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2004 In Review: Merging And Converging

28 December 2004

Business news in Southern Nevada mirrored the country in 2004.

A rebounding economy, roller-coaster gasoline prices, corporate mergers, and record earnings were stories with national implications that had local undertones.

As 2004 drew to a close, Southern Nevada's vibrant tourism economy was showing signs of a record year, with more than 40 million passengers flying through McCarran International Airport, gambling revenues nearing all-time amounts and additional hotel room capacity becoming available.

The biggest stories of 2004, as selected by the Review-Journal business staff, were:

1 MGM Mirage and Mandalay Resorts to merge

MGM Mirage and Mandalay Resort Group rocked the gaming world and shocked industry analysts in mid-June when the two casino behemoths agreed to a $7.9 billion buyout by MGM Mirage.

MGM Mirage President Jim Murren said the deal was important because his company has evolved dramatically over the past 20 years into a multifaceted entertainment company that has a great future in Las Vegas.

"This transaction will complement what we already have and let us expand our offerings. It also creates a financially even sounder company," he said.

The two companies have been working intensely with financial backers and with federal and state regulators in order to complete the massive merger transaction.

Regulators in Nevada, Illinois, Mississippi and New Jersey where the two companies operate, have to review the deal, but analysts said they are unlikely to raise objections. By mid-December, Mississippi had approved the deal.

Negotiators representing each company agreed to a breakup fee provision to let MGM Mirage collect $160 million in the unlikely event other potential buyers came forward and Mandalay opts out of the deal.

The deal, which is expected to close before the end of the first quarter in 2005, will create a gaming industry giant, with nearly $7 billion in revenue a year, that would have been the world's largest casino operator had it not been for a similar merger engineered in July by Harrah's Entertainment.

2 Harrah's Entertainment buying Caesars Entertainment

Harrah's Entertainment President Gary Loveman and Caesars Entertainment Chairman Stephen Bollenbach, in the wake of MGM Mirage's merger announcement, rushed to beat the competition with a $9.4 billion merger that will create the largest gaming company in industry history.

Loveman opened discussions in December 2003, but they didn't turn serious until June after MGM Mirage's deal with Mandalay Resort Group became public.

The agreement, announced July 15 after intense, monthlong negotiations, initially got a tepid reception on Wall Street with analysts comparing the pairing to the Odd Couple.

"The two companies have such similar profiles they'll get scale but they won't get any synergies" like MGM Mirage expects from the Mandalay Convention Center when it completes its pending $7.9 billion purchase of Mandalay Resort Group, said one analyst, who requested anonymity.

"Strategically, it's just not anywhere nearly as good a deal as the Mandalay deal, especially financially," the analyst said.

However, Loveman said the purchase of Caesars Entertainment, the largest buyout in gaming industry history, will solidify Harrah's position as the nation's premier gaming company.

Loveman said Harrah's will mainly operate under the Harrah's, Horseshoe and Caesars brands.

3 Horseshoe closes, sold, reopened, sold again

When deputy U.S. marshals marched into Binion's Horseshoe on Jan. 9 with court orders to seize $1.9 million from the casino cage, the 52-year ownership of the venerable downtown property by the Binion family abruptly ended.

Two weeks later, Harrah's Entertainment announced a deal to purchase Binion's Horseshoe, including the name and the iconic World Series of Poker. On April 1, the downtown casino reopened as thousands of gamblers swarmed through doors welcomed by showgirls, Las Vegas Mayor Oscar Goodman and Harrah's executives.

Harrah's ownership, however, was short-lived.

Before reopening, Harrah's announced a deal Feb. 19 to sell Binion's Horseshoe to Speakeasy Gaming of Fremont, a subsidiary of MTR Gaming of Chester, W.Va. Financial terms weren't disclosed, but Harrah's kept ownership of the Horseshoe brand in Nevada and the World Series of Poker. It also agreed to manage the downtown casino for MTR for at least a year.

Harrah's hosted the World Series of Poker one last time at Binion's in May and the casino returned to profitability. Most World Series events are expected to move in 2005 to either Harrah's Las Vegas or the Rio.

Harrah's management contract expires March 11 and the property will be renamed just "Binion's."

4 Las Vegas home prices soar

Home prices in Las Vegas skyrocketed in 2004, though they fell slightly toward the end of the year.

The median price of a new home rose from $209,611 at the beginning of the year to a peak of nearly $280,000 in September, before rolling back to $272,930 in October, the most recent statistics from Home Builders Research show.

Existing-home prices went from $180,000 to $252,000 during the same period.

