Las Vegas Economic Woes May Be Due to Deemphasizing Gambling

Reprinted from the Online Casino Advisory, found here.

Perhaps there is an underlying lesson to Vegas planners; the town that gambling built may need to return to its putting gambling as its top and only priority.

Casino stocks continue to fade as major companies have seen their value plummet to a quarter of their worth less than a year ago, and gambling industry analysts remark that the recession-proof expectations of the past no longer exist. The question is, why did the casino business become responsive to economic downturns?

William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno, has an idea. Eadington points out that in 1990, 42 percent of revenue for Las Vegas Strip casinos came from non-gambling sources, such as room rates, restaurants, and retail rentals.

In 2007, that number for non-gambling revenue had increased to 59 percent. A conscious decision had been made over the last twenty years that Vegas resorts were going to feature many forms of entertainment; gambling would no longer be the ultimate reason to visit Las Vegas.

Shows and buffets had always existed, but mainly as lures to draw gamblers. Now the collective strategy of the Strip hotels became to offer complete vacations, pulling tourists who had only marginal interest in gambling.

And the new features were each designed to be money-makers. Two-hundred dollar meals became common among upscale casino restaurants, showcasing the nation's finest chefs. Clubs at Caesars and the Palms were soon the hottest tickets in the country, with long lines willing to pay exorbitant cover charges and outrageous drink prices to stand near celebrities famous only for being famous.

Rooms were decked out in cutting-edge decor and electronics, as it became fashionable to stay at the resorts that ran the most ridiculous rates, and mini-bars and snack centers sold Diet Cokes and Snickers bars for ten dollars each in the convenience of your room.

In other words, Las Vegas became a town that no longer comped and tempted its clientele to come gamble, but a place that sold everything it could find, one part of which happened to encompass wagering.

So, it may be seen that, among other factors including the prohibitive prices paid to build these all-encompassing mega-resorts, a major reason that the casino industry is suffering badly through the current economic storm is that it no longer is the casino industry.

Instead, Las Vegas has become the entertainment industry; and no one ever claimed that restaurants, clubs, upscale retail outlets, and swanky hotels were recession-proof. Perhaps there is an underlying lesson to Vegas planners; the town that gambling built may need to return to its putting gambling as its top and only priority.

According to Sherman Bradley, gaming analyst at OCA, "This is not to say all the flash and glitz must go, but that, if casino managers want an industry unaffected by downturns and recessions, the sparkle must resume its proper place, as a draw for gamblers. Comps and freebies must be brought back en masse, and luxuries and status items should be used as enticements, not revenue generators.

"If the non-gambling services and products cover their own cost, that would be sufficient. Then gamblers would fill the rooms in their rush to play in conditions far beyond what the local slot parlor or Indian casino could offer. Once again, Las Vegas would see revenue going only upwards.

"Las Vegas has reacted poorly to the spread of gambling venues across the country. Instead of pushing their casinos as the greatest gaming spots around, they have tried to diversify, and the result was finding themselves in businesses that do follow economic trends."

Published on August 3, 2008 by Joshua McCarthy

I Need a Vacation

Seriously, I need a vacation. I'm thinking Road Trip, from southwest Florida back to the West Coast, with some tasty stops along the way. Zig-zagging through the South, hitting Miami, Savannah, New Orleans, Memphis. Tying in with the old Route 66 in OKC and seeing the oddities and abandoned relics scattered throughout the Southwest. Maybe a day at the Grand Canyon, and I'd be remiss to omit Vegas.

Yeah, I'm thinking this sounds absolutely perfect. And I think I'll leave tonight.

