What a difference a few weeks makes.
When the December numbers came out in early February, Las Vegas gamers seemed uniformly grim. The Strip hadn’t suffered declines and was nowhere near the retreat of an Atlantic City or Lake Tahoe, but this was supposed to be the year that the money started pouring in again. Instead, the Strip’s gaming win edged up just more than 2 percent, and heavy debt loads seemed likely to handicap developments by the Strip’s biggest players for the foreseeable future.
But then green shoots really started to break through the desert scrub. SBE announced that it had finally lined up the funding to turn the shuttered Sahara into the SLS Las Vegas. Last week, MGM Resorts International announced it would build, in partnership with AEG, a 20,000-seat arena and retail district behind New York-New York. And, early this morning (about 3 a.m. Vegas time), Genting, which operates casinos from Singapore to New York City, announced that it was buying Boyd Gaming’s long-stalled Echelon project to build Resorts World, a $2 billion, 3,750-room casino resort there.
All three stories build towards a single conclusion: Vegas is back, however improbable that may be. Chauncey Gardner was right: there will be growth in the spring.
Which wouldn’t be so shocking, but it turns everything we thought we knew about the recovery on its head. The conventional wisdom was that Las Vegas resort construction would be the last to recover. First, the American economy would have to get rolling again. Then, hotel occupancy and room rates would rise to 2006 levels. Only then would we see new construction. A short while ago, Boyd Gaming itself confirmed as much when it admitted that it wouldn’t even think about moving Echelon forward for another five years.
There’s a common thread between all three stories: much of the capital is coming from outside Las Vegas and, in two cases, from outside the country. SLS? Funded partially by EB-5 visas, which basically let applicants get green cards in return for qualifying investments in American projects. Genting? It’s a truly international company, with more than $2.5 billion a year in revenues from its Singapore casino alone. And it’s likely that much of the construction financing
for the arena will come from AEG.
It’s the proverbial generous foreign gamblers coming to town and buying the casino (tip of the hat to Star Trek: The Next Generation‘s “The Royale” there).
That being said, Boyd Gaming wasn’t the company that most observers thought would be selling property on the Strip. Both Caesars and MGM have lots of exposure to the Strip and plenty of things they could do with the money, particularly pay down debt. As it stands, the sale puts Boyd out of the Strip market for now, and its claims that it will use the money to pay down debt itself signal that it may be on the sidelines indefinitely.
So the sun is out and the air is warm; does that mean we should forget the lean years of winter? A few weeks ago I argued that we should preserve the Fontainebleu and Harmon as inoculations against hubris. The warning stands. Yes, we’ve seen a few good rolls in the past three weeks, but that doesn’t mean that we’re never going to see hard times again. The Strip’s been in need of optimism for a while; it’s great to see that return, but let’s keep it from blossoming into complacency.
Because, as intoxicating as the aroma of spring flowers may be, and no matter how encouraging the sun is shining, it pays to remember the words of House Stark: Winter is (eventually) coming.