REMINDER: VIMFP 2014 is October 18th, 2014!
This time on the show:
– LVS Earnings
– The Cromwell
– Hakkassan + MGM
– Cosmopolitan Sold to Robin Leach
– Picnic Has No Takers
– High Rolling on Slotzilla
– Wynn vs. Clooney
– Falling in Love with Bellagio
– Social Gaming
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** Sure Bets **
Chuck – 60th Anniversary of the Fender Stratocaster
Dr. Dave – “The House of Journalists”
Hunter – “Creativity, Inc.”
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A couple comments.
One, I looked at the report Dr. Dave posted and ran a couple of comparisons.
According to the report adjusted for inflation national gaming revenues increased five percent while Nevada revenues decreased 10% from 2001 until 2013. But in that time frame total profits of Nevada casinos decreased from a profit of 554 million to a loss of 1,349 million.
From 1999 (I did not see the 2001 numbers on the website) until 2013 the average gaming revenue per room night dropped 21% adjusted for inflation. So I think the mix of customers changed. The casinos replaced many of the heavier gamblers started staying closer to home and were replaced by conventional tourists with far less interest in gambling, with disastrous results for industry profitability.
A couple other things. The Cromwell is supposed to go to the new Cesar’s Acquisition Corporation. The properties that the old corporation is supposed to sell to the new corporation are priced at four to five times cash flow, not the industry standard of seven.
And the logical landing place for the Cosmopolitan is Boyd. I don’t know if they have the resources even at a discounted price, 600 to 700 million but they have a strong regional market to feed the property and it would give them a facility comparable to the Echelon at pennies on the dollar.
Boyd – interesting thought!
The High Roller does allow booze onboard, the thing is you won’t be allowed to carry your leg-shaped plastic cup filled with frozen goodness bought moments earlier at Purple Zebra. There is a bar where drinks can be procured before getting onto the High Roller.
A thought regarding the social gaming discussion. The entertainment properties that slot makers are getting licensing on are properties that for the most part are aimed towards the Gen X crowd either via nostalgia (For example, Ferris Bueller’s Day Off, Cheers, Top Gun, Back To The Future, Ghostbusters, and Michael Jackson) or pop culture (For example, Avatar, Lord Of The Rings, Sex In The City, Pawn Stars, True Blood, The Walking Dead, Bridesmaids, The Dark Knight, American Idol and Titanic.). Some properties that are currently being licensed for slot machine like Star Wars and Marvel (Iron Man and Spiderman) will soon be a thing of the past as Disney has opted to let the current licensing deals manufacturers had for Lucasfilm and Marvel properties expire and not renew them.
Booze on the High Roller makes me wayyyy more interested.
Would be an interesting move for Boyd… a brand new property without the construction finance debt. Would be a very shrewd call, right in their wheelhouse.
My love for Boyd is well documented. But…I think this is the worst possible fit; a customer base and business model that are 180 degrees opposed from their core. A property that is known for their edgy, hipster, only casually interested in gaming marketing plan that would be owned by a company that is all about aging, low roller gamblers. That would be like Sam Nazarian trying to make SLS work with his Sahara Rolodex.
Regarding Cromwell. I am developing a theory about Caesars debt structure; what if TPG and Apollo Management told Gary Loveman when they took the company private “We will not let you default”? He is instructed to do anything he can to cover the $10 billion strip-out, but if default becomes inevitable, they will step in and cover the debt. Through bond purchase, recapitalization or some other means, they will keep the company intact because it provides a solid ROI and they still have liquidity with the money they took. Make it as complicated as they want, but default and loss of property is not a proper use of the money.
Jeff
Boyd’s middle class roots have not stopped it from doing really well operating the Borgota.
Cesar’s Entertainment cash flowed 1,876,000,000 last year. Let’s make the math simple and assign a generous multiple of 10 to these cash flows. So the market value of Cesar’s properties is about 19 billion. Cesar’s owes 37 billion. So Cesar’s is underwater.
So why would Apollo and TPG pump billions in to make the bondholders whole? Remember from the cash flow they have to fund property improvements like new carpets, beds, etc. so all that cash flow can’t go to paying down the debt.
These guys are strippers. They take money out at the beginning to cover their investment. If the deal works out they make a truckload of money. If it doesn’t move on.
I’ve been also thinking about Boyd for Cosmo. While the primary Boyd customer is the $150 a day gambler from rural Iowa, surely they have visions of shedding that image and bringing in bigger players. Echelon is proof of that.
I also have wondered about Jeff’s Caesars theory…I feel like any other company in any other industry would have defaulted by now. How are they still operating other than having someone that is saying “I won’t let you default”? 2 years ago, I was forced to sell a company that had plenty of business and steady income, but no financial pro could figure out any way to find a path to profitability. The operational debt was just too high…and I had no investors willing to put any more money in. I don’t see how Caesars can still exist with its current portfolio of properties in 5 years without a major investor stepping up.
Bill…surely someone that seems to know as much about the industry as you do would know that it’s “Caesars” not “Cesar’s”…