Last year at around this time, “deconsolidation” was the buzzword along the Strip. MGM Mirage had just announced its sale of Treasure Island to Phil Ruffin, formerly of the New Frontier. Investment bankers and industry analysts announced that, just as the previous 10 years had seen Strip casinos swept into progressively larger corporate empires, the next era would see them splinter into smaller fiefdoms fortified by hedge-fund and private equity investment.
A year later, it’s now clear that the pundits couldn’t have been more wrong. Rumors of an MGM Mirage fire sale proved immature. Harrah’s Entertainment has actually added a casino to its portfolio, having taken over the management of Planet Hollywood after acquiring a substantial stake via debt purchases.
Today, it’s the “only children” of the Strip—those owned by parent companies with no other properties in the market—that people are wondering about. There are fears that independent casinos might go the way of mom-and-pop hardware stores after a Home Depot opens down the street.
“Operators with a portfolio of casinos have several advantages,” says Matthew Jacob, equity analyst with Majestic Research. “They can position their casinos to go after different market segments, offer different price points in nongaming amenities across their properties and cross-market these amenities to a wide clientele. Very often gamers like to visit multiple casinos, and being able to offer more can allow an operator to capture a larger share of visitor spending.”
On the operational side, corporate parents can spread their back-office expenses across several properties by consolidating many administrative functions, and can gain more leverage when making purchases and negotiating contracts with vendors. Using national loyalty programs—like Harrah’s Total Rewards—to track play and hone marketing gives these giants an additional advantage.
When it comes to luring business travelers—the midweek bread and butter of the industry—bigger companies are able to offer a flexibility that single casinos can’t. Jacob offers the example of meeting planners being able to book a convention at Mandalay Bay and block off rooms at the Four Seasons, Mandalay Bay, Luxor and Excalibur to accommodate everyone from corporate CEOs to budget-conscious exhibitors.
Expressed like this, the logic of consolidation seems irrefutable. Resistance, some might conclude, is futile, and the few remaining holdouts should simply lower their shields and prepare to be assimilated.
But the independent casinos of the Strip aren’t ready to give up the fight. Ruffin—who bought the New Frontier for $167 million in 1997 and sold it for about $1.2 billion in 2007—knows a thing or two about investing wisely, and he bought Treasure Island because, even without a corporate parent, it is a moneymaking proposition.
“We’ve got some distinctive competitive advantages here,” says Michelle Knoll, senior vice president of advertising. “For one, we’re not burdened with debt. We can make decisions much quicker and can respond to customers and market forces faster. Instead of reporting to a board of directors somewhere else, we report to a gentleman who lives in town and is on property every day.”
This fleet-footed approach is obvious in the rebirth of Francesco’s Italian restaurant as Pizzeria Francesco’s and the impending opening of Gilley’s Saloon, Dance Hall and BBQ. The TI team had to buy out a lease, build a new Francesco’s, demolish the old one, and build a new restaurant worthy of its mechanical bull.
“In most companies this process might drag on for years,” Knoll says. “But we started in late November. Francesco’s is already open, and Gilley’s is opening in mid-April. It’s going to take five months, from start to finish.”
In an industry where volume often translates into dominating market share, this kind of operational spryness can make up for a lack of size. If they can get the money to remain competitive, independent casinos able to take advantage of their agility will find that they are anything but doomed.