Last year, I wrote that locals gaming was on the rebound (“Locals Casinos Are Back in Business,” July 8). At the time, several indicators suggested it was in the midst of a resurgence after several rough years. Its revival has become even more apparent thanks to recent moves by two locals giants.
Boyd Gaming has gone on a casino-buying spree, snatching up the independent Aliante (which was originally developed by Station Casinos and Greenspun Corp.) for $380 million, and Cannery Casinos, owners of the Eastside Cannery on Boulder Highway and the Cannery at Craig Road and Losee Road, for $230 million.
Not to be outdone, the other big figure in the locals scene, Station Casinos, has gone public again. (It previously went public in 1993.) It’s a complicated arrangement, with a new public company, Red Rock Resorts Inc., acquiring Fertitta Entertainment, which had been managing Station Casinos LLC.
What does all this mean for locals who like playing in these casinos? I can’t tell the future, but I’d like to refer back to my words last summer: “The men and women who operate such casinos,” I wrote, “must remain sensitive to what is bringing guests to them—whether it’s convenience, better prices or more intimate customer service—and continue to invest in it.”
On one hand, the Boyd acquisitions remove two “independent” players from the locals scene, giving players (and employees) that much less choice. On the other, it’s a $610 million vote of confidence in Las Vegas by Boyd; a few years ago, it’s likely that the company would have invested elsewhere, as most operators were seeking to reduce their exposure to the plummeting Las Vegas market. These two acquisitions signal that Boyd believes that locals gaming is primed for another growth period.
The Station/Red Rock initial public offering, which garnered more than $531 million for the company, is likewise a sign that people with the money to invest in an IPO believe that better things for the market are around the corner.
The big question is, what next? Station/Red Rock, which has been privately held since 2008, will be facing stockholder pressure to increase earnings for the first time in nearly a decade. The quest for higher earnings has driven both expansion and consolidation in the gaming industry since casinos were allowed to start trading publicly in 1969. You can surmise that Red Rock will aggressively seek to grow its earnings in order to boost its stock price.
There are three ways for casinos to do this. The first and, at first blush, easiest is to cut expenses. But that would almost certainly backfire in the high-repeat visitation locals market; the past 10 years have shown that customers will vote with their feet if service (including comps and cashback) drops. That is likely a nonstarter. The second avenue is acquisition. The problem with that is that there aren’t many locals casinos left to buy. Palms might be available, and its locals base was once strong. The Rampart in Summerlin and American Casino and Entertainment Properties jump out as other possibilities. The former is only four miles from the flagship Red Rock Resort, and the latter includes Arizona Charlie’s Decatur, Arizona Charlie’s Boulder, the Stratosphere and Laughlin’s Aquarius.
Grabbing ACEP, if it met regulatory approval, would give Red Rock some overlap with existing properties, but it would also give it a foot in the tourist corridor and a presence in Laughlin, whose market is not that dissimilar to Red Rock’s customer base. But, since ACEP has shown no signs of wanting to sell, this may also be a nonstarter.
Which leaves one possibility for Red Rock to grow earnings: building new properties. The company has slowed its pursuit of tribal management contracts and expansion outside of Las Vegas, so this leaves the Valley. The company’s stock prospectus highlighted the six “highly desirable gaming-entitled development sites” the company has in Las Vegas and Reno as putting it in position to capitalize on growth in those markets.
Tellingly, the Red Rock prospectus focused more heavily on “same store growth” than future expansion. But, should those who buy gaming stocks show the same predilection for larger earnings gains that they have in the past and the market responds, that may change.
So while the consolidation led by Boyd has simplified some things, the Red Rock IPO may end up raising more questions, and those answers may lead to another round of locals casino construction.
David G. Schwartz is the director of UNLV’s Center for Gaming Research.
