Las Vegas casinos no longer a license to print money

Last Updated: Aug 4, 2011 9:50 AM ET

When the Hooters Hotel-Casino opened for business on Feb. 2, 2006 (the same day the Steelers defeated the Seahawks in the Super Bowl), it seemed a lot like bringing coal to Newcastle.

It’s a given that any casino in Las Vegas would have an endless supply of customer-friendly 20-something women with well-positioned portfolios. Now, what else have you got?

Turns out Hooters didn’t have much else, and few analysts were surprised earlier this week when the still-young-but-somehow-already-tired property filed for bankruptcy, citing a debt somewhere north of $100 million.

If you’re a little bit puzzled how any casino can find itself a few steps away from liquidation, you shouldn’t be. There is ample evidence coast to coast, and beyond U.S. borders, that gambling establishments are not quite the licenses to print money that we all thought they were. The old line about "the only way to get rich in a casino is to own one" just doesn’t have the punch that it once had.

With demand down due to the economy and competition up due to an explosion of casinos nationwide, it’s only natural that weaker members of the herd would be thinned out.

Hooters had only to look around to figure out how difficult the road ahead would be. A mile away, on The Strip, the once-mighty Aladdin Hotel-Casino filed under Chapter 11 in 2001, after years of bleeding money. The September 11 attacks were blamed, but the venerable property was already in trouble by the time the planes hit the Twin Towers and tourism slumped. The Aladdin hung on for a while, was rebranded as Planet Hollywood in 2007, and in 2010 was sold outright to Caesars.

Herbst Gaming, which owned several smaller off-Strip properties, including the iconic Terrible’s plus several other casinos in Primm and Reno, hit the economic wall in March 2009. A few months ago the company, now called Affinity Gaming, got out from under, somewhat leaner.

The kingpin of casino bankruptcies, of course, is none other than failed Republican presidential candidate Donald Trump, who has turned Chapter 11 into an art form.

“I’ve used the laws of this country to pare debt,” Trump said once. “We’ll have the company (in trouble and) throw it into Chapter 11. We’ll negotiate with the banks. We’ll make a fantastic deal. You know, it’s like on The Apprentice. It’s not personal. It’s just business.”

Trump has the hots for Chapter 11 so much so that his casinos have gone that route four times. Each time banks have capitulated and reduced Trump’s debt, realizing that while The Donald may have had little idea how to effectively run a casino, bankers had none. And if bondholders who financed construction were left a little light in the wallet, well, that wasn’t Trump’s concern. It’s just business.

Trump hasn’t been alone in sending armies of lawyers into court to restructure debt obligations. The list is endless: Stations in Vegas, Riviera in Vegas, Twin River in Rhode Island, the old Tropicana just a short walk from Hooters, the Siena Casino in Reno...Trump’s Atlantic City bankruptcies had plenty of company.
Donald Trump has become a master at Chapter 11.
“Good management can keep a casino out of bankruptcy court,” attorney Ephrem Rosenfeld of the Las Vegas-based law firm Rosenfeld, Bauman and Forbes (lawrosen.com) told Covers.com. “But one bad decision can bring you right to the brink. A year and a half ago you wouldn’t think MGM would have problems, but then they decide to build City Center, and that changes things.”

Casinos today, says Rosenfeld, have a much smaller margin for error than existed even a few years ago. “For example,” says Rosenfeld, “room rates, which have dropped over the last few years. With less income from hotels, you can’t afford to make mistakes anywhere else.”

Rosenfeld doesn’t diminish the effect of the sour economy on casinos’ bottom lines.

“Look at the M resort,” he says of the property located several miles west of Mandalay Bay. “Gorgeous place, and they were figuring that the area around it would be built up. But the housing market faded, and the M struggled as it was basically isolated before being sold.”

As for Hooters, the site was star-crossed almost from the time owners pitched in decent money in renovating the old San Remo, located a block south of the MGM/Tropicana/Excalibur/New York-New York South Strip intersection.

There was next to no foot traffic. The narrow customer base (horny guys between the ages of 21 and 45) had plenty of other, more-exciting, options. The ribbon-cutting came just as the economy was about to tank, which meant management had little time to rake in money for possible rainy days to come. And the property got absolutely slaughtered on Internet message boards for its slow drink service and alleged shabby treatment of what customers it did have.

Hooters even lost much of its niche as a low-cost alternative when every property in Las Vegas dropped the nightly price of their hotel rooms. Why stay at Hooters for $80 a night when you can crash at the upscale Paris or Mirage for just $20 more?

So Hooters joins a long list of casino-hotel combos that have been forced by economic reality to trudge to court and ask a judge for relief. Whether the property can survive is anyone’s guess.

Management types can look out their windows and see the successfully re-branded Tropicana down the road and ask why not us? They can also jump on the Monorail, head to the North Strip and see weeds growing at the shuttered Sahara and across the street at the stalled Echelon and Fontainbleu projects, and ask the same question.

As for that mythical machine down in the basement where casinos print $100 bills? Look for it soon on Pawn Stars.

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