You can’t hear it. You probably couldn’t see it. But maybe you can feel it. I did. I could feel the paradigm when it shifted and I believe we all saw the impact.
It began last March when the economy cratered and the high-flying gaming stocks like Las Vegas Sands, MGM Mirage, Boyd and others came crashing down. It turns out we had been living a dream for the past five years and at that point we were forced to confront reality.
But it wasn’t just the comparative value of the companies that changed; it was everything, from the way we operate to the way we view the future.
But let’s start with the value of companies. The truth is, this still hasn’t shaken out to any great extent, so we’re not completely sure if the rise in the prices of gaming stocks over the past year is real or fantasy again. It comes down to the value of the individual properties. We got to a point where we would factor in the real estate value to the value of the operation itself. So the perceived value of the property turned out to be much more than it actually was.
Let’s take a couple of examples. In Atlantic City, the Tropicana was built for about $400 million in the 1980s. Various expansion projects over the years, including the massive Havana tower and Quarter shopping area in 2004, created investment of an additional $1 billion-plus. When Columbia Sussex bought parent company Aztar at the top of the market in 2006 for $2.75 billion, the price reflected that value. But when Columbia Sussex executives proceeded to trash the Tropicana by cutting costs, and slashing cap ex and maintenance, they angered New Jersey regulatory officials so much they lost their license. And after two years trying to sell the Tropicana, a bankruptcy court settled the sale at $200 million.
In Las Vegas, Boyd Gaming recently made an offer of $2.45 billion to buy all 18 casinos owned by Station Casinos. Now, Green Valley Ranch, Aliante Station and Red Rock Resort alone cost more than that to build, so, while Boyd Gaming says the offer reflects today’s economic realities, the value of each individual property clearly is just a fraction of what they once were.
So it’s clear that the values of casinos have changed so dramatically that a new paradigm has to be established before any new casino or expansion projects can be undertaken.
Operationally, things will never be the same either.
No longer can you just throw open the doors to a casino and expect the gambling public to show up. In the U.S., we’ve officially reached the “saturation” point. Even though there are a couple of big dominos to still fall, when they do, they’ll have a detrimental effect on at least one other jurisdiction. Gaming jurisdictions are going to have to more clearly identify their markets and develop non-gaming amenities that will provide customers with much more than just slots and tables.
Internationally, there is still room for growth-particularly in Asia. But changes in the way customers respond as a result of the economic downturn will require a similar change in operations.
And these changes have an impact on every department in the casino-marketing, human resources, security and surveillance, hotel, food and beverage and more. So the changes will be required at every level of the casino industry.
Even my business is changing fast. Newspapers are folding left and right, while magazines aren’t far behind. That’s why we’re continuing our commitment to migrating our content online. Starting when we launched our GGB Podcast nearly five years ago, we believe the interactive nature of the internet can make the information we provide even more valuable by getting the feedback of the very professionals we seek to serve.
So we’ve recognized that the paradigm has shifted. We understand that it will never again be “business as usual.” And most of all, we know that we must provide complete and up-to-the-minute information that will help our readers and subscribers make the decisions that will transform this industry. Because we can be proud when we continue to provide the entertainment, the jobs, the tax revenues and the security of a good career for the many millions of people who depend on us.