Speculating on Some Less-than-Glamorous Casinos

Back in February, while celebrating my birthday in Vegas, my girlfriend and I took a stroll through the Riviera Hotel and Casino. The place was huge and empty, and it was a Saturday night. Empty. To illustrate this point, when I used the restroom, I was the only person in there. I've never seen an empty restroom in a casino, not even on Christmas night (then again, I've never been to a Trump casino, but that's another story). Unbelievable, especially since the Rivi was the top casino on the entire planet just fifteen years ago. Sure, fifteen years is plenty of time for markets to change, but this isn't Polaroid or VCRs we're talking about. This experience compelled me to check out the stock upon returning home. It was sitting stagnant at $20. A month later - immediately after my March Madness Vegas trip, where I checked up on the place to see if business had improved; it hadn't - volume and price popped on no news. A few days later, it came out that there was a bid for the property.

Since the North Strip is the future of Vegas, I used the approximate figures from the sale of the nearby Sahara to estimate a value on RIV. This came out to around $30/share. I didn't make a move, stopped paying attention, and missed the boat. A bidding war has started for RIV, with the latest offer coming in at $34/share. The stock is at $37.40 today, up about 85% since my last trip to this dilapidated giant.

Last week, the New Frontier, another North Strip dump with even less going for it than the Rivi, was purchased by Elad Group for $1.2 Billion. Yeah, you read that correctly: One point Two Billion Dollars. It comes as no surprise this sum set a Vegas buyout record at $33 Million per acre. Plans for the New Frontier have been disclosed. It will close in July, be imploded in early 2008, and will be replaced with another mega-resort - the Plaza Las Vegas (not to be confused with the downtown Plaza) - set to open in 2011.

The Riviera is about one block north of the New Frontier. If RIV is eventually sold for $33 Million an acre, that comes out to about $70 per share. Whether RIV will go $33MM per acre will be decided by the interested parties. What is certain, however, is RIV is worth at least as much as the New Frontier. Both are past their prime, and both are sitting on some of the hottest property on The Strip.

Ruminating on the Canned Meat (Spam) Portfolio

April 12 marked the conclusion and "liquidation" of the oh-so-experimental Canned Meat (Spam) portfolio I created on Stockpickr. Two full months of tracking the results of stocks selected via unsolicited emails proved ample time to draw some salty conclusions. While most of the results were predictable, the experiment reinforced some basic assumptions and - not unlike a can of pressed and formed meat - offered a few surprises.

First, the obvious: Investing in - or rather, gambling on - these "companies" is a really poor idea. My diversified portfolio lost 45% in just 2 months. And you thought the 3% you lost on February 27th was bad.

Also obvious: Spam campaigns succeed in pumping the price of the stock - albeit temporarily. Apparently there are still enough foolish and unsophisticated "investors" out there who actually move upon these suggestions. This is frightening, especially when you consider that you share the roads with these people, walk past them in the aisles of the grocery store... perhaps you even let your kids play with theirs. I'll posit these folks are the same type of "investors" who are currently sitting on empty, unsellable condos in Fort Lauderdale and Las Vegas. Not savvy.

Not blatantly obvious, but makes perfect sense: Spam campaigns create temporary liquidity in names that are otherwise dry. Some of the names in my portfolio average a volume of just 100,000 shares traded per day, with most trading significantly less. At the height of the China Fruit (CHFR) campaign, daily volume peaked at 1.65 million shares. This is the crucial second piece necessary for perpetrators to make serious cash on these scams (the first being the artificial price spike). Hey, if you need to dump 750,000 shares, it helps if the volume is there. And as I found early in this observation, the combination of a price spike and high liquidity worked quite well for a major holder of China Fruit.

Now, as far as surprises go, this blew me away. One of the names (CBRP) broke even, while another (ACEN) finished up 47%. While CBRP is now down again, ACEN is up higher than it was when I liquidated. A quick glance at the volume chart suggests that another spam campaign was launched on or about April 5, although I never received any of the emails. The takeaway from this: while not statistically significant, one can casually infer that there is a 1-in-8 chance of making money in this arena. Maybe it's just me, but I'd rather take the 3:2 blackjack at the Tropicana.

