Big news from the LVRJ this morning. Treasure Island is about to be sold:
Former New Frontier owner Phil Ruffin is buying the Treasure Island from MGM Mirage for $775 million, sources confirmed Sunday night. The deal is expected to be announced today.
Ruffin, a Wichita, Kan., businessman, sold the New Frontier in May 2007 for more than $1.24 billion to Elad Group. The aging casino was closed in July 2007 and demolished in November 2007.
MGM Mirage officials would not comment on the deal and Ruffin could not be reached. The transaction is a surprise, coming in the middle of the current global credit crisis that has dried up lending markets to the gaming industry. Also, other development projects have stalled, most notably Boyd Gaming Corp.'s $4.8 billion Echelon, which was shut down in August and may be postponed until 2010.
Ruffin owns the seven acres of land that houses the $1.2 billion Trump International Hotel & Tower. He is considered a part owner in the 1,282-unit hotel and condominium tower with New York billionaire Donald Trump. He appeared at the property's opening ceremony in April.
MGM Mirage acquired Treasure Island as part of the company's $6.4 billion purchase of Mirage Resorts in 2000. The pirate-themed casino was opened in 1993 by Steve Wynn at a cost of $450 million as a sister resort to The Mirage.
Treasure Island has 2,885 rooms, including 220 suites, and a 90,000-square-foot casino.
Get ready for a deluge of stories about de-consolidation on the Strip. That’ll probably be the trend for a few years, until the surviving players begin to expand again, for the time being at least.
I don’t quite get how the Trump International condo, which is less than half the size and has none of the amenities or a casino is valued at $400 million than the TI, but real estate is a crazy game, I guess.
You’ve got to wonder what else could be in play here? I would have tagged New York-New York as a far less important asset than Treasure Island, which is linked to the Mirage, the company’s putative co-flagship. What if they sold Mirage next and reverted to “MGM” or “MGM Resorts?” It’s not unthinkable.
If deconsolidation is the new trend, I have a million-dollar question that I don’t know the answer to: is it a matter of companies selling off assets because they are desperate for cash, or is there something structurally wrong with owning so many casinos? Are the cost savings negligible, and are there hidden diseconomies of scale? Like I said, I don’t know the answer, but it’s an important question to ask if you run a casino company, since this should determine your strategy over the next few years.