Two Way Hard Three | Las Vegas Casino & Design Blog

Posted by Dave

While it's tempting to say the worst is over (as with the H1N1, that seems to be today's line), Hunter is right--the REVPAR numbers show that the higher occupancy was a product of dropping room rates. If that translates into more gaming revenues, we can truly say that we're on the road back. If not, however, it's simply selling slightly more of a lower-margin room base. That's good in that it's keeping rooms filled, but obviously not the best scenario.

When the March gaming numbers come out, we'll have a much better picture of the near future. I'm curious to see if the weakening of high-end play snowballs, stabilizes, or reverses. That's going to be the real bellwether of City Center in the short term.

Also, (and sorry if you've noted this elsewhere), Jim Murren is on Face to Face with Jon Ralston tonight on LV One. I saw a portion of the interview during the noon KLAS news, and it looks like a good one. Murren says that MGM's gone "all in" with City Center and predicts it will grow the market.

Jim Miurren was impressive on the Call. He forcefully, but politely, re-emphasized that there would not be a fire sale of any properties. I inferred this comment was aimed directly at Steve Wynn.
He and Bobby Baldwin also talked about the importance (and strength) of high end business, and that they've been working for four years on making sure CityCenter's Aria wouldn't cannibalize other MGM properties, especially Bellagio. I'm changing my tune about a sale of Bellagio. Murren will fight to the death to keep it. He said the people mover will have a very positive impact on both Bellagio and Monte Carlo as it moves guests between those two properties and CityCenter.
I know Murren wanted to put a positive spin on things, but I'm becoming more of a believer.

yeah, I don't think they will have to file bankruptcy, and I think they might even possibly get out of this without casino sales. As business rebounds, so does the stock price. This gives them more and more options. I can see them issuing more stock, and I think as things improve, banks will be more open to the idea of refinancing the old debt. Thinks at MGM are not wonderful, but they are improving substantially versus where they were just months ago. The call was very positive, and while the business will be down this year, they seem to think that the worst is behind them, occupancy rates are back to a normalized level, and now they just have to work on getting the room rates back up towards a normalized level as well. I was actually surprised to see food and entertainment numbers, while they were down, they were not down as far as I expected them to be. Wynn reports tomorrow, and I look for his numbers to be not so great either, but once again, I think he'll give a uplifting positive speech, as we look towards the future. People have to remember, that stock prices look forward, not behind. If Wynn says business will be much better in his view, in six months, then the stock price will move up to reflect that.

Posted by mike_ch

Room rates ARE at a normalized level. 2007 profits were record. Nobody with any sense of reality should expect more revenue than ever recorded in company history, year after year. Unfortunately, 90% of the idiots in the world out there do which is why I personally find investment talk tiring.

We're only now beginning to enter one year after the downturn, and I suspect numbers will suddenly look positive again in a quarter or two, because of what they're competing with.

I feel Murren's comments that Detroit is talking about is pure smoke and mirrors. He isn't dumb but he isn't afraid to blow smoke up people's (ahem) based on prior statements. He is willing to talk about dominating market share from the weakest position in the industry.

Brian: "If Wynn says business will be much better in his view, in six months, then the stock price will move up to reflect that."

No kidding? Why hasn't he been casting rays of sunshine for the past eight months?

Tomorrow MGM stock will have a small boost because the investor class always feels good about things after one of these calls. Much like the teenagers who buy an Xbox or PlayStation and then spend the next three years on the internet defending their machine and insisting the other guy's is useless, pride of purchase seems to direct these things more than anything else anymore.

I have to agree with detroit1051 on this one. And I think MGM has plans for the Monte Carlo to play more of a City Center role than I thought - shortly after I sent ARIA my e-mail address I received a reply from the Monte Carlo saying "Thank you for sending us your e-mail address" and they offered me a suite for three nights.
After seeing pictures of the new people mover(tram) I think MGM sees the Monte Carlo and Bellagio as part of an 'extended' City Center. We all remember the old tram kept the crowd flowing between MC and Bellagio.

Mike- Room rates ARE NOT at normalized levels. When you can get a room at $119 at Encore or $109 at Bellagio, these ARE NOT normalized levels. Room rates are back to levels that have not been seen in Vegas since the early 2000's. So I have no idea how you can say they are at normal levels. Yes 2007 was a record year, and yes those rates might have been unusually high, but if you want to call 2005 a normal level, we are still far below that.

As to your Steve Wynn comment, Wynn tells it like it is, he speaks the truth. If you listened to the last call, he said, business is horrible, and like nothing he has ever seen. Wynn's not going to get on a call, and cast rays of sunshine, when he knows, he'll just get the market excited, when there is nothing good he sees. He'd look like an idiot, to speak positively, then turn around and post a completely horrible quarter. That's not his game, its not his style. Investors can get a pep rally anyplace, we need the facts and the truth. We got that on the MGM call, but things are looking slightly better they said. I think Wynn who has great insight will be interesting to listen too, and see if he shares the same feelings. MGM kept saying the high end was holding up much better than the low end, this too might play to Wynn's advantage.

Wow! Steve Wynn will make headlines with his comments about the Obama Administration. Much of what he said echoes his remarks at the Milken Conference, but he is really unhappy with Obama and his administration. I hope Obama is sitting in the Oval Office listening to the WYNN call. :)

Posted by Dave

Historical ADR for all Clark County hotels:
2002: $76.69
2003: $82.48
2004: $89.78
2005: $103.12
2006: $119.66
2007: $132. 09
2008: $119.19 (started at $130.96 in January, finished with $96.39)
2009 YTD: $101.99

Any talk of what's "normal" is inherently subjective, just like paying one's "fair share" of taxes is. But this gives you an idea of where room rates have gone over the past 7 years.

Posted by mike_ch

Brian: I believe Dave's data more or less hears me out on this one, but I'd have thought YTD was a tiny bit higher than that, but close enough.

The other thing you're forgetting is that this year, unless bank and construction issues get in the way, a whole lot of room supply is coming online for which there will be no demand. You will have that effect Steve Wynn talked about where the upper end drop their rates and then that puts the squeeze on further down the chain. And while I know that Wynn would prefer to have empty rooms than rooms filled with 'undesirable' thrifty spenders, not every luxury operator will take that same tactic, or is even in a position to be able to.

That rooms are coming right at the time when we don't need more is only going to drag this out longer. I used to think it'll make it worse, but now I suspect some more people will come to Vegas later this year but the business boost of that will be wiped out by so many new facilities showing up all at once.

Detroit: There's enough billionaires in control of the government already to not need the President listening to a WYNN call. =b