The biggest surprise was what stopped happening midway through this project. The once steady flow of unsolicited stock suggestions completely dried up. Indeed, I received my last suggestion on March 9, roughly one month after I created the portfolio. Don't get me wrong. My Inbox is still inundated with crapmail. The difference is that now the spam is exclusively composed of invitations to indulge in life's finer pleasures, such as weight loss products, erectile dysfunction cures, pirated software, and fake designer watches. Could it be that the stock spammers got wind of my portfolio and took me off their list? I highly doubt it. But the stock spam is gone, which suits me just dandy.

NYT - In Las Vegas, the Drink Makes the Mayor

"I am an expert in martinis," said Mr. Goodman, a 67-year-old Democrat who calls himself "the happiest mayor in the world. If I could finish all the gin I have in my home, I would live to be about 3,000 years old."

Gin lovers, Vegas lovers, Politic Lovers, heck, everyone will like this.

The VIX Matters. Volatility Matters. Just ask CNBC.

Welcome to the end of the week that was. My apologies for not updating the spam portfolio in a timely matter, but it has been an extremely busy week for me at work. Especially tiring after a weekend in Vegas, but I honestly have no complaints. Sure, I'm upset I missed the greatest short opportunity in years. I went big on a 2x short Nasdaq 100 bet via RYVNX (an open end mutual fund, excluded from my trading restrictions) on February 15 and closed on the 20th; what can I say, timing is still a problem. But I was 45% cash when the storm hit Tuesday, and I'm still patting myself on the back for that one. Good job, Rookie.

I'm genuinely amused by the shift in attitude toward the VIX since Tuesday. I'm referring to the Talking Heads on CNBC, and how they can't get enough vol talk now. VIX this, VIX that, VIX is the most important gauge of the day, blah blah blah. Are these the same people who wouldn't have any mention of it just a week ago? As I said in an earlier post, I was beginning to wonder if what was considered acceptable volatility had moved to the downside. Apparently, it's not so. Like Ice Cube said, "Back to the mutha f'in basics."

I don't think the bleeding is finished... I could see another 2-3% trimmed from the US markets. Put that on the permanent record. In the meantime, enjoy this video, found on Crossing Wall Street with the help of Mr. Altucher. Confusion and exhilaration - what's not to love?

An Overdue Update - Spam, VIX, and Vegas

The spam drought subsided as quickly as it came, and the portfolio now "boasts" five names. Things were actually looking surprisingly rosy over the holiday weekend, with CHFR showing some big gains on Friday (perhaps as a result of their incessant barrage of email?). But Tuesday proved to be another story as CHFR lost nearly 40% of its value on heavy selling. As Mr. Altucher put it in Wednesday's Blog Watch, things are "starting to get ugly."

The VIX remains unusually low, despite yesterday's and today's selloffs. This is driving some eager would-be short sellers absolutely crazy, and has others wondering if the market is redefining what measurement quantifies "low" volatility. And the subprime arena seems to have no bottom in sight after Novastar (NFI) dragged the entire sector even lower yesterday. I'm beginning to think the entry point on most of these names is Never. Or at least a long, long while from now.

The Canned Meat P/L Sheet will not be updated for Friday's close, as I will not have access to the Web after 11am. Vegas is beckoning (again), and who am I to argue with Vegas!

On a lighter note...

I had an overwhelming realization at approximately 10:00 am Pacific Standard Time today that there is nowhere I would rather be this weekend than Las Vegas, Nevada. Yes, it's only been three weeks since my last visit, but I am craving it again. The Vegas renditions of cheap blackjack and Harvey Wallbanger breakfasts simply cannot be replicated in second-rate gaming destinations like Reno or South Lake Tahoe. After some swift bank account calculations and some logistical fumblings, it became apparent that Vegas will not be happening this weekend. River Rock may have to suffice; they do have the most liberal blackjack rules in the "region", for what that's worth.