Barron's: Goldberg is new casino king

Profit margins

Despite the criticism of Steve Wynn's casinos in Barron's, the Wall Street investment house Bear Stearns & Co. projects the Mirage Resorts properties on the Las Vegas Strip will produce respectable cash flow profit margins in 2000 ranging from 26 percent at the Mirage to 30 percent at Bellagio. Bear Stearns estimates Bellagio alone will generate $290 million in cash flow next year, by far the largest on the Strip with the MGM Grand at No. 2 with $195.5 million. The projected Park Place cash flow margins range from 14.4 percent at the Las Vegas Hilton to 24 percent at Paris to 27.6 percent at Caesars Palace to 35 percent at the Flamingo Hilton. Caesars Palace will be the biggest money maker for Park Place with cash flow of $143 million, Bear Stearns estimates.

Barron's, the influential financial publication, says Steve Wynn of Mirage Resorts has been replaced by Arthur Goldberg of Park Place Entertainment as king of the casino gambling industry.

Goldberg is the subject of a flattering cover story in this week's issue of Barron's, a sister publication to the Wall Street Journal. A spokesman for Wynn declined comment today.

Goldberg is chief executive of Park Place, the Las Vegas company that is the largest casino operator in the nation. It was spun off from Hilton Hotels Corp. last year and operates the Hilton, Bally's and Grand casinos and is opening its Paris resort on the Las Vegas Strip Sept. 1. Park Place is also buying Caesars Palace and its sister Caesars World casinos for $3 billion.

Titled "King of Craps," the story pits Goldberg and Atlantic City casino operator Donald Trump against Wynn. Both take shots at Mirage's newest resorts, the $1.6 billion Bellagio on the Strip and the $650 million Beau Rivage in Biloxi, Miss.

Says Goldberg in the story: "I'm afraid that Steve Wynn might have overdone it some on Bellagio with its 150 gardeners, vases of fresh flowers everywhere, extravagant use of marble, the ultra-expensive Le Cirque restaurant and collection of Impressionist masterpieces.

"I think we'll stand a better chance at Paris of getting a decent cash-on-cash return than Mirage will at Bellagio, because Paris will cost less than half and will be far less intimidating to customers. How many Las Vegas visitors are willing to pay $500 for dinner for two with wine?"

Goldberg also boasts in the story about how he beat Mirage in the bidding for the Caesars World assets, which were sold by Starwood Hotels & Resorts.

"I'd been negotiating with Starwood for months to buy Caesars when Wynn tried to get too cute by getting in the middle and romancing Starwood officials on his Shadow Creek golf course in order to cherry-pick Caesars' property portfolio," Barron's quotes Goldberg as saying. "He thought he had the deal in the bag but obviously he was wrong."

The story quotes Trump, a friendly competitor to Goldberg, as saying: "Arthur is a great manager and straight guy whose vision and controls make him a tough competitor. Paris' cost should give him enough breathing room to have a big winner, while Bellagio is turning out to be nothing but an overpriced mausoleum with all of its marble, and Beau Rivage a big, fat loser."

The Barron's story includes a photo of a fit-looking Goldberg at a Park Place casino in Atlantic City and says he was "hale and hearty" during several days of intensive interviews and photo shoots. The Park Place public relations operation appears to have cooperated closely with Barron's on the story to dispel any lingering concerns over the health of Goldberg, who was hospitalized for five weeks this summer for pneumonia.

The story notes the Caesars acquisition will solidify Park Place's position as the largest casino company with estimated operating cash flow of $1.29 billion in 2000. That compares to estimates of $758 million for Harrah's Entertainment, $694 million for Mirage, $618 million for Mandalay Resorts and $478 million for MGM Grand Inc.

While Goldberg and Trump criticize Wynn for spending too much on his resorts, Goldberg is portrayed as a cost-cutter who keeps corporate expenses around 1 percent of revenue compared to 2 percent to 3.2 percent at Mirage.

The story appears a few weeks after Mirage reported disappointing quarterly earnings because of tough competition in Las Vegas and problems breaking in Beau Rivage.

Mirage reported second-quarter net income fell to $18.5 million, or 9 cents a share, from $33.6 million, or 18 cents a share, in the 1998 period. Revenue rose to $575.2 million from $315.6 million. Mirage stock was quoted at $13.375, up 25 cents a share, in late-morning trading today.

Despite its recent disappointing financial results, Mirage has garnered a host of accolades for being an effectively managed company. For the past three years, for example, Fortune magazine ranked Mirage the most respected company in gaming. And CIO Magazine recently tabbed Mirage as one of the top 100 companies that "exemplify the highest level of operational and strategic excellence."

Meanwhile, Park Place recently reported second-quarter net of $45 million, or 15 cents a share, compared with pro forma net of $39 million, or 15 cents a share, in the year-earlier quarter. Revenue was $748 million, up from $575 million. Park Place was trading today at $11.625, up 56.25 cents.

Goldberg also told Barron's he is looking at expansion and renovation plans for Park Place's and Caesars' properties in Las Vegas that could include adding another hotel tower, rebuilding the facade and expanding the Forum Shops at Caesars; and building an arena behind the Flamingo Hilton that would seat 16,000 to 17,000 people for fights and entertainment events.

Goldberg says he's enthusiastic about prospects for gaming.

"It's the only business I've been involved in where one can actually influence demand through smart marketing and imaginative products rather than just trying to steal market share from competitors," he told Barron's. "We've got so much working in our favor -- increasingly, affluence and leisure time, good demographics and an entertainment product that appeals to people's desire for instant gratification and an exciting social experience."

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