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June 4, 2012

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GAMING:

Leaders of Vegas’ top industry put on a different face

Casino executives take sober tone as new reality sets in

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Monday, April 13, 2009 | 2 a.m.

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Jim Murren

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MGM Mirage CEO Jim Murren said last month he harbors no ill will toward people who think the company will fail.

“I have no illusions that this is going to be easy,” he said during a conference call with analysts last month. “We will take every question, we’ll take every criticism, and we’ll own it all.”

He added: “This is not without risk.”

Murren’s show of humility was balanced by a defense of the company’s track record before the recession and the skill of its management ranks. Still, his tone was startling.

Powerless against the economic forces threatening to drive their companies into bankruptcy court and speculators who have driven down the value of their companies’ stocks and bonds, more executives have replaced boasts with straight talk. Industry leaders’ evolving statements over the past 18 months have marked their realization that this recession has altered the business.

Major gaming companies’ earnings reports were strong heading into 2008, even as the housing market was crumbling. Evidence of a pullback in consumer spending surfaced on the balance sheets of local casino giants Station Casinos and Boyd Gaming in the fourth quarter of 2007.

Cracks in the local gambling economy spread to the Strip in early 2008. But because Las Vegas had rebounded from earlier downturns, many bosses thought the trouble would last just a few months.

In December 2007 Murren’s predecessor, Terry Lanni, became the first casino executive to publicly acknowledge that the banking crisis, seemingly confined to Wall Street, would hurt consumer spending. His prediction of a “difficult” 2008 came at a time when the spreading housing crisis was registering in Las Vegas, but the effect it would have on gaming wasn’t. Analysts were predicting a good year for tourism, in part because slower growth in gaming revenue had been offset by soaring nongaming revenue from attractions such as nightclubs and lounges. Room rates had jumped 10 percent in 2007, though visitor volume had risen 1 percent and convention attendance had dropped 2 percent, according to the Las Vegas Convention and Visitors Authority.

In fact, a key segment was already pulling back. Tourists who could least afford the luxury boom were visiting less frequently, in part because of the housing slump but also because they had been priced out of Las Vegas, where budget rooms were going for more than $150 a night.

Casinos operators who upgraded properties were OK with losing budget travelers because they were mobbed by wealthy and middle-income Americans with money to burn.

Now, they need all comers.

The humbling circumstances have led to humble statements by industry leaders, including one of its most flamboyant figures.

Steve Wynn bragged of his company’s relative financial stability heading into last year’s economic meltdown, but also warned of trouble ahead. He told investors in the fourth quarter of 2007: “It would be unsophisticated to think that Las Vegas is somehow a magical island unto itself, immune or isolated from the effects of the cities and the communities that serve it with its visitors.”

He has grown cautious in his commentary, telling investors in a February conference call: “I think that trying to give you guys rosy pictures and all that kind of jazz on these conference calls is a real disservice. I think what we ought to do is discuss what has been and be candid about what we think may be.

“If anything, we’ve learned that things have a way of taking negative turns rather quickly in the world today and I think we ought to be very conservative about what we say and more conservative about how we run the company,” Wynn said.

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