Downturn Wallops Casinos' Earnings

Las Vegas is known for its gambling, bright lights and endless nights of action on and off the Strip, but with an economy that's sinking more and more each day and people's minds focused on paying their bills, rather than throwing dice or playing cards, casinos are swallowing a bitter pill right now.

According to the Las Vegas Convention & Visitors Authority's Executive Summary for September, convention attendance dropped 10 percent to 357,525 from 397,348 in the same period last year.

That, and a 10-percent slide in visitor attendance, hit the pocketbooks of some of Sin City's biggest players in not only the casino, but also the convention and meetings market – the Las Vegas Sands, Boyd Gaming and MGM Mirage – which all have posted third-quarter net income losses.

The Las Vegas Sands, owned by billionaire Sheldon Adelson, has been hit by far the hardest and, at this point, just may be struggling for its very existence.

In the first week of November, the casino operator's auditor said there were doubts about the company's ability to continue. In less than a year, Sands' stock fell from $122 last December to an all-time low of $4.32, posted on Oct. 28.

On Nov. 10, the company posted its third-quarter earnings, and the good news was revenue jumped 67.2 percent to $1.11 billion, compared with the same period last year. But net income was still a loss, $32.2 million, though it wasn't as much of a loss as posted in the same period last year, which was $48.5 million.

William P. Weidner, Sands' president and COO, said, “Our third-quarter results reflect solid operating performance, with both revenues and adjusted property EBITDAR (Earnings before Interest, Taxes, Depreciation, Amortization and Rent) increasing substantially in both Las Vegas and Macau, despite challenging operating environments in each market.”

In an effort to calm fears that the company was on the verge of running out of cash, the Sands said it was in the process of raising $2 billion in capital to keep it afloat.

In the meantime, the company also announced it was suspending development projects in Las Vegas, Macau and Bethlehem, Pa.:

• The company will suspend indefinitely construction of the St. Regis Residences $600 million, high-end condominium project, to be situated between the Venetian and Palazzo Resort-Hotel-Casino.

• In Macau, development of sites five and six on the Cotai Strip temporarily will be suspended.

• Plans for the $675 million Sands Casino Resort Bethlehem, in Bethlehem, Pa., have been modified to focus on developing the casino component and related amenities of the resort.

Boyd Gaming didn't fare very well in the third quarter either, with revenue dipping to $426.5 million, compared with $490.1 million in the same period last year, a 13-percent decrease.

Third-quarter net income also fell to $8.7 million from $31.9 million, compared with the same period last year, a 73-percent drop.

Kevin Smith, president and CEO of Boyd Gaming, said of the results, “The dynamics we've been dealing with for the last year continued during the quarter as our nation's economic downturn accelerated and consumers across the country continued to face new challenges. Fortunately, people are still visiting our casinos, although they are more cautious with their discretionary spending.”

The company's poor earnings report comes on top of other bad news in August when Boyd announced it was halting the $4.8 billion Echelon project for at least nine months because of a lack of financing.

MGM Mirage also had a tough third quarter, posting a net income loss of $61.3 million, compared with $183.8 million in the same period last year, a 67-percent decrease. One reason for the decline this quarter, according to the company, was because last year in the same quarter it received a one-time insurance payout related to losses incurred as a result of Hurricane Katrina.

Revenue also dipped 6 percent to $1.95 billion from $2.07 billion.

“While our margins have held up well in a difficult environment, we continue to make permanent improvements to our cost structure, which will benefit us in the future,” said Jim Murren, president and COO of MGM Mirage. “We continue to mobilize the unmatched talents of our management team to identify opportunities for margin improvement and remain focused on providing the highest levels of guest services.”