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StumbleHard Rock hotel says profit tumbled in third quarter
The check-in lobby at the new HRH Tower at the Hard Rock Hotel in Las Vegas Monday, December 28, 2009.
Wednesday, Nov. 10, 2010 | 8:23 a.m.
Sun Coverage
Map of Hard Rock Hotel & Casino
Hard Rock Hotel & Casino
4455 Paradise Road, Las Vegas
The owner of the Hard Rock hotel-casino in Las Vegas today posted, as expected, a steep loss for the third quarter and warned it's having trouble making its debt payments.
Hard Rock Hotel Holdings LLC, owner of the 1,500-room property on Paradise Road east of the Las Vegas Strip, said it lost $31.3 million in the quarter ended Sept. 30, a deterioration from the $18.2 million lost in the year-ago quarter.
Expansions at the property caused net revenue to grow from $48.9 million to $60.5 million. Costs and expenses also grew, though interest expense fell from $19.3 million to $16.5 million.
Trouble meeting debt obligations by the company was revealed Nov. 3 by Morgans Hotel Group of New York, its manager and a minority investor.
In today's quarterly report, Hard Rock reiterated its cash flow was insufficient to fully cover debt payments during the nine months ended Sept. 30 and that its owners tapped reserves to meet liquidity needs.
This was blamed on "the downturn in the Las Vegas economy, the company’s high degree of leverage and seasonality."
"The company anticipates that its subsidiaries may not be able to fully fund both their operating expenses and debt service under their credit facility solely from their revenues until the economic conditions affecting Las Vegas have improved from their current conditions. If there is an event of default under the credit facility, the lenders could take certain actions that would have a significant negative impact on the company," today's report said.
"The company is reviewing its options to identify the best possible resolution to its liquidity position, including pursuing discussions with its subsidiaries’ lenders. Additional potential sources of liquidity may include licensing or sale of the company’s intellectual property or additional debt or equity financing," the hotel-casino said.
Debt problems at the Hard Rock and other Las Vegas properties are common as many expanded -- lifting the city's hotel room count -- just as the recession began in late 2008 and reduced visitation to Las Vegas.
Hard Rock CEO Joseph Magliarditi was asked Oct. 1 by In Business Las Vegas, a sister newspaper to the Las Vegas Sun, how the company would deal with its $1.3 billion in debt and liabilities.
"We simply cannot afford to carry $1.3 billion in debt. We, like other companies in the valley, have to come up with a solution because we cannot service, in this economy, that amount of debt level," Magliarditi said at the time.
The Hard Rock hotel-casino is majority owned by Credit Suisse Group AG subsidiary DLJ Merchant Banking Partners.
It operates the property under a license with Hard Rock Cafe International.
Hard Rock Cafe on Sept. 21 sued the Las Vegas casino, charging the reality TV show "Rehab: Party at the Hard Rock Hotel" was tarnishing the image of the Hard Rock brand.
The Las Vegas hotel-casino reiterated in today's filing: "The company believes the claims are without merit, among other reasons, because it is entitled to use and sublicense the Hard Rock marks pursuant to a 1996 license agreement. The company intends to vigorously defend the suit."
Discussion: 13 comments so far…
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ya ya ya, but they all say it's soooo super cool this Hard Rock Hotel. Loud Music, pimps, pushers, undercover hookers, but then? you lose your potential customers, cancel the cool poker promotions, re-locate the poker room to the noisy zone, knowing, however, that poker players want it a bit more quiet than screaming and yelling dice shooters, and then? You make more debt for expansions and tighten up on the machines in a desperate effort to raise revenues...but then? The customers walk, the young "cool" customers mainly interested in the rock concerts and the swimming pool scenery don't come anymore, or gamble close to zero...revenues drop and then? You stop paying interest on your debt load...arrange debt restructuring......and who'se the big loser in this game? It's the investor that gave you the money for this mess. But you, the fat cat, you collect a big year end bonus, anyways. How is that? Is that corporate America? Hey, Hard Rock, you will not get a single penny of my money anymore. I found better places that deserve and appreciate my business. You don't. bye bye.
From Switzerland
Boris, those statements can be said about most gaming companies today. They are all crooked, self serving to the executive suite, with little or no regard for investors, employees and players alike.
kenodave, I am with you on that statement, 100 per cent. As a consequence, banks should not give any loan to casino operators, not even to their affiliates. Because we have seen several times what will happen. Unless banks and casinos co-operate (which would steal the money off the banks' investors , shareholders, bondholders, as the bank will lose money on these deals), investors should then also be able to vote whether banks will be allowed to lend money to casino operators.
