By Liz Benston

Tue, May 13, 2008 (2 a.m.)

Station Casinos has historically reaped impressive gains by putting most of its eggs in one basket.

The risky strategy has paid off previously for Station, which bought up most available casino sites in Las Vegas, where neighborhood casinos are limited by state law, and benefits from population and job growth.

But the housing slump, which has disproportionately affected Las Vegas, appears to be hurting Station more than companies that own casinos outside of Las Vegas, such as Harrah’s Entertainment.

On Monday, Station reported that first-quarter operating profit fell 11 percent on revenue of $352 million, which declined 5 percent from a year ago and a drop-off that has widened since the fourth quarter of last year, when Station began reporting slower business.

Station executives say the hurt is temporary and the company’s performance and market position will improve.

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After 9/11, some regional casinos around the country fared better than those in Las Vegas as customers, reluctant to travel, stuck closer to home.

Now one analyst wonders whether the weakening economy is an opportunity for regional casinos, which have spent billions upgrading their properties, to capture market share from Las Vegas and Atlantic City as budget-conscious travelers forgo big trips in favor of nearby joints.

This trend could prove a wash for companies such as Harrah’s Entertainment, which benefits by pitching Las Vegas vacations to customers it cultivates at casinos in smaller markets nationwide.

In Las Vegas, the company’s casino revenue fell 4 percent and operating profit fell 8 percent in the first quarter while other regions, such as Atlantic City and the Gulf Coast, reported increases in profit driven in part by upgrades.

One possible example of this trend is the opening of the company’s racetrack casino in Chester, Pa.

The new casino and the partial opening of a new hotel tower at Harrah’s in Atlantic City led to profit gains in the company’s northeast region, though profit was lower than it might have been as revenue shifted from Atlantic City properties to Pennsylvania, where gaming is taxed at a higher rate, Harrah’s Chief Executive Gary Loveman said Friday.

Boyd Gaming Corp. revenue fell 6 percent and operating profit fell 11 percent in the Las Vegas locals market. Those figures were worse for the entire company (down 9 percent and 18 percent, respectively) in part because of the company’s Blue Chip casino in Michigan City, Ind., where business has been disrupted while it undergoes a major expansion. Excluding Blue Chip, revenue in Boyd’s Midwest and South region would have been about the same as a year ago — some evidence that business, for some regional casinos, isn’t all that bad.

“Even when the economy improves, travelers might decide that the fancy place closer to home is a fine substitute for the traditional gambling meccas,” said Keith Foley, vice president of Moody’s Investor Service.

It’s unclear whether Las Vegas and Atlantic City have been more negatively affected by the slowdown than smaller casino markets, where gaming revenue has also declined, however, he said.

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As other companies wonder where they are going to raise billions for their next casino resort or worry about paying high interest rates, MGM Mirage recently held a meeting in Dubai with banks to discuss financing the remainder of the company’s ownership in CityCenter, a task the company expects to wrap up by the end of June.

MGM Mirage President and Chief Operating Officer Jim Murren said last week that banks appreciate the company’s strong credit position and welcome the opportunity to work with MGM Mirage’s wealthy partner, Dubai World.

While executives are bullish that they can raise cheap capital for CityCenter during these tough economic times, some analysts say the company could save even more money by borrowing its own cash to finish CityCenter rather than financing through a third party.