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

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.

Profiting off of Regional Biases

Prior to tonight's Game 1 of the Warriors/Mavericks series, the contract for Dallas to win this series on tradesports.com was at 90%. On the surface, this makes plenty of sense. Dallas - the Number 1 seed in the West - finished with the best regular season record, winning 67 games and garnering plenty of national media coverage. Golden State - the lowly Number 8 seed - didn't earn a playoff berth until the final game of the regular season.

Yes, giving the Mavs a 90% chance of winning the series makes sense, given you live anywhere outside the Bay Area. The chances of the Warriors taking Game 1 in Dallas - and perhaps making a real contest out of this "gimme" series - are actually quite strong. Here are some key facts the New York based media has failed to mention to its national audience.

• Golden State has dominated Dallas, winning 6 of the last 7 regular season games. Ignore their last game, if you like. It's still what we refer to in sports as "ownage".


• This Warriors squad has only been playing together since March 5, when a healthy Baron Davis returned to a new line-up featuring Stephen Jackson and Al Harrington. The team went 16-5 to end the season, making GSW one of the hottest teams in the NBA.


• Warriors coach Don Nelson - already a master at his craft - tutored Dallas coach Avery Johnson not only as a coach, but also as a player. Advantage: Nellie.
  

Given these points and the fact that most fans are unaware of them, I smelled an inefficient market and decided to bet on a Warriors victory in Game 1. I surmised the best way to play this was to short the Series contract at 90%. I assumed this contract would give a potential loss of roughly 50% (contract moving to 95%), with a potential reward of 100% (contract moving to 80%), after the conclusion of Game 1.

With Game 1 now in the books as a 97-85 Golden State victory, I'm pleased to report an actual return of 94.5%. While I still believe the Warriors can give Dallas a very good run in this series, I closed all the contracts and took all the profits now. Betting with your heart is a dangerous game, so I'll enjoy the remainder of this series without money on the line.

Bottom Line: If you live outside of New York or Los Angeles, and are irritated by the obvious media biases given to these regions, don't complain about it. Profit from it. You are privy to information the masses are not exposed to, and this information gives you an advantage as a speculator.

Update, April 30: With the Warriors now ahead 3-1 and on the verge of making history, I'm obviously disappointed that I didn't keep some of those contracts open. Not just because I could close them now at a 500% return. Rather, the secret of the GSW is now out and this kind of opportunity to take money from the misinformed won't present itself again for a long while; the market has become more efficient. No complaints, though. This playoff series has been amazingly fun, and money has been made. Never complain about a profit. Or a great game.

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.