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Best of Howard Stutz

Gaming Guru

Howard Stutz

Nevada gaming revenue: Downtown dims

11 October 2006

NEVADA -- While the revenue earned by Strip casinos continues to feed Nevada's record-pacing year, downtown gambling halls are heading in the opposite direction.

The closure of the Lady Luck and renovations at Fremont Street casinos were the primary reasons cited for the more than 14 percent drop in gaming revenue in August, the third straight month that downtown casinos' win declined.

Meanwhile, the statewide gaming win in August raced to its third-highest monthly total this year, numbers released Tuesday by the Gaming Control Board show.

Nevada casinos won more than $1.06 billion from customers during the month, a 7.5 percent increase from August 2005, when the gaming win was $989.1 million. It was the sixth time in 2006 the total gaming win surpassed $1 billion.

The overall gaming win was based on the reporting of 342 casinos in Nevada and fueled by more than $14 billion wagered on slot machines, gaming tables and other gambling offerings.

Strip casinos accounted for $69.6 million of the total statewide increase of $74 million. On the Strip, 40 casinos won $556.3 million in August, a 14.3 percent jump from $486.6 million a year ago.

"Gaming revenues on the Las Vegas Strip continue to be robust, and we believe they are likely pacing ahead of investor expectations, particularly for the higher-end market," Deutsche Bank gaming analyst Bill Lerner said in a note to investors.

Frank Streshley, the Gaming Control Board's senior research analyst, said through the first eight months of 2006, Nevada casinos are ahead of 2005's record year of $11.6 billion in gaming win by more than 9 percent. Strip casinos are 12 percent ahead of 2005's record gaming win total of $6 billion.

"We were told after June that there might be some softening in the numbers, but that really hasn't been the case," Streshley said.

He said baccarat play boomed on the Strip during August, which helped support Nevada's overall gaming win. Baccarat win statewide was $75.7 million in August, up 112.7 percent from $35.6 million in August 2005. The amount wagered on baccarat was up 84 percent to $778 million, compared with $426 million a year ago.

Streshley said only one special event was on the calendar that may have played a part in the baccarat increase, the heavyweight championship fight at the Thomas & Mack in the middle of the month between Hasim Rahman and Oleg Maskaev.

Visitation, he said, was boosted by the men's apparel convention at the end of August, which brought 100,000 people to Las Vegas.

Gaming revenue in Clark County jumped 9.6 percent overall in August, but areas of the county were affected by the newest casinos, Station Casinos' Red Rock Resort in Summerlin and Boyd Gaming Corp.'s South Coast.

Nowhere was more distressed than downtown. Casinos won $45.9 million from gamblers in August, down from $53.5 million a year ago. During the month, downtown slot machines took in $562 million, off 10.5 percent from $628 million a year ago; table game wagering was $81 million, down 7.4 percent from $87 million in August 2005.

While Streshley said February's closing of the Lady Luck has taken some business from the area, he couldn't comment on the individual performances at the other operating casinos.

Analysts pointed toward several factors affecting downtown's performance.

The Golden Nugget, downtown's largest casino, has been undergoing a $100 million renovation since the casino was purchased a year ago by Landry's Restaurants. Property spokeswoman Sylke Finnegan said the construction should be completed by the end of the month or early November.

"It's really a complete renovation of the property and it's been ongoing throughout 2006," Finnegan said. "There's not an area of the property that hasn't been impacted."

Earlier this year, the Navegante Group, a casino management company, took over the operations at four downtown casinos -- the Plaza, Western, Gold Spike and Las Vegas Club -- and has been making improvements to the casinos.

Boyd Gaming Corp., which operates three downtown casinos, recently completed a renovation of all 400 rooms at the Fremont.

"There has been a turnover in management relative to some of the (downtown) properties and until those management teams come in a find their way, we may see a continuation of this trend," said Brian Gordon, a partner in Applied Analysis, a Las Vegas-based financial consulting group.

Casinos in North Las Vegas had their gaming win decrease almost 4 percent; Boulder Strip casinos were off 6 percent from a year ago. Those figures were more than made up for by the area categorized by the control board as the balance of the county, including Red Rock Resort, which opened in April, and South Coast, which opened in December.

Balance of the county casinos reported a gaming win of $116.2 million, a 21 percent increase from $96 million in August 2005.

"The weakness in Boulder Strip and North Las Vegas results is likely a function of short-term cannibalization caused by the new supply added this year," Lerner said.

Bear Stearns gaming analyst Joe Greff said casinos catering to local customers are still exploring methods to keep their regular customers from gravitating to the new resorts.

"We continue to sense the local market is somewhat promotional in certain areas as properties attempt to offset the impact from Red Rock," Greff said.