless made peace terms easier to reach between Universal and Wynn Resorts. Pacification isn’t coming cheap: Wynn Resorts must pay Universal $2.4 billion — a $1.9 billion promissory note with a $464 million cherry on top, to settle interest payments. Still, we have to go with Santarelli’s description of this as a “big positive.”
While the ink was drying on the settlement Wynn CEO Matt Maddox and CFO Craig Billings gave a song and dance at a JP Morgan investor forum. Not surprisingly, they outlined their priority as “to change the narrative by reducing the noise from regulators, reducing the noise from litigation, and getting back to highlighting the company’s attractive fundamentals in Macau and Las Vegas.” They described themselves as “excited” by the Okada accord, even though it’s going to cost them plenty. After all, it’s tax deductible. Based on early polling, they’re going to stick with the Wynn brand and hope to charm regulators into realizing that Wynn Resorts “is a well-run company, leaving the main issue Steve’s ~12% shareholding (worst case regulators call for a liquidation, which management notes would be orderly).” In a cryptic remark that must surely be an allusion to Wynn Boston Harbor, the execs said management “would not let the fate of a single property jeopardize the rest of its business.”
The Wynn brand certainly isn’t toxic in Macao, where Wynn Macau is up 19% in the first quarter so far and Wynn Palace is 37% higher. Giving credit where it’s due, Maddox and Billings noted that premium-mass-market play was up since MGM Cotai opened across the street. While not specifically downsizing Paradise Park, the execs said they were “reviewing” it and “the lagoon concept may be more exclusive (possibly only open to resort guests).” They added that their Macao properties were a higher priority, ditto Japan.
Speaking of MGM Resorts International, it also made its obeisances to Wall Street, with CEO Jim Murren and CFO Dan D’Arrigo in attendance. They said MGM was “using sports as a strategy, as it drives volumes during slower periods and helps the company transition (along with Las Vegas) from traditional gaming to a broader sports and entertainment focus,” and are now talking about Major League Soccer to complement the NHL, NFL and WNBA (two of which are hosted at MGM megaresorts). With room construction going for almost a million clams apiece, Murren and D’Arrigo said they saw no reason to build new capacity. Nodding to the 50/50 ownership of CityCenter with Dubai World, Murren & Co. made some vague noises about wanting to own the whole enchilada, hopefully within five years. They also said they’d trade off higher occupancy overall in favor of more-profitable customers (read: conventioneers). Softness persists along the Mandalay Mile following the events of Oct. 1 and Murren doesn’t expect recovery this year. As for Park MGM, management anticipates “high teens” ROI, with room rates 50 bucks higher than the Monte Carlo norm ($126/night).
Over in China, MGM Cotai was admittedly lagging the market, but Murren expects it to catch up once junkets and high-roller villas are complete. He is also “generally sanguine about concession renewals and expects the process to be well defined by both the Macanese government and Beijing long before actually enacted.” He also anticipates turning on a big spigot of cash flow — which would certainly fund a CityCenter buyout — in the near future, with MGM Springfield, MGM Cotai and Park MGM all substantially finished, and no projects in the pipeline. No mention was made of Japan, which comes as a bit of a surprise.
* Churchill Downs was also in the building and said it bought Presque Isle Downs for its high cash flow “as well as providing a foothold into the attractive/high-population Pennsylvania market, where real money online gaming legislation has already been passed.” As far as expansion in Illinois and Florida, Churchill Downs couldn’t handicap the former and said chances in the Sunshine State change by the day. Instead, its priority is the acquisition of ‘instant racing’ VLT venues, which occupy a gray area of gambling but where CHDN sees green fields.
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