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Monday, Aug. 25, 2008 | 2 a.m.
Beyond the Sun
Gaming companies and especially locals casinos, with their hard-core gamblers, were once thought to be resistant to economic downturns.
But this downturn, with its deep housing slump, has proven that theory wrong and made an example out of Station Casinos, as the locals gaming giant’s profits have fallen more dramatically than those of its peers on the Strip.
“The effect of this recession on the Las Vegas local customer has been worse than on the average gaming customer,” bond analyst Kimberly Noland of Gimme Credit Publications said in a report this month.
Station’s numbers have steadily worsened since early 2007.
Revenue, up 27 percent in the first quarter of 2007, was flat by the fourth quarter. This year, it was down 5 percent in the first quarter, followed by a 7 percent decline in the second quarter.
The profit picture has been worse.
Even before the downturn, the company’s casinos such as Green Valley Ranch and Sunset Station were cannibalizing business from one another. That trend is hardly new, but it has worsened, analysts say, with the proliferation of suburban casinos.
And competitive pressures are mounting: the Eastside Cannery opens on the Boulder Strip this week and M Resort opens in March on the South Strip.
None of that helps Station’s $1 billion-plus Red Rock Resort, which was the most expensive off-Strip casino in history when it opened in April 2006. A hotel expansion opened last year.
Revenue at the company’s Green Valley Ranch — the only Station property that reports its financial results — was down 11 percent from January through June compared with a year ago and earnings, before certain items, were down 17 percent. (Two of Station’s casinos, Green Valley Ranch and Aliante Station, are co-owned by the Greenspun family, which also owns the Las Vegas Sun.)
Analyst Matthew Jacob of Majestic Research says Michael Gaughan’s South Point on Las Vegas Boulevard south of the Strip has stolen market share from Green Valley Ranch and Red Rock Resort has lost market share to other competitors.
Though Red Rock is the newest suburban casino in Las Vegas, Boulder Station and Boyd Gaming Corp.’s Sam’s Town and Orleans have done better in terms of attracting their share of gamblers, when results are adjusted for casino size, Jacob said in a June 11 report to investors.
Station controls an estimated 42 percent of the Las Vegas locals market, which was flat compared with a year ago, Jacob said. By contrast, Boyd’s share of the market is about 28 percent, also flat from a year ago. But Station’s gambling volume, adjusted for the casino size, has fallen slightly over the past year, Jacob says.
Station Casinos went private last year, executives say, to escape the pressure from Wall Street to meet quarterly profit goals. Their company, they say, is managed for growth over the long term.
While its equity is privately held, Station’s bonds aren’t: One set of bonds that traded at more than full value in May 2007, now trade at less than 68 cents on the dollar. A subordinate set of bonds that formerly traded at 94 cents on the dollar now trades at less than 46 cents on the dollar. Those bonds now carry a 22 percent interest rate — a rate more often associated with risky startups.
Because Station’s business is so heavily invested in Las Vegas, the company’s performance will tend to track the health of Las Vegas over the long term. With a dominant share of the market, the company will disproportionately benefit from an economic rebound.
Profits didn’t fall as much as expected in the second quarter because the company has cut costs, bond analyst Dennis Farrell of Wachovia Capital Markets noted.
The company probably won’t get into too much trouble with lenders because it has plenty of vacant land that could be sold to raise cash, Farrell said.
That acreage doesn’t generate cash for the company but has long-term value to investors in a market with a limited number of available casino sites.
In the meantime, Station is feeling the brunt of what Jacob calls a “two-pronged problem” — that of increased competition and slowing demand.
“It’s not going to get better anytime soon, given these two forces at work,” he said.
Some day, this financial crisis and the mortgage slump will be over. I think we will all benefit from the situation as the casinos will have to lower costs for the buffets, room rates, and such. Perhaps Station Casinos will come up with more full play v-poker again after taking out most of their machines in the past? This would probably attract more players who have been walking in frustration.
Station Casinos, get those Super Full Pay machines back and also get those food specials back into your coffee shops, and I will consider playing a few of my days of vacation at your properties :)
Greetings and good luck :)
Innovation trumps hard times, and Station Casinos will survive and do well. Look at GVR, where a large NO SMOKING area was recently opened with a variety of games, including full-pay.
There are literally thousands of players who will seek out and patronize a NON-SMOKING area of any casino: The Baby Boomers are reaching an age where health concerns are paramount.
Let's hope the other Station casinos, including the soon-to-open Aliante Station (located right next to a retirement community), recognize this opportunity to innovate. Offer cleaner air and we will come...
