John Barrette - Sunbelt Digital Media
When high rollers overextend themselves, the house usually wins. At least that was the case.
These days too much credit has put the country's economy in crisis and started to cut into Nevada casino profits. Thursday the signs were obvious, when the state's biggest resorts showed income reports that gave CEO's an early Halloween fright.
"This is scary," says William Eadington, UNR economics professor and director at the school's Institute for the Study of Gambling and Commercial Gaming. "For the gaming business, this is something they've never encountered before."
Some signs of the times: MGM Mirage reporting an income drop in the latest quarter to $61.3 million from almost $184 million the same quarter of 2007; Boyd Gaming Corp. profits falling 73 percent in the latest quarter; industry supplier International Game Technology (IGT) quarterly net income at $52.1 million, down from $122.6 million a year ago.
Layoffs are adding to the fears and frustration around Nevada, the latest Thursday with 25 employees stripped from the Eldorado in Reno, and an article published the same day that details the financial straits of the Las Vegas Sands' empire.
A credit crunch of epic proportions, a drop in gaming customers and stock prices, and over-leveraged casino-resort company balance sheets - in other words, too much debt - is bedeviling many of the major players, according to Eadington.
"It's scary because the major gaming companies - they all have the same story," he said. "It's a very unusual period."
Yet Eadington wouldn't be an academician or economist worth his salt if he couldn't see hope for an eventual turnaround, and he's confident gambling won't go anywhere but into hibernation awhile. "The buildings will still be there," he says, while adding that industry consolidation, or perhaps outside ownership, isn't outside the realm of possibility. "Maybe a year from now it's just a Halloween scare." If so, he says, investors can soak up shares at rock-bottom prices.
Bankruptcy, however, would bring such bottom-feeders a financial bellyache. "Rumors of bankruptcy have been floated but they all have been loudly denounced."
Eadington's remarks came the day after MGM Mirage reported it has obtained funding commitments for its CityCenter project in Las Vegas, the Federal Reserve pared a key interest rate to 1 percent and the MGM stock price bounced higher.
MGM stock added $3.69 by close Wednesday and tacked on more Thursday, closing at $15.37. But the year's range is startling: a high of $94.10 but a low of $8.91 in the past 12 months.
Eadington also referred to a news article on Las Vegas Sands CEO Sheldon Adelson, who was said to need $2 billion for two projects in Macau, which would come from $5.2 billion Adelson has said he wants to raise even as the credit crunch keeps banks shy about lending.
Las Vegas Sands stock in the past 12 months registered a high of $135.35, a low of $4.32. It closed up strongly Thursday, gaining $1.47 to reach $10.38.
Wynn Resorts Ltd., another Nevada player, may be better positioned than others based in Nevada. The firm's debt coverage position is better than the others and the stock price is higher, yet it also has see-sawed with the volatility of the economy.
Wynn's stock price closed Thursday at $46.50, up $5.50 for the day; the range for the year; however, is a high of $162.75 and a low of $28.06.