Home Builders Research President Dennis Smith said in August that the remarkable year-to-year increases in Las Vegas home prices should return to some "semblance of normalcy" by the end of the year.

The market cooled after midyear as the inventory of resale listings increased from less than 2,000 in February to nearly 16,000 in September and October, the association reported.

Strong housing-market fundamentals, such as interest rates below 6 percent and continued population and job growth, kept new and existing home sales on record pace.

Through October, new home sales totaled 23,499, a 16.5 percent increase from the same month a year ago, and existing sales were tallied at 55,465, up 35.6 percent.

Several trends have emerged in Las Vegas' housing market, including apartment conversions to condominiums, a slew of high-rise luxury condo announcements and a push toward mixed-use urban village designs.

Also, higher home prices have resulted in rising property taxes and discussion of how to curb those increases.

5 Project CityCenter unveiled

The next step in the evolution of Las Vegas was announced in November when MGM Mirage unveiled plans to develop a self-described urban metropolis that would have a multibillion-dollar price tag and encompass 66 acres on the Strip between the Bellagio and Monte Carlo.

Dubbed Project CityCenter, the first phase would include 18 million square feet of construction projects, including a 4,000-room hotel and casino, three 400-room boutique hotels to be operated by internationally recognized companies not already in Las Vegas, 1,650 luxury condominium-hotel units and 550,000 square feet of retail, dining and entertainment space.

With a cost of between $3 billion and $4 billion, Project CityCenter would create more than 7,000 construction jobs and, eventually, 12,000 permanent positions. Upon completion, it would constitute the largest single new employment opportunity in Las Vegas history.

MGM Mirage officials said the company had spent eight months exploring development plans and had been analyzing the property since acquiring Mirage Resorts Inc. in 2000.

"This site is probably the best developable opportunity in Las Vegas, maybe the planet," MGM Mirage President and Chief Financial Officer Jim Murren said. "We believe the economic opportunity is there to get a return on investment that's superior to simply building a casino-hotel."

While dramatic in scale, the master-planned urban complex will be constructed in less land than the 110-acre MGM Grand property, but with a higher-density design that allows for increased building space.

6 Las Vegas heads to Macau

An estimated 50,000 gamblers and curiosity seekers helped Sheldon Adelson open Macau to "an exciting new era" for U.S. investments in China's multibillion-dollar gaming market.

It took just minutes for an overflow crowd of about 30,000 to rush in and pack Adelson's Sands Macau casino after it opened in May.

The $240 million, 1-million-square-foot Sands Macau casino and entertainment complex is the first of several U.S.-owned-and-operated casno projects planned to open in the Chinese enclave over the next several years.

In addition to the Sands Macau, Adelson, who owns The Venetian's holding company, Las Vegas Sands, plans to develop a $10 billion gaming destination resort complex on Macau's Cotai Strip.

Industry sources are calling the opening of Macau to U.S. gaming companies the most significant event for the Las Vegas operators in 25 years because of the size of the potential market.

Las Vegas Sands President Bill Weidner said Macau is the most opportune developing gaming environment his company has ever seen. Macau's casinos raked in an estimated $3.6 billion last year, and could bring in nearly $5 billion this year, he said. That would surpass the revenue from Atlantic City's casinos and rival those from Las Vegas' casinos.

More than 1 billion people live within an easy plane flight of Macau, he said, and the World Travel Organization estimates that China will grant 100 million worldwide travel visas in 2020, up from 10 million in 2002.

"We believe we can help bring a major portion of those (travelers) to Las Vegas," Weidner said.

Las Vegas casino operator Steve Wynn is scheduled to enter the market with his own resort, Wynn Macau, by the end of 2006.

7 Neonopolis up for sale

After its less-than-spectacular debut turned into a continuing stretch of empty stores, scandals and homeless hangers-on, the owner of downtown's struggling Neonopolis in May decided to sell the $100 million mall rather than fix its many problems.

Prudential Real Estate Investors, the center's Parsippany, N.J.-based owner, hired the Las Vegas office of CB Richard Ellis brokerage service to market the 250,000-square-foot property, which has endured everything from poor traffic to sexual discrimination allegations since it opened in May 2002.

Through mid-December, no deal had been completed, but CB Richard Ellis Managing Director Mark Bouchard recently said a preferred buyer has been identified. But Bouchard wouldn't reveal who that bidder is, or what it plans to do with the center, until his company receives a nonrefundable deposit toward closing a sale.

Bouchard had hoped to complete a deal by year's end, but recent delays have -- almost appropriately, given Neonopolis' history -- forced those close to the property to wait until another year dawns before cash changes hands.

