Thursday, September 18, 2003
Copyright © Las Vegas Review-Journal

Future looks bright to casino officers

Financial execs say Las Vegas is on the upswing

Prospects for Las Vegas casino operators continue to improve, chief financial officers from four major gaming companies said at a Wednesday seminar at the Global Gaming Expo.

With strong room rates, cash flow numbers and stock prices, the number crunchers were on the mark with their bullish comments on prospects for the Strip and the Las Vegas locals market, JP Morgan casino industry analyst Harry Curtis said.

Mandalay Resort Group President and CFO Glenn Schaeffer said it's no aberration that Las Vegas is on the upswing.

"It's a resumption of what's normal," Schaeffer said. "The rule of Las Vegas Strip is that room rates go up 5 percent a year, unless there's a catastrophe. We're back to normal, back on the upward curve where we belong."

MGM Mirage's President and CFO Jim Murren said the company's bread-and-butter high-end business is improving.

MGM Mirage controls about 60 percent of the Strip's big-bet action.

"The business is coming back," Murren said, citing the months following the terror attacks of Sept. 11, 2001, as the segment's low point.

The company's international business has steadily returned to pre-9-11 levels, but domestic high-end play has only recently begun to rebound, he said.

"The high end is alive," he said. "It could be better, and we think it will be in 2004."

Strip operators are benefiting from recent improvements to the city's convention space inventory, Murren said, citing Mandalay Bay's new center and expansions at the Las Vegas Convention Center and at The Venetian.

"Las Vegas is very successful as a city ripping conferences away from other cities," Murren explained.

The CFOs weren't worried about the effect of California tribal casinos on their Strip properties, although less developed markets in Laughlin and near the border between the states could suffer, they said.

Examples of their bravado included Schaeffer, who implicitly referred to the new NBC television drama "Las Vegas," in which he has a small recurring role.

"NBC probably won't put a show on its fall lineup called 'Indian Casino,' " he cracked.

Murren said the California tribes enjoy a competitive advantage in some ways -- he called it "obviously an unfair playing field" -- but he was nonetheless confident about the Strip's ability to compete.

"The intellectual capital of Las Vegas will still beat the snot out of anything in California," Murren said. "It's a phenomenon, what's happening in California. I'm happy for 'em, but I like our chances better."

Murren, Schaeffer and peers from Harrah's Entertainment and Station Casinos all mentioned an industrywide phenomenon they said investors have yet to fully comprehend.

"The emerging story in the next few years will be the cash flow thrown off from this industry," Murren said.

Station's Glenn Christensen said his company was also throwing off a lot of free cash flow, money the locals giant is using to pay dividends, reduce debt leverage ratios and to build Red Rock Station, expected to start construction in mid-2004.

Harrah's CFO Chuck Atwood said his company, the industry's most profitable and likely the biggest after absorbing Horseshoe Gaming Holdings sometime early next year, benefits from strong cash flow and can afford to pay dividends, spend capital to buy properties and maintain its investment-grade credit ratings.