1999 proves to be a watershed year for Las Vegas gaming industry

Gary Thompson

Monday, Jan. 3, 2000 | 10:59 a.m.

Tourist traffic

Traffic at McCarran International Airport continued to run slightly above average this morning as New Year's Eve party-goers returned to their jobs and schools.

"Things ran very smoothly Sunday," said McCarran spokeswoman Debbie Millett. "It was more like a typical Sunday. We didn't get the massive crowds we were expecting."

Millett said there were a few flight cancellations and delays, but weather nationwide generally cooperated with travelers. There were as many flights that arrived early at McCarran as late on Sunday.

Airport officials also claimed victory over the Y2K bug. McCarran Y2K project coordinator Marc Traasdahl said all critical airport systems were unaffected by the change from 1999 to 2000.

The first flight of the new century arrived at Las Vegas from San Francisco on United Airlines at 12:06 a.m. Saturday.

The fear and uncertainty that gripped the Las Vegas gaming industry as 1999 began have given way to hope and renewed confidence at the dawn of the new millennium.

Soaring stock prices, booming visitor volume, improving Asian economies and the successful assimilation of more than 11,000 new hotel rooms without any drop in occupancy rates have combined to put smiles on the faces of casino executives and many investors.

Even the lower-than-expected crowd over the New Year's Eve weekend hasn't damped the enthusiasm of casino executives, who say advance bookings indicate last year's strong trends should carry over in the year 2000, albeit at a somewhat slower pace.

Las Vegas Convention & Visitors Authority spokesman Rob Powers said today the agency won't have final New Year's crowd estimates available for a few weeks. But he said the LVCVA is comfortable with the 240,000 number it predicted a week before the New Year.

"I'm fascinated by some of the New Year's post mortems taking place," said Mirage Resorts Inc. Vice President Alan Feldman. "To suggest that Las Vegas was a bust is laughable.

"The high expectations for big millennium celebrations were universal. Yet Las Vegas raised its room rates to historic levels in the face of competition from cities all over the world, and all we had was an 85 percent citywide occupancy rate."

Feldman said advance room reservations for the next big events here -- Super Bowl weekend and Chinese New Year -- are strong. And he said many long-time visitors who opted to stay home last weekend are likely to schedule trips to Las Vegas over the next few months.

Boyd Gaming Corp. spokesman Rob Stillwell agreed.

"As far as January is concerned," he said, "we're definitely hitting the ground running. The general feeling is that a lot of our customers were just waiting to get New Year's Eve behind them.

"Now there appears to be a lot of pent-up demand for Las Vegas visits, which should add a little to the first few weeks of January."

Overall, the New Year's weekend was uneventful, resort executives said.

"It was one of the biggest non-event events ever, and we're all grateful for that," said Kurt Ouchida of the Venetian. "The hotel and casino were operating at full capacity and the mood was festive but calm."

"It was definitely a holiday weekend, though it didn't measure up to what people had originally expected," Boyd's Stillwell said. "We adjusted our anticipations toward the end of the third quarter.

Feldman said Mirage's Las Vegas resorts -- Bellagio, the Mirage, Treasure Island and the Golden Nugget -- had 95 of their rooms occupied, most of them by guests who were "comped."

Table-game play was relatively weak at many big Strip resorts, as higher minimum betting limits drove some customers to locals-oriented casinos and their more modest minimums. Several Strip properties let dealers off early on Saturday night due to slow business.

The overall low crowd count didn't help gaming stocks start off the New Year's first trading session well, either. Gaming stocks followed the general market lower today, with all big casino operators posting stock price declines.

Station Casinos stock was the biggest loser at midday, trading at $19.875 a share, down $2.5625 or 11.4 percent. MGM Grand was off $2.3125 a share to $48, Harrah's Entertainment was down $1.375 to $25.0625, Park Place Entertainment fell 43.75 cents to $12.0625, Mirage dropped 37.5 cents to $14.75 and Mandalay Resort Group dipped 6.25 cents to $20.9625.

Through the end of 1999, most big-cap casino stocks climbed more than 60 percent since last Jan. 1, while small-cap operators fared even better, jumping an overall 150 percent, said Prudential Securities gaming analyst Joe Coccimiglio.