To me, it is absolutely unethical that a casino operator can "opt" not to pay back a loan, hence, still remain in control of the company, and at the same time, pay out huge bonusses to its corporate leaders. Let's remember the Station Casinos con deal and more...
All I can do is stop supporting corporations that act accordingly. There are plenty of casinos in the valley that have other business models and operate within their means. Just like for instance the El Cortez that has never been trying to fly high and kept its feet on the ground, even during this recession, but never went into bankruptcy trouble....As we see, it works, if you don't get too greedy and operate within your means. The Hard Rock Hotel should'of never expanded the way it did. Without the new and additional debt load it could have been profitable today. This way, it's going to go bust, guaranteed. I mean, sorry, the investors will lose, the Hard Rock management will still collect the fat paychecks....
From Switzerland
After reading the above comments, its apparent to me that Boris knows nothing about the Casino Business. Comparing the El Cortez business model to the Hard Rock or any other Resort is completely insane!!!
Yeah, Denver, I don't know nothing, you're right...
All I know is that the Hard Rock Hotel has tons of debt, just like the MGM mammut company, and it turns out that with too much debt a proper casino operations is no longer possible. Perhaps you happen to work for Harrah's? They're also very good in accumulating mega-debt load but still continu acquiring other properties...
From Switzerland
Sounds like a good buying opportunity for the Seminoles. You want to control the brand? Buy it back!
Sometimes you reach for the stars & you end up on your a**. Thats The Hard Rocks problem.
the Hard Rock website actually looks pretty cool...really nice, actually. Too bad that the poker promotions are no longer on it....
Once again, I agree with Boris. People can continue to denigrate this philosophy of a fair gamble, good customer service and value for the dollar as cheapening Vegas. But obviously the "cooler-than-thou" demographic of 20-something Trust Fund babies that the Hard Rock coveted isn't keeping the casino and hotel lights on. Let's face it, that fickle demographic doesn't have the disposable income and the inclination for frequent gaming. Why alienate a large swath of the market by making the property too loud, too sleazy, too expensive and too tight(the machines, not the people)? No matter how much money one has, no one likes to feel unappreciated and ripped off. Hard Rock is more a victim of bad decisions than a bad economy. While gaming is suffering state-wide, the companies that have traditionally made poor decisions and condoned bad customer policies are paying a heavy price now.
Although our company encourages employees to stay at Hard Rock on frequent company-paid visits to Las Vegas, I refuse to because of the general perception of ill-advised corporate policies and poor service. I feel this way and I am in the coveted demographic of 30-something white-collar business traveller who frequently games.
As a long-time casino executive, the cardinal rule is never put any other cost centers above gaming. The other departments are there to support the casino. Without the casino revenue, the other departments cease to exist. The cash cow gaming suffers when Rehab starts to overshadow casino operations.
The Hard Rock is going to outcool themselves right into bankruptcy.
Boris you talk like you know a ton about this hotel and the industry and I get the impression you really don't know jack. Maybe you should stick to watches and remain neutral like your homeloand.
It boils down to this... they expanded in 2008 based on the boom economy. They now have too much debt. This isn't a problem singular to the gaming industry or even the Hard Rock. This isn't about "loud music, pimps, pushers, and poker promotions". Go to the Hard Rock on a Friday or Saturday Night. There isn't a more happening place in town. Young people have disposable income and guess what? They like to drink, party, and gamble. Get over yourself, it already appears you take your business elsewhere.
Actually, Jerry, maybe you think Boris doesn't know a lot about the casino industry but I do and I agree with him. I have been in the gaming industry for approximately 15 years in varying capacities, mostly hosting VIPs. I can attest that young people drinking, partying and negligable gambling isn't going to keep a property flush. Most of the top 20% VIPs(following the standard 80/20 rule)are 45+ year-old white/Asian locals or regional players. The hallmark of a successful off-Strip casino operation is repeat customers. How many of those young drinking partiers are going to come back and drop some real money on the machines or tables? Just because a place is hopping on Friday or Saturday doesn't mean it's making money if the casino floor is dead.
It appears that a lot of people have taken their business elsewhere...that's why the Hard Rock is between a Rock and a Hard place.
Hard Rock will survive, things are brought out to the JQP for them to show they are serious when going back to the drawing board. (banks) There is a major renovation that has been done at Paradise/Harmon and ALL 4 corners are doing well and will get better.
Boris, I don`t think you can go to any casino anymore, you have bashed them all and you make this claim against them all. "you will not get a single penny of my money anymore." You sound like an ex-employee of an operator. What casino do you spend your money in?
VegasSays, why do some people only post negative stuff when the article has to do with Vegas casinos? We as a community need to back them and our city, remember we are not the legs that run this city. The visitors are, if we can`t back the casinos how can the visitors?