8 Resurgence of downtown Las Vegas

Neonopolis' challenges aside, 2004 in downtown Las Vegas is best summed up with two simple words: new blood.

The year was barely three weeks old when former dot-com wunderkinds Tim Poster and Tom Breitling completed a $215 million takeover of the downtown and Laughlin Golden Nugget hotel-casinos from former owner MGM Mirage. Though they later sold the Laughlin property, the dynamic duo have quickly become synonymous with efforts to recast Fremont Street with a "Vintage Vegas" vibe.

Financial troubles in January forced then-owner Becky Binion Behnen to sell Binion's Horseshoe to Harrah's Entertainment for approximately $50 million. Harrah's weeks later flipped the hotel-casino -- keeping the Horseshoe name and lucrative World Series of Poker -- to West Virginia-based MTR Gaming Group for $20 million. Harrah's initially operated the casino, but MTR is slated to assume control next March of the newly profitable downtown icon.

Separately, Barrick Gaming Corp. and joint-venture partner Tamares Real Estate in mid-November bought the Laughlin Golden Nugget from Poster and Breitling for $11 million. That deal capped off a busy year for the Las Vegas-based company.

In March, Barrick completed its $82 million acquisition of Jackie Gaughan's Plaza, Las Vegas Club, Western Hotel and Gold Spike. In October, it added the downtown's Queen of Hearts and Nevada hotel-casinos for a combined $7.1 million.

9 Tourism rebounds

Though the results won't be official for another few weeks, few would bet against Las Vegas' chances for hosting a record 37 million visitors in 2004.

A resurgence in consumer confidence and rebounding U.S. economy fueled the release of pent-up travel demand, and Southern Nevada's tourism machine hit new highs this year with more than 36.1 million reported visitors through October.

Year-to-date, local visitor traffic was up 5.6 percent from last year and 4.6 percent better than 2000, the city's busiest 12-month period on record, according to Las Vegas Convention and Visitors Authority data.

Las Vegas' three major convention centers continued to attract business travelers from across the globe despite November's cancellation of Comdex, a technology trade show that just a few years ago ranked as Las Vegas' most important convention event.

And the forthcoming centennial celebration and debut of Wynn Las Vegas are expected to keep this year's progress rolling well into 2005 and beyond.

10 FBI obtains customer information

Las Vegas hotel operators and airlines serving McCarran International Airport were in the vanguard of the war on terror last Christmas when the FBI required them to turn over all guest and passenger names and personal information, at least during the holiday period.

FBI spokesman Todd Palmer confirmed the federal action and said the requirement that the companies surrender customer information is a "normal investigative procedure."

Palmer said the Las Vegas FBI office received 100 percent cooperation from the gaming companies and airline operators.

The information was transmitted electronically to the FBI on what could amount to 300,000 visitors to Las Vegas daily.

Subsequently, it was learned this was the first time the FBI had used the new data-mining authority granted by the 2004 Intelligence Authorization Act and that companies in Las Vegas were alone in being hit with the demands for customer records.

Allen Lichtenstein, general counsel for the Nevada Chapter of the American Civil Liberties Union, said the program was a government move to keep tabs on what everyone is doing all the time, which has serious civil liberties implications.

Hotel operators who sought anonymity said the information provided to federal officials included guest and passenger names, addresses and personal identification information, but not casino records or guest gambling information.

Hotel operators also said similar information was demanded by federal authorities for about six months following the Sept. 11, 2001, terrorist attacks on the World Trade Center towers in New York City and the Pentagon outside Washington, D.C.

Other stories considered for Top 10 inclusion were:

*Roller-coaster gasoline prices that neared $3 a gallon during the summer months, but fell back to $1.98 a gallon by December.

*Shopping center sales: Simon Property Group purchased Chelsea Property Group (Las Vegas Factory Outlets) while the Grand Canal Shoppes at The Venetian was sold to General Growth Properties.

*Nevada Power Co. and Southwest Gas Corp. both raised rates.

*The Forum Shops at Caesars opened its third expansion.

*Longtime tourism figure Rossi Ralenkotter was named president and chief executive officer of the Las Vegas and Convention and Visitors Authority.

*The Aladdin emerged from bankruptcy with new ownership and new direction; the resort will be themed and renamed Planet Hollywood by 2006.

*Las Vegas Sands Corp. became the most successful initial public offering in two years when its price per share rose 61 percent on its first day of trading on the New York Stock Exchange

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2004 In Review: Merging And Converging is republished from