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Report: Industry’s demand will rebound, but more pain ahead
Thursday, June 4, 2009 | 2:05 a.m.
U.S. hotel-casino operators may see signs of stabilization in the downward spiral of their industry -- but the outlook is far from rosy.
That's according to credit rating agency Moody's Investors Service, which Wednesday issued a report updating its industry outlook.
The outlook for the U.S. gaming industry remains negative amid uncertainty about the timing and degree of a U.S. economic recovery, Moody's said. And negative trends in place since the beginning of 2008 are continuing and there have been no meaningful signs of stabilization, Moody's said.
"The trend in ratings is down for many U.S. gaming companies," Moody's Senior Vice President Keith Foley said in the report. About 72 percent of U.S. gaming debt issuers now have a negative outlook or are on review for possible downgrade and nearly 43 percent of U.S. gaming companies are rated Caa1 (high risk of default) or lower.
"The greatest risk facing U.S. gaming companies is the possibility that consumers will further reduce discretionary spending on gaming during the next 12 to 18 months," Foley said.
Moody's said that while Las Vegas has been hit the hardest by the recession, gaming companies that have significant exposure to the Atlantic City or Connecticut gaming markets or that have near-or intermediate-term liquidity concerns are most at risk.
Longer term, gaming demand will eventually rebound, Foley said. "However, we do not assume that because gaming demand declined along with the economy, it will return to pre-recession levels once the economy improves," he said.
This view has been expressed by other forecasters, who note Americans are now starting to save money and are spending less on discretionary items and activities such as entertainment and gambling.
Moody's said that one recent positive development has been the implementation of cost-cutting measures designed to maintain cash flow as revenue declines. But there's a catch with that.
"While we view these measures positively from a rating perspective, there is a risk in some cases that cost-cutting might affect the quality of the gambling proposition and customer experience," said Foley.
Also weighing in on the industry this week was Deutsche Bank debt securities analyst Andrew Zarnett, who remains concerned that Las Vegas operators will suffer when CityCenter and other projects open in an already-over supplied market.
In reviewing first quarter financial results, he said management of select Las Vegas operators indicated the free fall in gaming and nongaming revenue is likely over for Las Vegas as trends seem to be stabilizing.
“While many believe that things may get better for Las Vegas, we continue to believe that Las Vegas will remain challenged in fiscal 2009, albeit better than that of (the fourth quarter of 2008), as unemployment continues to rise and consumer spending declines,'' Zarnett wrote in a report. “Looking at 2010, we also remain concerned with the incremental capacity (approximately 12,500 rooms) coming online over the next 12-18 months, which we believe will significantly impact existing Las Vegas gaming operators.”
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Las Vegas could re-invent itself by legalizing prostitution and promoting itself as an exciting place for gay people to get married.
Its time to relax some of these prohibitions, like Nevada did years ago in legalizing gambling.
The business model for Las Vegas is sound. It is the economy that is bad and people see all of this new spending by the government as a bad thing. Las Vegas should stay the course and when the economy gets better, Las Vegas will get better. I only hope the President does not spend us into a third world country status before then.
The way the casinos raped people just to get a buck from them,and show nothing in return took us all down the tolit with them! Bring back the blue prints the mob showed you how to take peoples money,and they will return 10 fold! The whales didnt build this place,the people that just get by did! And they are all now forgotten!!!
SCHERF REPORT:
U.S. gaming markets must be differentiated. Las Vegas is its own "animal" and Las Vegas will rebound before the other markets in the U.S. Clearly, we've seen the bottom in the Las Vegas market in Q4/2008. Also, during the downturn, hotel operators were flexible and responded quickly to adjust room rates to slower traffic/demand which kept Las Vegas at the cutting edge of being the #1 destination with the best value and bang for the buck.
Of course, most professional and retail investors missed the tremendous investment opportunities when stock prices of Las Vegas casino-resort operators were hitting multi-year or even historic lows in early March. Las Vegas Sands (LVS) shares hit rock bottom on March 9, 2009 at only $1.38 and today-only 3 months later-the stock is trading 624% higher at over $10 in the AM session. Same is true for MGM-Mirage (MGM) as the stock plunged to $1.81 on March 6, 2009 and today MGM shares are trading at around $7.50. In early March '09, WYNN shares dropped to a low of $14.50 and now trade above $40 a share.
Still, all these stocks have plenty of room to fill the gap to their former highs in October '07 when LVS traded near $149, MGM at around $100 and WYNN at $176.
Sure, there are several challenges to all these companies, but give it a few years and all these companies will shine with their stock prices once again as true corporate gems, ... after all they are "printing" money 24/7. The mountains of debt with some of the operators might be a challenge, but considering everything: low interest rates and the credit markets thawing as well as a receptive private equity markets with trillions of dollars available for new investments, this challenge shouldn't be too hard to master for the world's three leading casino-resort operators. Still, all these companies will have to execute near perfection and they need to be cautious about expanding in the right markets with the right projects to soar as the economy recovers.
