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Best of Benjamin Spillman

Gaming Guru

Benjamin Spillman
 

Casino owners invest millions to reverse long slump for old Vegas

28 December 2006

LAS VEGAS, Nevada -- Standing in a carnival of cowboys, country music and casinos, Tim Molloy looked like a personification of Vegas Vic.

His belt buckle reflected the glare of the Fremont Street casinos, while his cowboy hat and brown leather duster protected him from harsh weather.

Neither Molloy nor Vegas Vic, the two-story neon cowboy who greets Fremont Street visitors, is a real Nevada cowboy.

But both would surely welcome a return to the heyday of the downtown Las Vegas gambling scene long since surpassed by the booming Strip and the burgeoning locals casinos.

"Since I work in new Vegas it is kind of nice to see old Vegas," said Molloy, a maitre d' at a Strip restaurant who spent the year's coldest night watching the debut of a country-themed light show with thousands of rowdy cowboys and cowgirls in town for the National Finals Rodeo.

"I think everybody likes it because it is still a little freewheeling," Molloy said.

But neither the glow of the Fremont Street Experience nor the din from the growing roster of the pedestrian mall's special events can hide the stagnation in the downtown market.

After posting a 5.7 percent gaming win increase in 1996, the first year of the Fremont Street Experience, the downtown market has declined or remained nearly flat every year since.

In 2005, it dropped 1.3 percent to $654 million and now represents just 5.6 of the statewide total.

The peak win was $703 million in 1992. By 1995, when the Fremont Street Experience opened, the market represented just 8.7 percent of the statewide win, down from 14 percent in 1989.

And since 1986 the downtown market has added just 2,382 hotel rooms, the Las Vegas Convention and Visitors Authority reports.

Of those, about 56 percent, 1,335 rooms, were part of an expansion of the Golden Nugget in 1986.

Also, 743 rooms were taken out of the downtown market in 2005 when new owners of the Lady Luck shuttered the property with the promise of revitalization in the future.

The Strip, in contrast, has added more than 60,000 rooms in the past 20 years.

"In the gaming industry, rooms are what really drive the numbers," said Don Snyder, the Fremont Street Experience's first president and chief executive officer. "Rooms put the bodies in the environment for more hours a day."

Snyder, who retired and now heads efforts to build a performing arts center downtown, said he believes investment in new hotel rooms on Fremont Street is long overdue.

Of the 13 existing Fremont Street area hotels just four have added rooms in the last 20 years, bringing the total number to about 8,170 of the more than 130,000 in the Las Vegas area.

"If I were king for a day I would have built more rooms," Snyder said. "That is a room-starved market."

The stagnant gaming numbers and dearth of new hotel rooms belie a surge in interest in downtown Las Vegas by both visitors and investors.

In 2005, 46 percent of Las Vegas' 38 million visitors went downtown. Fremont Street will host a nationally televised New Year's Eve party later next week and will add the Las Vegas Grand Prix race to its special events roster in 2007.

Landry's Restaurants, the new owners of the Golden Nugget, downtown's largest and swankiest casino hotel, recently invested $100 million in upgrades at the property.

The $2 billion World Market Center opened in 2005 and a proposed World Jewelry Center nearby, a new entertainment district called Fremont East and promised revitalization of 61-acre Union Park site offer more hope for new downtown customers.

"There is just a great deal of positive energy downtown from our perspective," said Rob Stillwell, vice president of corporate communications for Boyd Gaming Corp.

The company owns the California, Main Street Station and Fremont casinos.

Although downtown gaming numbers pale next to the figures posted by Strip casinos, Boyd's downtown properties managed to post their second-best results ever for the second quarter.

"There is just a great deal of positive energy downtown from our perspective," Stillwell said. "From a Las Vegas perspective, perhaps it gets a little harder to recognize progress being made because it is not being done at Strip speed."

Since 2003 Boyd has spent $15 million refurbishing 1,300 of its 1,600 downtown rooms with the remaining rooms scheduled for upgrades.

But Boyd's success could be difficult to duplicate. The company has owned its downtown properties for decades and has spent 30 years cultivating a lucrative niche market of Hawaiian gamblers.

Boyd also reduces costs by operating its three downtown casinos as one, Stillwell said.

Ownership changes, fading luster and perceived indifference toward new casino investment plagues other properties, to the chagrin of downtown gambling enthusiasts.

The harshest rebukes for downtown come from regulars frustrated by what they see as stagnation at prominent properties, and they long for signs of stability on Fremont Street.

"For me it is not the gambling. You can basically gamble anywhere. It is the whole energy of the place. The surrounding of all those lights and all the people who have been there from the days of the Rat Pack and the mob," said Andy Losik of Fennville, Mich.

Losik, 34, first visited Las Vegas in 2000 and became a fan of downtown during a trip in 2003.

"I like that old Vegas feel to it," said Losik, who delved further into the history of Las Vegas gambling culture with each successive visit. "Being downtown in the older places it takes you back to the beginning of that."

But downtown also disappointed Losik.

Just one year after he discovered Fremont Street, one of his favorite casinos and one of downtown's most prominent properties closed its doors in scandal.

In 2004 gaming regulators swooped in on Binion's Horseshoe and forced a shutdown to ensure former owner Becky Binion Behnen could pay mounting debts.

