Vegas Bitten By Credit Crisis Bug

It was only a matter of time before the subprime mortgage meltdown that began last year and eventually snowballed into a full-blown economic crisis reached the bright lights and endless nights of Las Vegas.

In its Aug. 4 second-quarter earnings conference call, Boyd Gaming announced it was halting construction on its Echelon project “due to the difficult environment in today's capital markets, as well as weak market conditions.”

The planned $4.8 billion, 87-acre project that would include 750,000 square feet of convention and meeting space and 5,000 hotel rooms, will be delayed at least nine months to a year, according to the company.

“The current economic climate is unprecedented in recent years,” said Keith Smith, Boyd Gaming president and CEO. “While we remain enthusiastic about the long-term prospects about the Las Vegas market and Echelon, this is the right decision for our company at this time.”

Boyd's earnings news wasn't any better. Second-quarter revenues for its Las Vegas properties dipped 9.9 percent to $460.8 million, compared with $511.4 million during the same period in 2007. Earnings also decreased to $21.6 million from $22.9 million, more than a 6-percent drop, compared with the same period last year.

The numbers may have been down, but investors rewarded Boyd's decision to delay the Echelon project; its stock price surged more than 20 percent to end the day at $12.01 a share.

Boyd isn't the only company struggling in the current economic conditions. Viad, GES Exposition Services' parent company, though it beat Wall Street expectations, still had a second-quarter earnings decline of 30 percent to $12.2 million, down from $18.2 million during the same period last year.

Revenue, on the other hand, increased 0.5 percent to $277.2 million from $275.7 million, compared with the same period in 2007.

Besides unstable overall economic conditions, GES also has to contend with the fickle nature of the tradeshow industry. “One of the reasons we would be down year-to-year (is shows) in higher-profit geographies were in lower-profit geographies,” said Kevin Rabbitt, GES president and CEO. “Not all geographies are the same in profitability.”

He was referring to some cities where labor costs are higher than in others. Rabbitt declined to name any specific shows in high-cost cities that may have impacted profits in the last quarter. In addition to those higher-profit geographies, also missing from the GES second-quarter show calendar was the No. 14-ranked TSW 200 Natl. Assn. of Broadcasters' NAB, which was serviced by Freeman after doing business with GES for several years.

Rabbitt said the third quarter looked better. “We expect it to be a very large quarter,” he added.

Rabbitt said he expected GES' third-quarter revenue to be between $195 million and $210 million, compared with $151 million in the same period last year. Operating income should be approximately $7.85 million, compared with a loss of $2 million last year, he added.

Still, there are some storm clouds on the horizon. According to Rabbitt, the retail-consumer-gift sector is having a tough time right now, which could have an impact on GES.

In the third quarter, GES has three TSW 200 shows – all in the top 20 – in this troubled sector: The WSA Show, which was held July 28-31 at the Las Vegas Convention Center; MAGIC Marketplace, Aug. 25-27 at three Las Vegas venues; and the ASD/AMD Trade Show, Aug. 10-13, also spread across numerous Sin City venues.

On the other hand, Rabbitt said, other sectors, such as government and technology, are thriving. Luckily, GES has a few of those shows coming up in the third quarter as well, including the biennial Intl. Manufacturing Technology Show Sept. 8-13 at Chicago's McCormick Place and the MinExpo Intl. Sept. 22-24 at the LVCC, a new show for the company.

Paul B. Dykstra, Viad president and CEO, said, “The tradeshow industry is proving to be quite resilient, despite a softer economy. While we have some pockets of weakness, the overall tradeshow industry continued to grow during the second quarter.”

Back in Las Vegas, casino behemoth Las Vegas Sands also took a hit in the second quarter. Even though overall revenue skyrocketed more than 81 percent to $1.11 billion from $612.9 million, compared with the same period last year, the company still had a net loss of $8.8 million, compared with a net gain of $33.4 million in the same period last year.

The company's Las Vegas hotel revenue did see an uptick of 52.6 percent to $142.4 million, compared with $93.3 million in the same period last year. According to the company, the increase was principally because of the opening of The Palazzo earlier this year, a 3,000-room resort adjacent to the Las Vegas Sands MegaCenter.

But with the good, comes the bad. The company blamed some of its losses in the second quarter on costs related to The Palazzo opening.

Regardless, William P. Weidner, Las Vegas Sands president and COO, predicted a brighter future: “As the Venetian and Palazzo complex continues this maturation process, we believe it is uniquely positioned to deliver strong growth and industry-leading returns in the Las Vegas market for years to come.”

Another Las Vegas Strip denizen, Wynn Resorts, fared better in the second quarter, but not much. Second-quarter revenue increased to $825 million, compared with $687 million in the same period in 2007, and net income tripled to $272 million from $89.6 million in the same period last year.

But the story behind the numbers was more troubling. According to the company, the increases mainly were attributed to the Wynn Macau located off mainland China, while casino revenues in Las Vegas fell to $120.7 million, compared with $159.4 million in the same period in 2007.