(SEC Reg. FD: Currently -as of today-, we indirectly own a small position in WYNN, and in the past we've owned LVS and MGM shares as we may in the future as we trade and own shares in these companies frequently).
I'm having a hard time with the "Las Vegas will rebound before other markets" mantra. It's continually repeated in the media but what is the justification for this belief?
If a vacationer has little money because their local economy hasn't recovered why will they be coming to Las Vegas to spend money? Don't people need discretionary money to lose in a place like Loss Vegas? Las Vegas is dependent on people losing money. How can people lose more money if they're already broke and when they do get money how eager will they be to lose it again?
My grandfather came to Las Vegas in 1948. He worked at the Pioneer Club Downtown, then went to the Golden Gate the day it opened. He and my great-uncle were Shift Bosses there until they died, both in their late 80's.
When my father was old enough, and later my brother, they went into the business as well.
Old Las Vegas was a wonderful and exciting town, filled with class and elegance.. The Hotel/Casinos knew how to treat their customers well, and they did just that..
People dressed up to go on the Strip, slot machines were loose, you could shoot the breeze with the blackjack dealers while you played, you never paid for a drink, and rarely a meal.. Locals, as well as tourists loved the "feel" and excitement of the town.. each individual felt important and their business there was wanted..
Everyone made money! The Hotels, employees, and the customer. Old Las Vegas was AWESOME! They didn't have these silly Theme Parks, and they didn't need gimicks to get people to come.. The shows were class acts.. Vegas HAD class! No matter what the economy was doing, Vegas stayed busy! Vegas was not broken, and didn't need to be fixed..
Hotels brought in junkets from everywhere.. my favorite junkets were the ones from Hawaii.. what nice people, and they spent freely..
Then came these BIG corporations! They took out the "old, tried and true." They were going to make a BIGGER and BETTER Las Vegas, greed motivating them.. They had no class, and took the class right out of Las Vegas.. Bling and glitz, who could build the biggest, the tallest, the one with the most rooms.. No more loose slots, no more comps, no more junkets, no more pleasantries, thus losing the majority of the local's support. Yep we quit going.. Greed destroys, as we have seen in all the markets here of late. Will Vegas re-coup? I seriously doubt it! They will never make money the way they use to in the days of "Old Vegas", because, they will never win back the support of the locals.. Gone are the days with Casino owners like Jackie Gaughan...
http://www.earlyvegas.com/contents_page....
Sabibaby, you have asked a question few casino owners can or will answer. They still believe in the old mantra of "Build it and they will come". However, the new mantra is "If you got it, hold on to it because you don't know what's ahead"!!!
I encourage everyone to start patronizing downtown. Best bang for your buck!!
THIS CITY IS SO F***
Agree. Downtown was suffering before 2007 because of the big hotels on the Strip. They just took away too much business from Downtown and now comes this...
After all, the problem I see about Downtown is that they also have tough times to go through and therefore do not spend much for remodelling, innovating, etc. The Fremont Street Experience with all the live gigs is getting too noisy so people request for rooms not facing Fremont Street unless they won't go sleep before 3 a.m. anyway. You just can't walk Fremont Street in the evening hours without being distracted by this huge noise factor or all these vending shops put on the streets. I was inside of Vegas Club and notices how "smelly" the air was and how little action there was at the tables and the machines. No wonder. I'm not surprised. And because there's only little action, the quality of the dealere lacks, as the top quality dealers go to work at Caesars or Planet Hollyood, of course. Plaza is the same. What was a great casino years ago turned into a 3rd class joint with little hop of recovery unless things change. The 7.77 usd buffet is cheap, indeed. But is is cheap!
The last true resort in Downtown, that's the El Cortez. That's a jewel I will visit in the future and they're just making things right. Nice rooms, low rates, good machines, and a steady super low limit poker game going on. I just wished they had these late night specials in the coffee shop. Their prices are too high, but the rest is fine. I like the El Cortez, too bad they don't have a swimming pool, though. Still, I will keep on returning to the El Cortez.
From Switzerland
Linda: the numbers don't back up your argument, take a look at tourism revenues from the day Excalibur opened to the 2006 and see the effect all those rooms, tables and machines had on Las Vegas.
Sure old Vegas had its charm and personal service is a thing of the past unless you're playing $100 a hand. But expansion brought in billions that would never have been there otherwise. They reached out to new markets with deluxe accommodations and other things to do besides gambling, and shows.
Now however the economy and the credit crisis have caught up to Vegas. It caught the entrepreneurs off guard they all wanted a piece of the action they gambled and are losing big. It will be a decade or more before Vegas recovers and it most likely will never see type of success it saw in the 80's and 90's.