Vegas casino operators bullish at trade show

By Liz Benston

Thursday, Sept. 18, 2003 | 11:17 a.m.

After two years of weakness, the gaming industry is poised to regain the growth it achieved prior to the terrorist attacks in 2001, top casino executives said over two days of the Global Gaming Expo trade show in Las Vegas this week.

"Everything that could go wrong did," Mandalay Resort Group Chief Financial Officer Glenn Schaeffer said. "This is a resumption of what's normal" for Las Vegas.

A significant chunk of future profits will be channeled toward balance sheet activities such as reducing debt as well as efforts to increase shareholder value, such as cash dividends and share repurchases, executives said.

Without major new projects on the horizon, companies are looking inward at how best to spend the money they have generated from new projects over the past decade.

Las Vegas casinos will continue to trump competitive pressures, particularly Indian casinos in California and elsewhere, executives said.

The city's growing convention business also has helped the city weather two years of economic declines by attracting new business from other areas and boosting room rates during historically weak periods, they said.

The Mandalay Bay Convention Center is filling the company's rooms thanks to convention-goers who are renting the company's highest-priced rooms, he said.

During recent second-quarter earnings reports, companies including MGM MIRAGE and Mandalay Resort Group pointed toward a strengthening domestic business and international business that had largely returned to normal.

"The high end (of the business) is alive," MGM MIRAGE Chief Financial Officer James Murren said. "It could be better and I think it will be in '04."

While Indian casinos in California continue to grab headlines, Las Vegas' gaming giants appear unfazed.

Customers will continue to come to Las Vegas because it offers an image and atmosphere that won't ever be replicated elsewhere, Schaeffer said. "The effect of that competition is already here," he said. "We've seen by far the worst."

Outside of Las Vegas, Harrah's Laughlin hasn't been hurt by tribal casinos opening nearby, Harrah's Chief Financial Officer Chuck Atwood said.

"In the second quarter we had record results in Laughlin, the market that everyone said no one is going to go to" after Indian casinos opened, Atwood said.

The locals' gambling business also hasn't seen declines as a result of tribal gaming, Station Casinos Inc. Chief Financial Officer Glenn Christenson said.

For all its success in the nation's gambling capital, the industry has suffered defeats in other states that are considering gaming as a way to raise needed tax revenue. In some states, high taxes make such opportunities unappealing, while other states have raised taxes on existing casinos, companies say.

Legislators need to take a "more prudent view" of casino tax rates before companies will begin to invest millions of dollars into new projects, MGM MIRAGE Chief Executive Officer Terry Lanni said.

Harrah's, an expansionist company that is also the most geographically diverse in the casino industry, failed to convert lawmakers to the belief that casinos help economies with high-paying service jobs, Chairman Phil Satre said.

"We have to do a better job of communicating the benefits of this industry," he said.

Also this week, the lobbying group hosting the trade show, the American Gaming Association, released a survey of casino operations managers showing that the majority -- 62 percent -- believe the future in Las Vegas looks brighter for smaller operations such as the Palms rather than the megaresorts of years past. Similarly, 62 percent said casinos outside of Las Vegas will begin to resemble those in the nation's gambling capital.

Here are summaries from presentations at the expo:

Las Vegas Sands

The owner of the Venetian resort is moving ahead with the expected 2004 opening of the Las Vegas Sands resort on the Chinese island city of Macau and also announced plans to create a multi-resort development in Cotai, near Macau. In Las Vegas, the company is also pursuing plans for a second resort on land it owns just north of the Venetian.

"This is going to be the first western-style casino to open (in Macau)," Las Vegas Sands Chief Operating Officer William Weidner said. "We'll be able to (hire) the best of the best." The casino will emphasize service at the high end as opposed to the "mass-market high end" that Macau's existing casinos serve, he said.

The company disclosed improved results at the Venetian in July and August, including a 37.2 percent increase in room revenue for the two months compared to a year ago, a 38.5 percent increase in slot revenue and a 2.8 percent increase in room rates, to $183. Room occupancy increased one percentage point, to 98 percent.

Mandalay Resort Group

The owner of the Mandalay Bay, Luxor and Excalibur properties at the south end of the Strip is banking on future business in Las Vegas, where it expects to generate at least 80 percent of its cash flow -- up from 70 percent -- in future years. A hotel tower and a retail mall at Mandalay Bay will debut this fall.

"We built those rooms for destination tourists" who already appreciate Las Vegas, Schaeffer said.

The company, which offers the largest number of mid-priced rooms on the Strip, is poised to reap future gains because of a lack of available land for more rooms, he said. Strip room rates are expected to rise about 5 percent a year, while room supply will grow as little as one percent annually, he said. Meanwhile, the country continues to mint a record number of Baby Boomers with money to burn and a yen for the youth-drenched atmosphere in Las Vegas, he said.

Boyd Gaming Corp.

