This time on the show:
– Jackie Gaughan RIP
– SLS Hardhat Tour Madness
– Caesars Financials Tetris
– FinCEN
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** Sure Bets **
Chuck – Apple TV ; Netflix + HoC ; Handbrake
Dr. Dave – Cosmos
Hunter – Interviewly.com
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Couple quick observations:
1. Chuck mentions VTX and my mind hears VCX. I am instantly transported to 1980, with visions of Annette Haven and big bush boners.
2. Regarding the Admiral’s hood ornament: The Spirit of Ecstasy is very expensive and it is not surprising that someone would take it.
Is there a standard, rule of the thumb number that a casino should reinvest in their buildings. For example, grocery chains usually large retailers usually reinvest three per cent of sales in capital expenditures.
The reason I ask is that in the latest Caesar’s conference call Loveman acknowledged that Caesar’s continually cuts their capital budgets through out the year. I don’t think much has been done in the last seven years at Caesar’s properties and don’t believe much will be in front of the debt that comes dues on 2018. So I think that properties deteriorate.
And my bet-literally, I bought stock- is that the new company is given the nice profitable assets and the old company is mailed back to the creditors.
Someone once told me that if table salt and/or sugar was just invented and had to gain FDA approval to hit the market, neither one would stand a chance of getting through. I wonder how the gaming board feels about the Caesars financial situation? Would they grant a license if Caesars did not have a legacy position? At what point should consumers worry about cutbacks such as personal security, safety, or sanitation issues around the properties? I would also be interested in the P&L of the individual properties owned by them in LV to see which ones are performing, or under-performing.
Thanks to Jeff in OKC for reminding me about Annette Haven. Annette, combined with the sure bet of Apple TV, gives me another thing to do to keep me busy in between trips to Las Vegas.
Have to agree with Chuck on the Gaughan legacy – While I enjoy a nice place with the missus once in a while when I visit, the practical part of me likes to be frugal, so we’ll typically split our time between a place like The D and a nice place on the strip. Renting a car (since I’m an east coaster) allows me to drive to the nice places to eat, and not have to deal with the circus that the Strip has become.
Regarding the CZR shuffle game, I’m curious as the new Horseshoe in Baltimore is part of the “solvent” group. When MGM joins the party in 2016, and revenue decreases, I’m curious what happens at that point in the game? Certainly with the lack of maintenance anymore, those free rooms aren’t worth it in my view.
Finally, instead of FinCen, I kept hearing RenCen, but that might be because of Detroit on the brain lately.
I think Baltimore is in the “solvent” group because the new casino is only supposed to cost $450M or so. My understanding of gaming economics is that is a casino can gross north of 50% of it’s building cost a year will probably be profitable. Maryland Live is grossing a little over 600 million a year. So Caesar’s Baltimore only has to do about 40% of what Maryland Live grosses to be profitable. I think that they can do that pretty easily.
Hunter made the observation that Downtown Grand is not getting people into the casino. Having stayed there a couple weeks ago, I have to agree with him. This is most concerning to me, due to my thoughts that it was the classiest and most enjoyable place downtown. We loved everyting about our stay and want other people to enjoy it also and make it very successful.
I think a big problem for Downtown Grand is getting people to walk the 1/2 block from the Fremont Street Experience to Downtown Grand using the 3rd Street sidewalk. I suggest Downtown Grand pay the cost to remove the “shoot the basketball 20 to 30 feet in the air” midway attraction; rent the 2 little retail spaces on the east side that appear to have been closed for years, and put some kind of attractions in that space that could draw people that direction and make a little income; and use signage and furniture to draw peoples attention that direction. Basically do everything they can to make people look that direction.
Because one of the first obstacles to the Downtown Grand project was mayor Oscar’s concerns that the walkway between the DTG towers blocked the view to the Mob Museum, I think the City of Las Vegas wants people to look and walk that direction in order to draw people to the museum. I think an attractive makeover of that space would draw people to both places. Now, the question might be if FSE has a problem with people leaving their area to visit other places? I suggest that the words of Jackie Gaughan would apply “If it’s good for Las Vegas, it’s good for all of us.”
I apologize for leaving so many comments, but it takes me quite a while to write them and I don’t have a lot of free time during the day.
Regarding SLS: Seems to me that they are aiming for 3 separate markets out of the gate. First is the Los Angeles market, because they are based there and have so many brands that operate there and will have locations in Las Vegas. In theory, they would draw a drive in customer who wants to visit their “known” brand and is more inclined to stay on property. Second, the nearby locals market. This includes a pretty dense and high income condo tower subset within walking distance, and a pretty good income group within 3 miles driving distance. Third (and the greatest wild card) are the 800 asians who invested 1/2 million dollars each in the eb 5 program. 800 asians who are probably in the top .01 percent of their home populations, who are probably civic leaders and titans of business and are telling everyone they see at the country club and who works for them that “I got a piece of a Vegas casino-the SLS. Be sure and go there when you visit Las Vegas. Tell all your friends too, OK?” This same approach worked back in the day when it was the Sahara getting the home builders and overcoat factory owners from Philadelphia to invest.
I think these are 3 good groups who can help them overcome the isolated location issue people have been so concerned about. Not cure it, or be the entire customer base, but help it.
Jeff–that’s a point that I’ve been wanting to make about the SLS investor pool. It really is a throwback to the days when the syndicate owners were also big players. Of course, few today like to draw parallels to that era because of the “undesirable” affiliations, but I think it’s an interesting case of convergent evolution. In the 1950s and today, the property had the same problems–capital and marketing–and both times a solution was found to (partially) solve both. Fascinating.
As far as Downtown Grand and walkability, that doesn’t seem to be an issue for the El Cortez, which seems packed whenever I’m in there, and it a longer walk. You could argue that it’s energized by East Fremont, but there doesn’t seem to be too much overlap there. Either people are walking, or the El Cortez is getting lots of locals to drive and park–judging from the always-full garage, that’s definitely part of the answer.
What that tells me is that, with its better location and proximity to a landmark, the (slow) traffic problems at DTG are not insurmountable.
Caesars financial issues haven’t been an issue getting licenses because they are in joint ventures. In the case of Maryland, the debt is brought up by the commission and Caesars will be reviewed every year because of it. But at the same time, Caesars barely owns 50% of the Baltimore Casino. Dan Gilbert’s Rock Gaming is just as important of an investor. That joint venture is then paying Caesars a management fee to run the casino. If something were to go south, Gilbert could just buy more shares while still paying CZR a management fee.
Ohio is a similar situation. Gilbert owns 80% of the stock of the Horseshoes and Thistledown Racino there. But they pay CZR a management fee. In both MD and OH, Caesars is basically paying itself in some form. Also, keep in mind that Gilbert already holds a large share of Caesars Interactive. It wouldn’t surprise me to see Rock Gaming get more involved with Caesars and use these same agreements to help prop up Caesars.
The salesaman I used to work with in Las Vegas in the mid 90’s really liked the El Cortez and him and his wife used to gamble there all the time. They had a nice write up here in the Chicago Tribune about Mr. Gaughan. RIP Jackie Gaughan.
SLS Las Vegas will be interesting to see how it does when it opens in September. The location is questionable but maybe Mr. Nazarian can get his property up and running and make it profitable.
Great show guys.
I am neither wealthy nor Chinese but I don’t think a lot of Chinese gamblers will stay at the SLS as a favor to their investor friends. In fact, I don’t think many Sahara investors will. The surrounding neighborhodd will scare then away. These people bought a residence visa for $500,000, which for them is a fair price for the security that a U.S. provides. That’s all they care about.