Casino company CFOs: Money hard to come by, by Howard Stutz - Las Vegas Review-Journal - 20th November 2008

A panel of casino company chief financial officers, reflecting a cross section of the gaming industry, on Wednesday painted a bleak picture for businesses looking to raise money over the next few years.

The sinking national and global economies aren't going to cooperate, panel members said.

The panel, which included representatives from MGM Mirage, regional casino operator Penn National Gaming, Macau casino operator Melco PBL and the Mohegan Sun Indian casino, all said money for expansions and other projects is tough to secure.

"It's not a gaming or hospitality industry issue alone," MGM Mirage Chief Financial Officer Dan D'Arrigo told an audience at the Global Gaming Expo during a discussion on the state of the economy. "This is a wider issue that cuts across many other industries as well."

D'Arrigo said he didn't believe any new resort development on the Strip, beyond projects under construction and expected to open next year, will be started for another five to seven years.

"That's my own opinion." D'Arrigo said. "The cycle we're currently in, we'll eventually get out of. The incumbent companies that have properties today will be much stronger."

MGM Mirage operates 10 Strip resorts and is building the $9.1 billion CityCenter development that is opening next year. However, the company recently halted development of a resort in Atlantic City and a joint venture on the north end of the Strip with Krezner Holdings International.

D'Arrigo said CityCenter completed $1.8 billion of financing for CityCenter, but it's one of the few financing arrangements taking place now.

"Lenders are picking their spots," D'Arrigo said. "Each case comes with its own challenges that are unique and different."

Mohegan Sun Chief Operating Officer Jeffrey Hartmann said the tribe postponed a new hotel tower for a year or two because of the tight credit markets.

"From a tribal perspective, we've had good relationships with the banks," Hartmann said. "The markets are just not there."

Melco PBL CFO Simon Dewhurst said his company financed the $3 billion City of Dreams project on the Cotai Strip, which is expected to open next year. The company raised about $1.6 billion through a public offering last year on the Nasdaq National Market before financing opportunities dried up.

The company, which is headquartered in Hong Kong, also operates the Crown Macau resort.

"Nearly two years ago, the dollars were out there for everyone," Dewhurst said. "That's no longer the case."

Dewhurst was also critical of Macau competitor Las Vegas Sands Corp., which has said it will seek financing to complete its now-halted Cotai Strip resorts, which encompass 6,400 hotel rooms. He said there was no way Las Vegas Sands will complete that process.

"There's no way those sites are completed," Dewhurst said. "There are 15 people in the world who do project financing, and in this climate, it's impossible to get done."

The only panelist not worried about liquidity issues was Penn National CFO Bill Clifford.

The company has about $1.48 billion in cash from an aborted buyout attempt. However, Penn National pulled out of the bidding for a casino site in Kansas after it was rejected for another site. That project was awarded to Harrah's Entertainment, which dropped its plans this week because of financing issues.

Clifford said jurisdictions need to do their homework on a casino company's finances.

"They need to do a better job in the application process," Clifford said.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

(Credit: Las Vegas Review-Journal)

Greg Tingle comment...

It appears that it's going to take some collaboration between numerous parties and industry sectors to see the casino industry get back on its feet. Pooling resources and collaborating in a way that presents a holistic approach may get the job done. There's many considerations from people and money in the door, government and tourism body assistance, airline and travel packages, insurances and keeping a tab on fraud. For banks and financial lenders to get their money back the way to go is to keep the industry alive rather than to let it die. If tourism goes and the casinos go under, the government misses out on their cut from the sector and it would be a poor reflection on that country or cities tourism and overall financial management. The flow on effects, both negative and positive are evident and at play. The news media has a responsibility to report accurately and thus far the coverage largely appears fair and balanced. Investors and banks also follow what media reports. Casinos are a huge part of the tourism and financial economy, and tourism is of course one of the world's biggest industries, spanning airlines, insurance, government tourism boards and so it goes on. The challenges presented need careful consideration of many parties and may require a few billionaires, governments and industry experts to sort out. If the government needs to step in, let it be. Another way this may go is "let only the strong survive in the law of the jungle". Just how big the body count is going to be from the sector shake up is yet to be all told. Some corporates have the financial resources to ride out the storm, whilst others don't. Time will tell, it always does. Ho, Branson, Packer, Wynn, Trump...dice.

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