02/23/19 THE HONEYMOON IS OVER IN VEGAS AND ATLANTIC CITY

Return to main story

THE HONEYMOON IS OVER IN VEGAS AND ATLANTIC CITY

After a decade of relentless building, Las Vegas is increasingly a place where tourists flock to casinos shaped like pyramids and stroll past volcanoes and pirate ships to lose their money. But now, it is the casinos themselves that are facing tougher odds.
In Vegas and Atlantic City, growth has slowed just as the stakes have risen. Companies are spending millions to put up bigger and flashier casinos. For some of the biggest names--Hilton, Mirage, Circus Circus, and Harrah's among them--the squeeze is already on. Each has recently reported disappointing earnings. Perhaps the most telling sign: Donald Trump wants out. He is hoping that in spite of Atlantic City's 4.2% growth over the past two years combined, someone will buy Trump Hotels & Casino Resorts Inc. for more than $1 billion--twice its stock market valuation.
The casino business has become a zero-sum game. For every new operation that springs up, another is hurt. In Atlantic City, revenue at Bally's Park Place jumped 15.6% in 1997 with the addition of a Wild, Wild West casino. But that sent revenues tumbling at Caesars, Resorts, and the Sands, according to the New Jersey Casino Commission. In Vegas, cash flow was crimped at Treasure Island, Excalibur, and the MGM Grand after New York, New York opened. ''This city has just become too competitive, and it's not much fun,'' says Glenn Schaeffer, president of Circus Circus Enterprises.
Still, many Vegas operators appear to believe that if you gild it, they will come. Altogether, 19,000 new rooms are expected to go up in the next two years, raising capacity by 18%. Hilton, Circus Circus, and Mirage all plan new casinos, including Mirage's highly anticipated $1.6 billion Bellagio.
But the flood of new rooms probably will cut occupancy, which was off by four percentage points through November, to 87.4%. Room rates, which have risen to offset sluggish gambling growth, are likely to fall, too. Previously, excitement over flashy new casinos lured enough business to cover huge expenses. But Salomon Smith Barney analyst W. Bruce Turner says the rush of new capacity could cut operating cash flow by 5% to 10% a year through 2000. Harrah's blamed a 35% drop in its Vegas earnings, mostly from construction delays, for lower fourth-quarter earnings per share. Analysts also expect increased competition to result in flat earnings at Mirage and Circus Circus.
Such dire forecasts have companies looking for ways to share the load with other investors. But for now, it looks like the biggest gamblers in Vegas may be the casinos themselves.
By Ronald Grover in Los Angeles

Return to main story