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Best of Liz Benston

Gaming Guru

Liz Benston

Tourists Do Worry About Gas Prices

28 August 2006

LAS VEGAS, Nevada -- Research guru Jim Medick doesn't want to rub it in. But it's difficult for him not to say, "I told you so," after a handful of major gaming companies have blamed rising gasoline prices for lackluster profit growth at lower-rent properties frequented by budget-conscious tourists.

Tourism honchos had disputed results of a controversial telephone survey of Southern Californians that Medick's MRC Group conducted last September showing that gas prices were closely correlated with trips to Las Vegas. Prior to somewhat disappointing second-quarter performance figures, gaming giants and the Las Vegas Convention and Visitors Authority were asserting that gas prices and other national economic concerns were not affecting business.

Medick's telephone survey of Vegas travelers told a different story, that rising gas prices were significantly cutting into travel plans over other activities such as going to the movies or the mall.

In fact, close to half of the respondents said they had cut back on trips to Las Vegas as a result of higher gas prices. Drivers also were asked at what point they would stop driving to Las Vegas, a question based on the assumption that most folks have a limit. About half of drivers said they would stop driving to Vegas if prices hit $3.50 per gallon and about 80 percent would stop if gas reaches $4.33 per gallon.

With the LVCVA reporting a 2 percent decline in visitor traffic in June and the state noting a 7 percent drop in Strip casino revenue for the month - the biggest dip in three years - even Gov. Kenny Guinn admitted that "an economy based so much on tourism is always at the mercy of higher gas prices and a slowing of the economy."

What does Medick make of all this?

"I have a saying: 'Never be afraid to stand up for what you believe in but always be prepared to duck,' " he said. "With this survey, I was ducking."

• • •

A prime piece of resort land is in play - again - on the Strip.

An investment group including Starwood Hotels & Resorts Worldwide, Edge Group, Tristar Capital and RFR Holding picked up 63 acres of land just east of Interstate 15 and behind Mandalay Bay for about $202 million in May. It's now on the market for more than $400 million.

Investors say they had plans for a large, mixed-use project on the parcel - one of the largest assembled on the Strip. It made sense: Development costs are forcing operators to build projects with large numbers of rooms - including condos that can be sold upfront to help finance construction.

But it's hardly a slam dunk.

Rising development costs continue to delay major Strip projects, which could mean more land resold for a quick profit in the months to come as resorts prove to be less profitable, real estate experts say.

Even well-known groups could have problems trying to pencil out profits and secure financing for multibillion-dollar projects on the Strip, they say.

"We think people are buying land in the hope that the larger fish are going to assemble bigger parcels down the road," said luxury residential broker Bruce Hiatt. "I also think we're going to see a shrinkage of projects, which we want to see because it changes our supply-demand balance in a favorable way."

Seller and investment partner Adam Frank of Edge Group, who is building Las Vegas' first W hotel at Harmon Avenue along with Starwood, says they're not in the business of flipping land. Rising development costs did not factor into the decision, either, Frank said.

The Russell Road site was under contract well before the company picked up 25 acres in June next door to its W project, the site of the failed Las Ramblas condo resort complex, he said.

"To make this work you have to have a lot of density," Frank said. "Now that we've got 50 contiguous acres, it allows us to do that at the W site. It's more logical for us to focus all our energy in one place."

• • •

Paging Little Richard, Frankie Avalon and Debbie Reynolds ¦

In an era of rising prices, Coast Casinos regulars are wondering about the future status of Coast's slot club - a program that lets low-rollers rack up freebies - as well as its stable of lower-priced vintage acts.

Parent company Boyd Gaming Corp. has made it clear that the company, which is buying out Coast boss Michael Gaughan in exchange for his purchase of the South Coast, isn't planning on changing things much at the remaining four Coast properties that Boyd owns: the Barbary Coast, Gold Coast, Suncoast and Orleans.

But some Coast-goers remain suspicious of changes on the horizon once Coast founder Gaughan - who built his reputation on serving "the little guy" - is out of the picture.

Boyd President Keith Smith says not to worry.

"Michael stepping away from the business really doesn't change anything, from our entertainment policies to our slot club policies to our promotional policies," Smith said. "That said, every morning you wake up and the world has changed. We have no planned changes for how we operate that business, but maybe there are some opportunities for us to further integrate the properties."

That could include streamlining purchasing for all properties and, more important for customers, integrating the Boyd and Coast slot clubs. Boyd now has separate clubs for each of its non-Coast properties.

Boyd is likely to fold the club for Sam's Town - the only big locals property Boyd owned outside of the Coast chain - into the Coast club program.

"That makes the most sense to do quickly," Smith said.