They say they might raise cash by "licensing intellectual properties". What "intellectual properties"? They have their name due to a licensing agreement (with HRC) which they are in danger of losing because Hard Rock (The cafe people) are not happy with how their "intellectual property" is being used. Most of the hotel's business is largely due to the popularity of other businesses (cafes) with the Hard Rock name, which causes folks to go out of their way to see it. I see more bad days ahead for this "resort", unless maybe they can have their pool parties 24/7/365 and draw a lot of the 20 something crowd day after day. Too bad, it is a nice place, but HRC is right, the rehab thing is not helping it's reputation, doesn't draw anyone over 30, and the over 30 crowd has money (well, some of them do).
If their management was smart, they would follow the Palms m.o.
From my experience, I see different betting patterns between very young gamblers, the middle age, and the over 60s, or can we say, the retired?
The very young gamblers play carefully, don't bet much , and very seldom try out something fancy. Minimum Bets on B-J or roulette, no typical system maneouvering, just playing to find out more about the games, but not risking their live's bankroll.
The middle age, that's people between 35 and 55 or so, they are more familiar with the games. Some may have experienced heavy winning or losing streaks in the past, but they are not new to the games. Some of them play quit risky and take chances. Most "problem gamblers" probably fall into this cathegory. Some of them are probably desperately trying to get their money back that's been lost in earlier sessions, or some perhaps try to make up some extra money that's not coming in from their jobs.
And then, the retired, people over 60 or so, they calm down again. Play less risky, more for entertainment, know that they can't win and will lose more than they win at times, so they play more for the fun part of it.
As the business model of the Hard Rock obviously caters to the young crowd with pockets full of money, elder people are not quite the target clients. However, it needs to be stressed out that a casino can't make the millions needed from just a bunch of cool kids playing with daddy's money or some rockstars flying by at times. It's a mass' business, after all. Even if the Hard Rock does have a high limit section, I hardly ever see big players sitting and wagering in that room. Most money, and I think that's true, comes from the slot playing guests, still. Although, the dice action at nights must be pretty good, too.
As long as the housing bubble was getting bigger, there was enough fresh easy cash around and available to burn. The times have changed, and no more easy money to everybody simply going to talk to his banker and getting a home mortgage loan to finance his cool life. Now it's a business with people who have real money, not borrowed money. And now it's decision time what kind of clients you want: No clients or clients that are willing to challenge their luck against the house edge.
From Switzerland
After reading this article, I was surprised at the user comments. I run a trade association made up of almost a 1,000 business owners and among other things, we hold an annual convention and exposition. Our 2011 Meeting will be held at Hard Rock, in Las Vegas. Over the past 20 years, I've met in Vegas a lot -- four times last year alone.
Before selecting Hard Rock last year, we looked at nine different hotels in Las Vegas -- all the usual four-star type properties. Hands-down, the Hard Rock was our top-rated property. The meeting space is very nice and the Hotel is not too big; with most of the other properties, attendees would be forced to walk forever, across the casino, to get to our meetings. The newly renovated rooms are very nice -- that all-suite, HRH Tower is amazing! The broad selection of rock music from their built-in house system was a nice bonus. It's always nice to see hotel owners reinvesting, enhancing their property.
We'll be hosting a reception by the lush, recently-expanded pool at Hard Rock. We'll be enjoying cocktails and relaxing on the upper deck of the pool, with an evening view of the strip.
Most of our meetings will be held in The Joint. Instead of sitting in some box of a ballroom, we'll be in a venue designed for rock concerts. (When we were touring the hotels, Styx was setting up for a private function in this same room!)
Our attendees are 98% men -- business owners between the ages of 30 to 60. These guys will be enjoying the amenities at the Hard Rock -- the music, and the gaming. We expect many of our guys to stay after our event ends -- stay in Las Vegas LONGER -- to check out Rehab.
[Side-bar: if you work in the industry, how can you not be enthusiastic about Rehab? Sure, Vegas can fill the hotels on Friday and Saturday night. But how many hotels have a means of convincing guests to stay SUNDAY?! Check out room rates for Saturday night compared to Sunday night if you doubt the wisdom of Rehab"there's a reason hotels will practically GIVE you a room Sunday night.]
Hard Rock may be catering to the 20-something set, but I'll let you guys in on a secret. Some of us who are in our 40s, or older, still see the world through the eyes of a 25 year old. Do you think we prefer rock music, or "Muzak?"
I'm not saying Hard Rock is perfect, but I can't agree with blasting these guys for problems that in large measure are related to the economic downturn. Hopefully the city, and Hard Rock, will rebound. Meanwhile, if you're looking for a great place to mix business and pleasure, this is worth checking out. In my opinion, the Hard Rock is a special property that has a lot to offer.