CasinoCityTimes.com

Gurus
News
Newsletter
Author Home Author Archives Search Articles Subscribe
Stay informed with the
NEW Casino City Times newsletter!
Newsletter Signup
Stay informed with the
NEW Casino City Times newsletter!
Related Links
Recent Articles
Rod Smith
 

The Future of Gambling: Newer, Fuller and Still Sharp

6 June 2005

(This is part one of two stories.)

Flux in the gaming industry is generating a wave of new investment and new competitors, even if the two megamergers now coming together leave the casino business less competitive, executives and analysts argue.

The casino industry would be less competitive once Mandalay Resort Group has been melded into MGM Mirage and Caesars Entertainment has been melded into Harrah's Entertainment, if that were the end of the story, academics and some analysts insist.

However, gaming is a dynamic and changing industry that is being reinvigorated by new investors and operators that are attracted by the mergers and the market.

MGM Mirage Chairman Terry Lanni said with all the slated developments, Las Vegas is more dynamic than ever, and that will change gaming-industry competition forever.

"There has never been a time in this industry's history that money has been as available or as many projects have been planned," he said.

For example, Las Vegas Sands Corp. and Wynn Resorts Ltd. have grown into tier one competitors and have major expansion projects planned.

Boyd Gaming Corp. and Station Casinos have surged in size to make the second tier more competitive.

Niche players have also announced expansions, including Peter Morton, owner of the Hard Rock Hotel, and George Maloof, owner of the Palms.

New players have entered the market, including Barrick Gaming Corp., which owns a string of downtown properties; Colony Capital, which bought the Las Vegas Hilton; Columbia Sussex Corp., which bought the Westin Casuarina; Landry's Restaurants, which is buying the Golden Nugget; MTR Gaming Group, which bought Binion's; and Robert Earl, whose Planet Hollywood bought the Aladdin.

Major operators including Donald Trump and Wall Street institutional investors such as Apollo also have been investigating the market.

Keith Schwer, director of the University of Nevada, Las Vegas' Center for Business and Economic Research, said these new entrants and their new ideas are important, particularly for a "destination resort" economy.

"To reinvent ourselves, we need to try new things to find out what works and what does not work," he said.

Niche players are likely to be more innovative than Wall Street, which is more risk-averse, Schwer said. Wall Street is likelier to provide financing only after an idea has been proved, Schwer added.

"They also tend to fall behind the times," he said. "They become disco mavens in a hip-hop world."

New and innovative firms also do not have to be as price-competitive when they face entrenched, noncompetitive firms, Schwer said.

"New and niche firms may use nonprice competitive practices, such as new entertainers and new music, without price competition. The success of the niche properties in Las Vegas has not been so much price competition as competition in product style," he said. "Nonprice competition gets the product that customers want, and a good price brings them back. In the end, you need competition to sustain good value for customers in a world market."

The big questions for Las Vegas are whether or not this market dynamism will mean more supply, price cutting and falling profits, as most economic models suggest.

Deutsche Bank analyst Andrew Zarnett said surging demand will let Las Vegas escape pressures to cut prices.

Room inventory last year increased only 0.8 percent while demand shot up 5.2 percent, he said. Since aging baby boomers have more time and money to spend in Las Vegas, their favorite vacation destination, hotel-casino operators aren't even keeping up with demand, Zarnett said.

And with innovative developments planned along the lines of Wynn Las Vegas, increasing supply will generate its own demand, he said.

"Prices will only start falling if pent-up demand fades, but I don't see it (fading) in the next three years, and beyond that is hard to chart," Zarnett said.

At MGM Mirage, Lanni said it's unlikely there will be any price-cutting or wholesaling of rooms as there was after the Sept. 11, 2001, terrorist attacks.

"As long as you have a growing visitor base, you have the ability to withstand competitors," he said. "The problem only comes up if you have a downturn. The great thing about Las Vegas is it's never been boom and bust. It's been boom and lower boom. We're not recession-proof, but we're recession-resistant," he said.

While Las Vegas will defy logic by avoiding price wars, it will follow economic models and keep increasing supply, industry insiders said.

Lanni said competition to capture growing market share will spur supply, but that supply by itself is not the issue.

"The question is innovation. Just (building) rooms causes cannibalism -- more people going after the same dollars," Lanni said. "But when a Steve Wynn opens, it gets more people coming and that's what (MGM Mirage is also) doing with (Project) CityCenter."

Brian Gordon, a principal in Applied Analysis, a Las Vegas-based financial consulting company, named another dimension to the changing market: increased competition for Wall Street attention.

"In addition to meeting the challenge of providing innovative products and quality service, they have to produce strong and stable financial results to meet investor expectations," Gordon said. "This aspect of the business ultimately drives the creativity and innovation by resort operators, and we expect these demands to continue to drive the market forward."

Coming Monday: Questions remain about effect of merger.