Owners of the Riviera and the Las Vegas Hilton published their respective annual reports and it wasn’t a good day for the north end of the Strip, where bargain-priced casinos fight a holding action against the market forces of the Great Recession. The good news for both was that losses in 2010 were narrower than in ’09. The Riv has also managed to shuck a large portion of the long-term debt that was forever a millstone around the late William Westerman‘s neck.
Proximity to the Las Vegas Convention Center has undoubtedly thrown a shovelful of sand under the Hilton’s keel, as ADRs and occupancy remained level, no better but (more importantly) no worse. However, as though to confirm the old saw that conventioneers aren’t gamblers, casino revenue was down 16%, accounting for the entire 2009/2010 revenue discrepancy. Still, it can’t help management that very few recent LVH entertainment offerings have shown any staying power.
All too inevitably, the financials warned of the Hilton’s dubious ability to remain “a going concern,” thanks in part to $292 million in debt with which it has been lumbered by Colony Capital. The report floats the possibility of “the infusion of capital by ownership.” Like that’s gonna happen at a casino owned by Colony, which has a track record of creating problems, then walking away. Besides, in a classic Tom Barrack blunder, minority owner Goldman Sachs holds veto power over any capital-intensive improvements at the property. Based on what we’ve seen of Colony to date, look for the Hilton to enter Chapter 11 or be forfeited to debtors. Either way, it’s a potential steal for anyone looking to snap up distressed debt or otherwise buy a historic Vegas casino on the cheap.
At least the Riv can point to only a 9% revenue decline company-wide (including Colorado, that is) and a 4% increase in occupancy at its flagship. A closer analysis shows the magnitude of the challenge facing new owner Barry Sternlicht and General Manager Bobby Ray Harris. Since 2003, net revenue has fallen 44%, ADR is down 5% and per-room revenue is off 17%, erasing gains made in the 2003-07 boom years. Following the 2007 apex, casino revenue is -41%, F&B is -46% (although there are extenuating circumstances) and entertainment revenue has taken a 76% walloping.
On a purely anecdotal level, a longtime Riviera fan went there last weekend and even he was shaken by how morbid and geriatric the place had become. That public-area facelift that Sternlicht has promised obviously cannot come a minute too soon. That and he’ll have to hang in there and hope to snag as many displaced Sahara customers as he can — a pity for him that “Sahara Sam” Nazarian is steering them into Circus Circus‘ tent.
D-Day + 670. A mere two years behind schedule (and God only knows how much over budget), Sands Bethlehem will open its long-promised hotel in May. Both Las Vegas Sands and analysts on Wall Street have as much as said this is the make-or-break milestone for Sheldon Adelson‘s financially disappointing Pennsylvania venture. To land the concession, Adelson wwwaaaaaaaaaayyyy over-promised and to say Sands has “under-delivered” would be something of an understatement. Both the company and the Street are counting on the hotel to push Sands Bethlehem into an operating profit and maybe even get it to those ROI numbers that Adelson predicted before the casino opened. If, as the Express-Times implies, wi-fi and in-room HDTV sets are exotic and extraordinary amenities for the Lehigh Valley area, Sheldon may have pulled yet another rabbit out of his hat.
Speaking of over-promises, in the wake of a clawback in casino-revenue projections for Ohio, maybe we should institute the Dan Gilbert Rule, which says that any monetary prediction by somebody pursuing a casino should be downsized by as much as 40%. For instance, the Gilbert Rule could be applied to Vancouver, where Diana Bennett‘s Paragon Gaming is pursuing a $450 million project. A study commissioned by B.C. Lottery Corp. lops an average of 25% off Bennett’s projections. That doesn’t take into account increases in casino revenue that would (theoretically and, no doubt, actually) be made possible if direct wire transfers from offshore accounts were permitted. (Although I can already hear someone yelling “Money laundering,” in a polite, Canadian sort of way.) That’s but one of several “blue sky” factors that would have to align in order for Paragon’s scenario to come true, so the lottery’s circumspection appears warranted.