The Borgata resort, a joint venture with MGM MIRAGE, is poised to grow earnings for the company as well as attract more people to Atlantic City who wouldn't have gone there in the past, Chief Financial Officer Ellis Landau said. The resort's non-casino revenue during its opening month of July was 23 percent of all revenue, more than double the Atlantic City average, he said.

Revenue and cash flow has been holding steady at the Stardust so far this year. The Strip resort is slated for a major overhaul at some undetermined point in the future.

MGM MIRAGE

The company is forging ahead with a new room tower at Bellagio, expected before the end of next year, and renovations of existing rooms that will be complete by January. The remodeling effort has happened faster than originally predicted because of customer demand for the property, Murren said. The remodel is part of a companywide initiative to improve the quality of the company's Las Vegas resorts to withstand competition from properties such as Steve Wynn's upcoming Wynn Las Vegas megaresort and to continue to draw customers internationally, he said. New York-New York and Treasure Island are among the other properties that are changing tenants, entertainment venues and other aspects of the property to appeal to more discriminating customers, he added.

"We just spent $5 million on a new pool at the Mirage," he said. "If you don't do this kind of thing, you get stale."

Park Place Entertainment Corp.

The company is focused on boosting lagging returns at its flagship property, Caesars Palace. The Celine Dion show at the resort's Colosseum theater has so far produced the desired results, including "record cash room rates" and about $165,000 per day in incremental revenue spent at the property, Park Place Investor Relations Manager Josh Hirsberg said.

The company also will begin construction on a 950-room tower at Caesars and meeting space that will accommodate groups that the property now turns away for lack of space, he said. A new plaza entrance under construction with columns and water features also will attract more passerby, he added.

Harrah's Entertainment

The company seeks to achieve double-digit revenue growth at properties open at least a year, Chief Executive Gary Loveman said.

A continued rollout of new technology, including "cashless" games and an upgraded slot player loyalty card, is expected to increase same-store sales that have slowed more recently due to the economy and other factors, he said. The company has been slower than competitors to implement so-called cashless systems that can accept paper vouchers instead of coins. But the Harrah's system is expected to be more advanced because it will use specialized software to predict what gamblers are expected to spend and can print out customized marketing offers to players on the spot, he said.

The new loyalty card, available in June, allows people who gambled less over frequent visits to bank reward credits that previously weren't available to them. More customers are frequenting multiple Harrah's casinos nationwide than before, he added.

"We have the most recognized and understood brand in gaming," he said. "One billion in gaming revenue annually is coming from customers who visit other (Harrah's) properties."

Aztar Corp.

The owner of the Tropicana in Las Vegas didn't talk about possible redevelopment plans at the resort, which will be decided after the company completes a feasibility study by early next year.

Instead, the company described in detail its latest development called "The Quarter," a $225 million, indoor, Havana-themed dining and retail complex that is part of a 502-room tower addition under construction at its Tropicana in Atlantic City.

"This is the first time that kind of capital has been invested" in Atlantic City, Chief Executive Paul Rubeli said.

"Atlantic City needs to build more hotel rooms and amenities -- that's what the Tropicana is doing," he said. "By the end of March next year, this will be the place to hang out in Atlantic City if you don't want to gamble."

Station Casinos Inc.

The largest locals' casino operator is focused on growth opportunities in both Las Vegas and on tribal lands. The next of several potential new Las Vegas-area casinos in the pipeline, Red Rock Station, is on schedule to begin construction in mid-2004 for an expected opening at the end of 2005. After that, the company anticipates developing a casino with the Graton tribe in Northern California in the next two to four years. At some undetermined date down the road is potential redevelopment at the company's Wild Wild West casino in Las Vegas, where the company recently purchased 20 acres next door.

"We believe we have a pipeline of continued development in Las Vegas that will take us out for the next 10 years," Christenson said.

While the locals' casino market wasn't as badly hurt by the economic downturn as the Strip, the company still isn't back to business levels achieved in 2000 before the "tech bubble burst," he said.

Still, the economy appears to be improving and business has stabilized to levels prior to Sept. 11, he said.

"With the population moving to Las Vegas and development (continuing) on and off the Strip, that should continue to bode well for the economy."

Riviera Holdings Corp.

The company's revenue and cash flow at its flagship Riviera resort in Las Vegas were generally flat through the first half of the year compared with a year ago. But prospects are looking up as development projects heat up at the north end of the Strip, Chief Executive Bill Westerman said. Wynn Las Vegas, under construction just south of the Riviera, is expected to raise the profile of the north end, he said. Also mentioned were expectations that the Stardust and the New Frontier -- both across the street -- will redevelop their resorts in years to come. Internet bookings are up for the company, to 12.3 percent of rooms in the second quarter compared to only 7.1 percent a year ago, he said.

The company also is bidding for gaming licenses to run a "racino" in New Mexico and a casino in Missouri.