Harrah's later bought the property primarily for the Horseshoe name and the lucrative World Series of Poker.

It resold the casino a month later to MTR Gaming Group of Chester, W.Va. MTR re-christened the property Binion's Gambling Hall and Hotel last year.

For regulars like Losik the casino isn't the same without the Horseshoe name.

"That sign has always been one of my favorites," Losik said of the Horseshoe on Binion's fa├žade. "They had the whole thing ripped down. It just didn't feel the same."

Binion's has disappointed investors, too.

MTR's latest quarterly report showed Binion's posted nearly $3.5 million in operating losses during the first nine months of 2006.

Edson Arneault, chairman, president and CEO of MTR Gaming Group, did not return calls for comment.

"I don't see any growth there in that property," Steven Wieczynski, vice president of gaming and leisure research for Stifel, Nicolaus Capital Markets, said of Binion's.

The same could be said of much of downtown, said Wieczynski.

"I don't think there is going to be too much growth for downtown in general," he said. "Besides the Golden Nugget there is not too much down there."

Downtown regulars have been critical of other properties, too.

"Downtown is perpetuating its own slide," said Matt Weatherford, 39, of Arvada, Colo.

Weatherford, a transportation engineer, also operates a Web site called CheapoVegas.com.

The site details Weatherford's experiences at casinos throughout the Las Vegas Valley, but his preference is with the downtown properties.

He recently moved an annual gathering from the Plaza to the newly renovated El Cortez.

Weatherford said the Plaza, Las Vegas Club, Gold Spike and Western properties have continued to decline since they were sold to the Vaduz, Lichtenstein-based Tamares Group and Barrick Gaming in 2004.

Tamares has since bought out Barrick and hired the Navegante Group, a casino development company, to operate the properties.

"It has just really gotten run down," he said of the Plaza, located prominently at Fremont and Main streets. "We used to stay there, we're not going to stay there anymore."

Michael Treanor, managing director for Tamares Las Vegas Partners, acknowledged the decline of his company's downtown properties.

But he said the firm is in the early stages of planning new investment at the casinos, starting with a complete overhaul of the Las Vegas Club that could be complete in 2008.

"It will be unrecognizable from what it looks like right now," Treanor said. "We hope it jump-starts that end of Fremont Street."

The plan is to renovate all 405 hotel Las Vegas Club hotel rooms as well as the casino. It will likely involve closing the property during renovation.

Treanor said the approximately 500 people working there could be relocated to other Tamares-owned casinos until the Las Vegas Club reopens.

The company also plans new investment in the Plaza. But that project is more complicated because it is adjacent to the 61-acre Union Park site.

"We are doing cost analysis on that right now," he said. "It is more important that we get it right than we get it done quickly."

In general, Treanor said renovation is cheaper than building new hotels. But adding new hotel towers could produce more revenue in the long haul.

He said the continuing Strip trend of replacing value-oriented properties like the Stardust with high-end resorts such as Wynn Las Vegas bodes well for downtown.

"As these low-end properties all get closed it means that the middle market customer doesn't really have a home on the Strip," Treanor said.

Weatherford said a good downtown casino is a complicated mix of traditional grind gambling with rooms and amenities that keep the property vibrant.

The best casinos tap far enough into Nevada's rebel heritage to be interesting but maintain quality standards that make visiting pleasant.

"Part of the appeal for Las Vegas is you're doing something you're not supposed to be doing," he said. "Downtown gives you more of that feel. It is just seedy enough."

The common denominator of most visions call for capitalizing on the history of the area and the close proximity of the existing casinos to each other. Investors, casino owners and downtown customers say those factors make the Fremont Street casinos unique.

"This has a feeling of authenticity. It feels like the real Las Vegas," said Mark Brandenberg, owner of the 100-year-old Golden Gate casino.

"That is just an intangible you are not going to find out on the Strip or in the neighborhood casinos."

Brandenberg credited previous downtown owners like the Binion family, Sam Boyd, Steve Wynn and others for putting aside their differences to contribute to the construction of the Fremont Street Experience.

But he said it is up to current owners to build on the investment by adding hotel rooms and increasing gaming revenue.

"I think we are just a step or two from seeing major investment downtown," he said. "They took the first step. The challenge is taking the additional steps."

DOWNTOWN LOWDOWN

The existing Fremont Street area properties

Hotel name Employees Rooms

Binion's 1,600 366

California 900 781

El Cortez 1,200 400

Fitzgeralds 850 648

Four Queens 900 690

Fremont 800 447

Golden Gate 325 106

Golden Nugget 2,000 1,907

Gold Spike 140 109

Las Vegas Club 500 409

Main Street Station 700 406

Plaza 1,014 1,064

Western 300 837

Total downtown 11,229 8,170

On the Strip, Bellagio has 3,933 rooms and 9,848 employees.

SOURCE: Casino City's Gaming Business Directory

DOWNTOWN HOTEL ROOMS

Since 1986, Fremont Street area casino hotels have added 2,382 rooms. The area lost 743 rooms when the Lady Luck closed in February.

Year Property Rooms Added

1986 Golden Nugget 1,335

1986 Lady Luck 308

1988 Plaza 37

1989 Lady Luck 371

1994 California 146

1996 Las Vegas Club 185

SOURCE: Las Vegas Convention and Visitors Authority/Review-Journal archives