Air/Schmair - offer some good return on the buck and they will come. Some of the smaller casino's seem to be holding their own - they are smaller, dirtier and probably have the least sophisticated air filtering system in place of them all and yet they are by most standards doing 'ok' in this tough economy. People want some bang for their buck it's that simple - and as long as each casino offers a section of their property dedicated to the non-smoking crowd that is usually all it takes, along with full-pay VP and a respectable amount of playing time.
The hard times are not from the real estate meltdown. It is the cost of energy. With flights more expensive and fewer of them, and visitors broke from buying gasoline and to cool their homes they just cannot afford to come here. This is not going to change until we open the country for American energy for American jobs. Drilling, nuclear, solar and coal are all needed. Tell Harry Reid to call the Senate back and have vote on drilling, not on raising taxes on energy to fund Nancy Pelosi's desires. Harry is suppose to represent Nevada, not San Fransisco.
email link
http://reid.senate.gov/contact/index.cfm...
Las Vegas
Lloyd D. George Building
333 Las Vegas Boulevard South, Suite 8016
Las Vegas, NV 89101
Phone: 702-388-5020 / Fax: 702-388-5030
neiman1, Are you Impaired ? Why are there thousands of vacant homes in Las Vegas, why is my home in Summerlin worth 25% less than two years ago? Contact Bush and Cheney and ask them why they let the energy industry and it's lobbyists write our current energy policy without energy experts from outside being asked their opinions. Better yet ask Bush and Cheny what they did with all of that money energy companies and lobbyists shoved in their pockets while they refused to meet with Democrats on energy. And now you want Reid to do Bush's job? By the way your ridiculous rant is very old and incorrect.
Has anyone[else]noticed that , as the economy tightens up , so do the slot machine payouts and the time it takes to lose your money at these casino's?
If we cannot go home a winner at least let us entertain ourselves for a while.
America is amazing. I retired from a company in Indiana that had been in business since 1875 and had been profitable up until 1987. At that point foreign competitors started to erode profits. By 2001 she was on her back losing money yearly. Management tried every trick in the book to no avail. Today she is out of business, just a memory. This was a company that produced quality equipment for Industry and couldn't turn a profit. If they could have made just $500,000, they would have kept her open.
Now check out the gaming industry. Profits of these 8 or so casinos just here in Indiana run way over $200 million a year. I read that profits in Las Vegas are several billion dollars a year. And truthfully they produce nothing...no grime or sweat involved, no hard product. Just entertainment, a service.
And there's the rub. Vegas moguls have gotten fat, smug and entitled...much like the rest of America's populace. They think they can just rake in the jack and give no regard to customer satisfaction, quality, or even essential need of their product/service. Times are achangin'. I hope casino bosses everywhere wake up and start giving us entertainment value for our dollars again. Would you play golf if you hit every shot in the drink everytime?
By the way, I've found a nice vacation spot halfway between Vegas and home, a hotel/casino/golf course. The machines are set to pay like Old Vegas, the food is grand and we're having a ball there. The weather leaves something to be desired, but this is where I hang my hat for the foreseeable future.
I haven't noticed that the slots have tightened up because I've never played them. I go into the casino and see all those sad people plugged into them and I think, wow, what could be less fun than that?
It's a bad business run by leeches and I'm glad to see some of them getting what they deserve.
Pmmart, that is my point exactly - we know, for the most part, that we're probably NOT gonna hit the 'big one'....but heck, let us at least be entertained for a little while ok guys?
Homer, while I agree that it's not just the fault of one person (or party for that matter) and while I agree that Bush/Cheney are the slime they are - I just want to answer your question about your home value - the reason it's 25% less than it was 2 yrs ago is because 2 yrs. ago sellers were raping potential buyers with their over-inflated values and now things are just getting back to what is probably the REAL value (normal). Some people, a few years ago, wanted a home obviously at any price and the market simply realized that and ran with it - so too bad for sellers who DIDN'T sell when they could have really raked it in and I guess it's also too bad for the buyers who DID buy at these over-inflated values and now that the home value is being determined for what it REALLY is worth the buyers of a few years ago are having to deal with being upside down in a commodity that normally (with proper care) always goes up in value rather than down. Maybe the next time the market changes and sellers start to gouge and buyers start to claw at each other's throat offering way too much more than the house is worth they'll stop, take a breath and say 'forget it - let some other sucker pay more than the house is worth - if buyers stick to their guns we will never see another 'sellers market' run as rampant as the last one did.