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Boy Oh Boyd

Why the recent moves by Boyd Gaming solidify its hold on the Las Vegas locals market

Boy Oh Boyd

The guys at Boyd Gaming have been busy increasing their position in the Las Vegas locals market in buying Aliante casino for 0 million and the two Cannery casinos for 0 million.

The first price raised some eyebrows, given that Aliante generated just $17 million in EBITDA this year. Boyd expects $30 million in its first full year of ownership and aims for $40 million in three to five years.

Cannery is cheaper on an EBITDA return basis, as it’s expected to generate $32 million in its first full year.

Several analysts raised the question of whether Boyd paid too much for Aliante.

CEO Keith Smith called the purchase a compelling opportunity as he rattled off the tremendous current and expected growth of North Las Vegas, where Aliante and the larger of the two Cannery casinos are located.

The purchase was a strategic move, he said.

We tend to agree with Smith. As former banking entrepreneur Vernon Hill used to say, picking the best location is almost always worth the price.

As a Sun Belt city, Las Vegas will grow for a long time to come, and buying up casinos outside the Las Vegas Strip entertainment district will give Boyd assets that it can grow commensurately. Further, the purchases strengthen the value of Boyd’s B Connected players club and provide economies of scale that will drive down costs at what are now independent operations.

Combined with its properties in resurging Downtown Las Vegas, Boyd is developing cash cows at a fraction of the price of Strip mega-resorts in the nation’s third-fastest growing metropolitan area.

Another question about the purchases is running up debt at a time when Boyd has promised to bring down debt. The company says its debt-to-EBITDA ratio will return to current levels in nine months, so we’ll have the answer to that question soon enough.

The fact is that Boyd’s entire portfolio is strategically located throughout the country. And, while the company doesn’t have the glamor and glitz of a Wynn or even MGM Resorts, it has a steadiness that should reassure investors concerned with both preservation of capital and growth of capital.

This is a case where strategic vision should beat short-term financial metrics.

Beau Biloxi

I recently made my annual visit to the Southern Gaming Summit in Biloxi to appear on the Wall Street panel.

As before, most questions were on the future of Gulf Coast casinos and how they will fare against surrounding markets, both those now competing and those that might join the fray, such as Georgia.

Obviously, new markets opening in the Southeast will affect the Mississippi Gulf Coast, but the region has some distinct advantages that should sustain it as a destination resort.

Here’s why:

First, the prerequisites for any successful resort are to be safe and clean. The Gulf Coast is certainly that.

Longer term, one of the truths about tourism is that whatever a man can build, another man can build also, and often bigger and better. We’ve seen this lesson played out over and again in the casino industry.

The first riverboat casinos made money hand over fist—until bigger competitors came along. Likewise, Atlantic City casinos were gold mines until their East Coast monopoly was broken.

The key to sustained success in tourism is to have attractive assets that others cannot duplicate.

Like water. Like warm weather. Like unique history and distinctive culture. Like location. In other words, like the Mississippi Gulf Coast.

Upon those bases, tourism developers can build the man-made assets: attractive, clean and safe properties, critical mass, diverse amenities.

The point for investors is those with a long view should consider the what-ifs of whether competitors might move in.

A prime example to illustrate this point is the Gulf Coast’s own Mississippi opposite—Tunica. Before gaming proliferated, Tunica was an extraordinary story. One of the two poorest counties in America had, almost overnight, become a success.

But Tunica was only a success until casinos proliferated and gamblers could play closer to home.

There was a reason Tunica had been one of the nation’s poorest counties. It had no advantages of its own. The closest thing to a natural strength was proximity to Memphis. So Tunica declined badly, and there’ s no reason to believe it will ever revive.

Now, man-made advantages can become unassailable if they reach a certain critical mass—Las Vegas with casinos and convention facilities, Orlando with theme parks and convention facilities. New Orleans will forever be an eccentric party town.

Even then, there is no guarantee of preeminence. Certainly, few would have thought some decades ago that Chicago, with its central location and superb transportation network, would be overtaken as a convention city by a desert oasis in the West or a town surrounded by orange groves in the Southeast.

So the Mississippi Gulf Coast has its limitations, and will never rival Las Vegas.

But as far as this eye can see, the region will remain a destination able to support a healthy casino industry.

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