Rough Start in 2008 for U.S. Brick-and-Mortar Casinos
Posted on 11 May 2008 at 3:02 pm EDT by courtiebee | Permalink
We’ll start this tale of sorrow and woe with the story of Tropicana Entertainment, an operator of eleven casinos including one famous location on the Las Vegas Strip. They have recently filed for bankruptcy protection and they have blamed their financial troubles on tight credit markets and their Atlantic City location. In January 2007, Tropicana paid $2.1 billion to buy out their competitor, Aztar, an unfortunate decision in light of the current slowdown of the U.S. economy. Matters became worse when they lost their licence to run the Atlantic City location after the State declared its layoffs and poor performance unacceptable. This was after only less than a year of operation at that location.
Under State law, the Atlantic City Tropicana will be available to potential buyers and will be sold by June 9 of this year. This is one of the biggest bankruptcies this year. While their assets total $2.8 billion, their debts are larger at $3.3 billion.
Enough about Tropicana; let’s talk about MGM Mirage now. Earlier in the year I wrote an article mentioning that MGM was going to fire 400 mid-level managers in April 2008 to save $75 million. They did this because they saw the economy slowing down and wanted to take action immediately. “We were able to see the signs of trouble on the economic horizon last August,” said an MGM spokesman. “The economy was beginning to worsen and clearly was not going to get better in the immediate term.”
MGM has announced that they suffered a 30% drop in profit the past quarter, down $168 million from last year. Currently hotel properties hold higher value than casino properties do, and MGM Mirage Chairman and CEO Terry Lanni said that a continue in this trend could encourage him to split off parts of the company. This would help maximize shareholder value.
MGM and Tropicana are not the only companies to have a bad year so far. Trump Entertainment increased its losses, Ameristar Casinos came up short in the first quarter, Wynn Resort’s profits dropped by 20%, Vegas Sands lost almost $12 million, and Boyd Gaming lost almost $33 million.
Going back to Atlantic City, 10 out of the 11 casinos there saw decreasing revenues. Out-of-state competition, the economy slowdown, and smoking restrictions (also mentioned in a previous article) are to blame. Total revenue fell to just over $365 million, which is down 8% from last year. Slot machine revenue fell 3% more than table game revenue did. The one Atlantic City Casino that saw a revenue increase (of 3%) was Harrah’s Resort. Showboat Casino Hotel saw the biggest revenue decline (18%).
How is the slowing U.S. economy affecting these companies so badly? One major factor has to be increasing gas prices which prevents people from making the drive to the casinos in the first place. And those who do make the trip to the resorts have, of course, less money to gamble with.
It will be interesting to see how long it takes for the economy to turn around and for casino revenues to rise again. After such a great year in 2007, the first quarter of 2008 has shown that all good things must come to an end. Will the rest of this year be a chance to turn things around, or will things get worse before they become better?
