In the midst of all the talk about Vdara, I thought I’d mention my latest article in the LVBP:
While doing some research, I recently happened across an article in the July 1997 issue of Casino Executive magazine in which then-Harrah's Entertainment CEO Phil Satre sounds downright oracular.
“If you're the last person to build that last $1 billion project in Las Vegas,” he told the magazine, “you might be wishing you hadn't spent your money that way.”
Today, it seems obvious that he spoke correctly. Many people still come to Las Vegas, but their numbers don't seem as boundless. Those who bet on a constantly expanding market for what Las Vegas offers look to be guilty of irrational exuberance at best, while most of the rest of us are wondering why so few people were betting against that kind of growth.
It’s an elaboration of an idea I started in a post here two weeks ago. Interesting timing in regards to two events this week: the opening of City Center and Harrah’s looking to buy Planet Hollywood.
As for my thoughts on the latter, I don’t think that when you look at Harrah’s Entertainment you can say that one of the company’s problems is not having enough hotel rooms on the Strip. On that level, this move just doesn’t make a lot of sense to me. Do having another 2,500 rooms to fill justify taking on additional debt to buy a traditionally troubled property? Since Planet Hollywood is clearly not a “turnkey opportunity” with a guaranteed cash flow, I don’t understand why the company would use this money to buy another Strip property as opposed to expanding a regional operation somewhere else and diversifying their cash flow.
Also, this is a very 1990s type of expansion, in that the company is spending a great deal of money to buy an asset that may produce revenue. Contrast this deal with MGM Mirage’s latest moves, signing development agreements and management contracts overseas that don’t require it to buy any assets but will allow for cash flow. Like I said in my review of Managed by the Markets, this is what companies in other sectors are doing and, within the constraints of today’s markets, seems to be a better strategy for delivering value to shareholders (or bondholders).
And it’s amazing that twelve years ago Harrah’s CEO was so hesitant to buy or build a second property on the Strip, while now the company is charging ahead to buy its tenth casino there. It’s a totally different company.