Of the six largest casino companies, only Mirage Resorts Inc. saw its stock price finish with a single-digit percentage gain, while shares of Park Place Entertainment, MGM Grand, Harrah's Entertainment, Mandalay Resort Group and Station Casinos all registered big price increases in 1999.

Las Vegas visitor volume soared to nearly 34 million persons in 1999, an 11 percent year-over-year gain that outpaced the 10.1 percent jump in room counts stemming from the openings of five new hotel-casinos and expansions at two other resorts.

When 1999 began, many investors and gaming executives worried that the new resorts -- Mandalay Bay, the Venetian, Paris Las Vegas, the Hyatt Regency at Lake Las Vegas and the Resort at Summerlin -- would result in a glut of hotel rooms and declining occupancy rates.

But those new properties, plus the October 1998 opening of the Bellagio and expansions at the MGM Grand and Hard Rock hotel-casinos, drew millions more visitors eager to experience the new must-see resorts. The old adage "build it and they will come" was suddenly back in vogue.

Adding to the allure of a Las Vegas vacation were lower air fares and increased air service to Las Vegas, including the summer's launch of the new National Airlines backed by big investments from Harrah's Entertainment and the Rio, which Harrah's acquired.

Like their American counterparts, Asian stock markets soared during the year, creating new wealth for investors eager to experience new adventures. The Las Vegas baccarat market rebounded in 1999, as revenues climbed 15 percent from the meager results of last year.

But competition for the lucrative baccarat market intensified with the addition of the ultra-swank Mansion at MGM Grand, 29 luxurious villas costing $175 million to build and aimed at attracting super-rich gamblers away from the Bellagio, Venetian, Rio and Mandalay Bay.

Most Las Vegas casino operators will spend the new year determining the best use of their increased cash flows, with many opting for share repurchases or debt reduction now that major construction projects are completed.

Just one new mega-resort -- the Aladdin -- is scheduled to open in 2000, and most big publicly held gaming companies are at least a year away from announcing plans for the next wave of new resorts.

Still, the Las Vegas gaming industry must constantly reinvent itself to compete effectively with the spread of casino gaming across the country. Phil Ruffin, owner of the New Frontier, is expected to disclose plans for a new property at that Las Vegas Boulevard location today, while Mirage Resorts and Aztar Corp. are mulling over possibilities for projects on valuable land they own on the Strip.

But Park Place, Mandalay Resort Group, MGM Grand and Harrah's aren't likely to embark on massive new projects in Las Vegas during 2000.

Park Place closed on its acquisition of Caesars World last week, and may spend $100 million to $200 million renovating the aging resort. But Park Place, Mandalay, Harrah's and Station are likely to spend much of their record cash flows next year paying down large amounts of debt incurred in the current wave of expansion and industry consolidation.

MGM and Mandalay also are planning permanent casinos in Detroit that would replace the temporary facilities they currently operate there, while MGM is also attempting to get the last small parcel of land it needs to build a $700 million hotel-casino in Atlantic City.

Mirage and Boyd Gaming are building a joint-venture resort called the Borgata in Atlantic City, but are using project financing to avoid major impairments to their highly leveraged balance sheets.

One potential threat to Las Vegas casino operators' seemingly rosy outlook is posed by the all-but-inevitable expansion of casino gambling on Indian lands in California. With about 30 percent of Southern Nevada's tourists coming from the Golden State, tribal gaming could have a major impact on repeat visitation by regular travelers to Las Vegas.

But expansion of California gambling could be a boon to gaming equipment suppliers, whose overall stock performance was dismal in 1999. Only two of the five biggest suppliers -- WMS Industries and Casino Data Systems -- are ending 1999 with higher share prices, while International Game Technology, Anchor Gaming and Alliance Gaming will be lower.

If California voters approve Las Vegas-style gambling in a ballot issue on March 7, gaming equipment suppliers may be able to sell up to 43,000 slot machines to Indian casinos there, Coccimiglio estimated. That would make California the nation's second-largest slot market, trailing only Nevada and vaulting ahead of Mississippi and Atlantic City.

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