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GAMING SHARES CRISIS
Construction flourished throughout the decade, and but a longer freeze of two to three years will threaten
non-gaming amenities soon received almost as much the industry’s survival.
attention as the gaming floors.
Boyd says, “As gaming reached the Midwest and New century, new issues
South, accessing capital would allow us to be a part of
that growth. Boyd went public in 1993, just months In addition to financial challenges, the new
after my father passed away, easing our access to century brought unexpected operational realities,
greater amounts of capital. Many competitors also starting with September 11, 2001. For example, the
went public, using the additional money for Las Vegas public never patronized the new Aladdin as travel
and nationwide expansion. Going public also provided slowed for some time after the attacks. This decline
many of our original stockholders more liquidity. and exorbitant gas prices in 2007 into 2008 changed
Many were older, and had used their life savings or the dynamics of operating. Its location has always
borrowed money for their initial investment.” made Las Vegas a “prisoner” of the gas tank.
Nevada’s new law crafted a model for all future Eadington claims the recovery and evolving 2004-
jurisdictions to open with some public company 2005 gaming model focused on all-purpose
ownership. New Jersey legalized Atlantic City gaming destinations. It anticipated a multifaceted tourist
in 1976. Resorts International, its first casino, opened economy that included time shares and
in May 1978. condominiums. Planned public company projects like
Dan Heneghan, public information officer of the MGM Mirage’s CityCenter, Boyd Gaming’s Echelon
New Jersey Casino Control Commission, states: and Las Vegas Sands (LVS) St. Regis residences were
“Unlike Nevada, we never had any ownership laws. prime Las Vegas Strip multiple structure complexes.
Publicly traded companies owned virtually all of our However, these projects confronted huge obstacles
earliest casinos.”
“Unlike Nevada, we never
Back to private ownership
had any ownership laws.
Casino ownership has evolved over time. Publicly traded companies
Companies whose equity was not traded on a stock
exchange effectively ended up owning several
owned virtually all of our
properties. Right now, the only casino companies earliest casinos.”
listed on the stock exchange, with investments in
Atlantic City, are Trump and Borgata, which is a Boyd when the US housing market collapsed. “As
Gaming and MGM Mirage joint venture. condominium sales dipped, the much needed
Private equity firms have acquired others. These financing dried up, halting projects,” Eadington says.
groups buy a public company and run it long enough CityCenter recently got new life when MGM
to maximize their return. They may then sell it Mirage and partner Dubai World arranged a
multiple ways, via an Initial Public Offering (IPO), or financing deal with banks to complete the giant
to another public company, private equity firm or complex. However, Echelon is on hold indefinitely.
private company. Las Vegas operators like Sheldon Adelson are
Several years ago, Corporate America came under feeling similar pain. As chairman and chief executive
federal scrutiny because of massive corruption and officer of the Las Vegas Sands Corp. (LVS), operator of
fraudulent bookkeeping scandals. These collapses lost The Venetian, Palazzo and Sands Expo and
billions for shareholders. In response, Congress Convention Center, he has watched his personal
passed the Sarbannes-Oxley Act (SOX) of 2002. It multi-billion dollar fortune shrink this past year.
broadened standards for American public company While gaming accounts for just 35 to 38 percent of
boards, management and public accounting firms by Las Vegas Sands' income, visitor decreases have hurt
criminalizing specific accounting practices and its overall midweek convention traffic.
holding executives responsible. The LVS stock fell from a 2007 high of $109.45 a
However, SOX excludes privately held companies, share to under a low of $1.38 in early March 2009.
motivating public companies to avoid the massive (Ed. Note: As of mid-May press time, it averaged $9 per
paperwork. This new regulatory environment lured share) Multiple commitments and international
companies like Harrah's Entertainment Inc. to close projects compelled Adelson to invest another $1
its sale to Apollo Global Management LLC and TPG billion into the company in 2008, providing LVS
Capital LP in 2008. The $17.3 billion purchase was enough collateral for a $5 billion credit line.
financed with only $6.1 billion in equity. However On the positive side, LVS opened its highly
current conditions have made the balance a crushing anticipated $743-million Sands Casino Resort in
debt. Station Casinos in Las Vegas was another sale, Bethlehem, Pennsylvania on May 22. Though the
acquired by Fertitta Colony Partners. original $1 billion hotel/restaurant/retail mall was
Whether a public or private company, everyone scaled back, the 3,000-machine casino has
seeks a speedy burst of cash flow. Eadington predicts rejuvenated the deteriorating former steel town.
that without bank loans, casino operations will Situated along an interstate highway, the Sands is
become more leveraged. Many can endure short term, convenient to New Jersey and New York.
24 JUNE 2009
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