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Las Vegas Gambling Disasters of 2009

Written by:
Jagajeet Chiba
Published on:
Dec/30/2009

Ryan C. Furhmann of Investopodia.com published a fascinating article on Wednesday that caught the attention of Gambling911.com.  His piece reviews the debacles that took place in the world of Las Vegas gambling properties during the past 12 months.  Unfortunately there were quite a few.  And none of this includes the oversupply vs. limited demand that has forced some Strip hotels into offering rates as low as $29 per night.

Not surprisingly, City Center (developed by MGM Mirage) tops his list of Vegas bombs.  Furhmann paints a more optimistic picture, suggesting that an improvement in the economy could help turn these otherwise "monstrosities" into winners.

Regarding CityCenter:

"CityCenter - MGM Mirage (NYSE:MGM) spent $8.5 billion to develop the CityCenter, one of the largest private construction projects in U.S. history, initially intended to comprise 4,000 hotel rooms with casino, 1,200 additional separate hotel rooms, 1,650 condominiums and 500,000 square feet of shopping.  The project almost went bankrupt but was saved when Dubai World, the investment arm of the Dubai government, bought a 50% interest. The current struggles of Dubai are not projected to affect CityCenter, which currently is opening in stages and should see the casino open in mid-December."

Our own Payton O'Brien reported last week on how the CityCenter property might actually result in even lower Las Vegas room rates.

"Deutsche Bank analyst Andrew Zarnett estimates Las Vegas Strip's room supply to increase by approximately 15 percent (10,000 new rooms) over the next 12 months, starting with the opening of CityCenter (5,895 rooms) this month. "Based on our analysis, we expect same-store Las Vegas revenues to decline by 10 percent and EBITDA to decline by approximately 20 percent as new capacity cannibalizes existing Strip operators." EBITDA, a profitability measure, means earnings before interest, taxes, depreciation and amortization.

Despite a bump in visitation to Las Vegas, gaming win fell 10.2 percent in October vs. October 2008 as statewide win of $800.3 million slumped 11.5 percent."

In other words, CityCenter's problems may expand well beyond its own walls should the economy NOT improve.

The Fountainebleau is another of the Vegas properties that was cast in a negative light during 2009.  Once valued at $2.9 billion, the Fountainebleau went bankrupt before it was completed and its only savior may be one corporate raider Carl Icahn, who is credited with nearly running TWA Air Lines into the ground. Under Icahn's direction, many of the air line's most profitable assets were sold to competitors, much to the detriment of TWA and they were forced to declare bankruptcy. 

Fuhrmann suggests the future looks bright for a number of key entities, including the two aforementioned businesses.

"Bottom Line
The Las Vegas Strip just logged its 22nd consecutive monthly decline in gambling winnings, with a 10.2% decline in October. Thus, trends have yet to reverse course. But when they do, existing firms, which also include Wynn Resorts (Nasdaq:WYNN) and Las Vegas Sands (NYSE:LVS), will see current operating results improve markedly. But firms such as Penn National Gaming, Boyd, Harrah's and those controlled by Carl Icahn should see a significant boost to their fortunes by picking up sizable gambling properties on the cheap, provided they can survive their own past miscalculations on capital allocation in the industry."

Jagajeet Chiba, Gambling911.com 

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