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Las Vegas Gaming Industry Sees Profitability Making a Comeback

By Steve Green, Las Vegas SunMcClatchy-Tribune Regional News

April 08, 2012--A word seldom associated with Las Vegas casinos in recent years -- profits -- may be making a comeback.

Fourth quarter 2011 financial results are in, and, for the most part, they show broad improvements as tourists return to Las Vegas. Even the locals' casino market, hit hard by high unemployment and foreclosures, appears to be stabilizing.

Locals' gaming giant Station Casinos LLC, now free from the shackles of bankruptcy, posted year-end numbers that are a good example of the improvements that appear to be continuing this year. Its net revenue in 2011 rose 5.7 percent to $1.18 billion -- quite a turnaround from the 10.5 percent decline in revenue in 2010.

Experts say the improving numbers will eventually be reflected in overall local economic improvements.

"Gaming remains the primary engine that runs our local economy. When the gaming industry begins to show improvement, it can provide confidence to the business community at large. A healthy Las Vegas gaming industry can spark job creation in many sectors of our economy," commercial real estate broker and hotel expert Mike Mixer said.

Station and most casino operators continued to lose money in the fourth quarter. But overall, they lost less, and a couple -- Aliante Station and Affinity Gaming -- even turned a profit after shedding most of their debt in the bankruptcy process.

These quarterly results confirm a trend that was quantified in January, when the state Gaming Control Board released its industry statistical report for the fiscal year ending on June 30, 2011.

That report found 41 casinos on the Strip posted a hefty loss of $2.2 billion, the third consecutive annual loss of the recession.

But the loss was down from $2.5 billion lost in fiscal year 2010 -- and revenue increased 9.3 percent in fiscal year 2011.

Whether the local economic recovery will stick and, if so, what that means for casino industry profits and the community is becoming a hot topic as optimism grows about the economy.

Typical of the data driving this conversation is a March 19 report by analysts at Moody's Investors Service. In the report, titled "Las Vegas Strip Gaming Recovery Brightens," Moody's noted visitor volume is growing and that, with no new megaresorts opening anytime soon, existing hotel-casino operators have more pricing power.

The report included the usual warnings about the possibility that higher gas prices may deter visitation to Las Vegas.

Still, such reports bring national, positive attention to Las Vegas -- a welcome departure from the usual references to Las Vegas as foreclosure-central of the United States.

That positive attention, analysts say, brings heightened prospects that investors will again want to invest in Las Vegas.

Mixer, who heads the national Resort & Gaming and Hotel Services Group at real estate brokerage Colliers International, agreed the local recovery is for real and part of a "major recovery" in the lodging industry worldwide.

"In Las Vegas this year, we are forecast to break the all-time visitor volume record of 39-plus million visitors" set in 2007, Mixer said.

As consumer confidence continues to improve, those visitors are likely to spend more on average, he added.

"I expect to see a sustainable trend that can be a catalyst for growth in our local economy," he said.

So, if Moody's and Mixer are right about tourism continuing to pick up in Las Vegas, and more casinos actually start making money, what does that mean for the city?

Mixer said that during the recession many gaming companies postponed capital improvements and property renovations. That trend may be coming to an end, which would please Wall Street analysts who have complained about the condition of some Las Vegas properties.

And that, of course, is music to the ears of the beleaguered local construction industry that will be called upon to upgrade local casinos.

John Restrepo, a local economic analyst at RCG Economics LLC, said the return to profitability of gaming companies and casinos is key.

"Profits are important because they drive investment in capital and labor, debt repayment and shareholder returns. Without profits, none of these things are possible and the company will not grow," he said.

Restrepo said there are also psychological benefits to the gaming industry returning to profitability.

"Hotel/gaming investors will respond positively as improved profits are reported. This will attract additional investment and investors, which will drive hotel and gaming industry revenue. This, in turn, allows the industry to ramp up investment in capital and labor," he said.

Restrepo cautioned that how vigorous the turnaround will be and its timing remain up in the air.

"The question isn't so much that the recovery is moving forward, but what is the strength of recovery?" he said, pointing to potential trouble spots -- "the housing market turmoil, wages that are not growing after adjusting for inflation, rising gas and food prices, limited credit availability to micro and small businesses, and state and local government budget issues."

Nevertheless, barring some national economic catastrophe that would cause people to cancel trips to Las Vegas, more and more gaming companies and casinos appear to be headed toward profitability.


(c)2012 the Las Vegas Sun (Las Vegas, Nev.)

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