Casinos may have to profit or perish

Wall Street is suggesting the unthinkable. Strip casino operators might actually close under-performing resorts because it makes sense in the current economic environment.

JPMorgan gaming analyst Joe Greff posed the concept to Wynn Resorts Ltd. Chief Executive Officer Steve Wynn during a conference call when the company was explaining cost cuts of $75 million to $100 million. Greff wondered whether the competition might reduce capacity.

Wynn pondered the notion, but wouldn’t speculate.

Macquarie Research gaming analyst Joel Simkins thoroughly addressed the idea in a Feb. 20 investors report. He said the casino industry could downsize operations in the way other consumer-service businesses have.

"The sector stands on the precipice of a shake-out and capacity rationalization," Simkins said. "It is reasonable to assume that 5 to 10 percent of the excess supply in the industry could be shuttered in one to three years."

Simkins focused speculation on older resorts hurt by recent development and new competition.

Last week, rumblings surfaced that Harrah’s Entertainment might consider closing the Imperial Palace. The aging casino was purchased in 2005 for $370 million as a potential tear-down. That was before the down economy scrapped the company’s east Strip redevelopment plans.

The transfer of the "Legends in Concert" show to Harrah’s after 26 years at the Imperial Palace took away the casino’s biggest draw and fueled conjecture.

Harrah’s spokeswoman Jacqueline Peterson quashed the rumors, however, saying the Imperial Palace "is doing very, very well."

Simkins didn’t name resorts; he just proposed the idea. Older casinos can’t compete, he said, no matter how much money is invested in new games and equipment.

"The closure of casinos would be a negative short-term headline," Simkins said. "This cleansing of the system will ultimately benefit the remaining, stronger operators when the turnaround comes."

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You might remember my brother Craig’s business partner whom I dubbed "Uncle Steve." He’s the $10,000 line of credit casino customer I profiled in January who is avoiding Las Vegas because the souring economy has shrunk his gambling budget.

The downturn has cost Las Vegas the business of thousands of Uncle Steves.

A family issue brought my Uncle Steve back to Las Vegas this week. But it wasn’t the usual trip. Instead of his typical free room at the MGM Grand, Uncle Steve spent three nights at the Suncoast. Using a half-off special from Travelocity.com, the room cost only $32 a night. Gambling was not budgeted.

The times have changed.

Howard Stutz’s Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.