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Gaming Guru

Arnold M. Knightly
 

Even as economy lags, hopes high for South Point tower

21 July 2008

LAS VEGAS, Nevada -- South Point owner Michael Gaughan admits his timing could be better.

"When I started doing this thing, things were still going pretty good," Gaughan said about the opening of a new 830-room hotel tower at his South Point hotel-casino. "When I started this tower, it never dawned on me (the economic downturn) was going to happen."

The new $100 million tower is scheduled to open Monday after final inspections during the weekend by fire and health inspectors.

Beyond the 830 rooms, which positions the property as the largest locals hotel at 2,163 rooms, the new tower adds 10,000 square feet of convention space and new executive offices for Gaughan and his management staff.

The rooms are coming on line as consumers are growing more concerned about keeping their homes and jobs, and as gasoline prices still exceed $4 a gallon.

With the local economy being the "worst it's ever been," Gaughan acknowledges that filling the new rooms will be a challenge.

"I've got about four sold-out weekends until the end of the year," he said. "That's low. Where if I didn't have the 800 rooms, I'd have about 14 sold-out weekends."

"I was running about 95 percent occupancy 10 months ago (when construction began). Right now I'm running 84 percent. ... I'm going to drop a little now, I think," he added.

Even with the drop in occupancy, Gaughan is still well-positioned to weather the storm.

Gaughan has no public debt on South Point, which he bought from Boyd Gaming Corp. for nearly $513 million in October 2006. He financed the deal largely through the sale of Boyd Gaming stock. He acquired a 17 percent share of the company after Boyd's $1.3 billion buyout of Gaughan's Coast Casinos in 2004.

Although it may be hard to fill the rooms with tourists and locals in the short term, the convention industry was Gaughan's real motivation for building the new tower.

With 190,000 square feet of convention space, including the arena floor, South Point will be able to book larger groups. Gaughan said approximately 25 percent of his hotel rooms are used by convention business, with the rest evenly split between tourists and locals.

South Point had been limited in the size of conventions the property could attract because the hotel only had 1,333 rooms and 180,000 square feet of convention space.

However, with the new 25-story tower, convention-room occupancy will initially slip to 15 percent so Gaughan will have to rely on the public to help fill the rooms.

Gaughan said he does have a few larger conventions already booked through the end of the year, including the Snap-on franchise conference that will take 2,000 rooms in early August.

J.A. Tiberti Construction began working on the property's third and final tower in August, the same month gaming revenues in Clark County dipped 5.4 percent. The most recent gaming revenue numbers show a 16.4 percent decline countywide in May.

Gaughan remains upbeat.

"The market's going to bounce back, but it's going to be a while," he said.