Thursday, March 11, 2010

The State of Vegas Part 2

Harrah's Gets Planet Hollywood...

In recent months, Harrah's has been buying up the public debt of Planet Hollywood and finally finished the all out purchase of the place for what amounts to essentially $650 million. A pretty impressive move in this lending environment especially since Harrah's own financial position is shaky at best. The purchase gives the company control of the entire east side of the Strip from Harrah's down to Planet Hollywood plus Caesars on the west side. They now own 9 casinos within a half mile of each other!

Here comes the rant... To say I never have been a big fan of the folks at Harrah's Entertainment is a major understatement, going all the way back to when they started their massive expansion in the late 90s. The company's operating model is the epitome of what went wrong with the casino industry over the past decade. It is run by MBAs from back east who probably never even played a hand of blackjack let alone have an understanding of the gambling customer. Their approach to the business is the same as if they were manufacturing widgets. They look to minimize every last penny of cost and maximize every possible profit opportunity yet totally and completely oblivious to the fact that the product they sell is CUSTOMER SERVICE! There is no obvious difference between the slot machines at Casino A or Casino B and 99.9% of Vegas visitors accept the fact that gambling is a losing proposition. All they ask for in return is at least the possibility of winning and being appreciated for the loss. Neither of these concepts does Harrah's understand. Their casinos without exception sport the worst video poker odds and table game rules in town. They proudly introduced the insidious 3/2 BJ to Las Vegas, actually bragging about their "single deck action." One can only assume their slots are programmed to be similarly "generous." To show their appreciation for playing weak games, they have the Total Rewards slot club. Aside from free rooms they toss around easily to entice you to come to one of their 9 bad casinos, it is hands down the worst of any of the major companies. Figuring out how to earn a point requires a PhD and its next to impossible to get a comp for anything beyond that free room and even their casino hosts are virtually powerless to do anything about it. I was actually hoping their debt load would have forced them to shed a property or 2 not have yet another suffer from similar mis-management!

... and Icahn Gets Fontainebleau

On to one of the few nuggets of good news coming from the Vegas casino biz lately... Billionaire Carl Icahn has taken over the broke and partially finished North Strip eye sore, the Fontainebleau. After spending over $2 billion to get the place 70% done, it went BK and construction was halted last year and it has been rotting in the elements ever since. Icahn came in and picked the place up for $156 million, 7 cents on the dollar!

I am a huge fan of this move. Carl Icahn is a genius opportunist and has a history of turning around losing operations. Those familiar with Icahn's Vegas past will recall he pulled off a similar deal to buy the half completed Stratosphere. He dumped some of his own cash into it to finish the hotel and update the casino then sold a few years later for a enormous profit. The same will happen with Fontainbleau. Gone will be all the 5-star amenities that were originally planned for the place and instead it will be completed as a value joint, something that will be needed if its to survive long term in that neighborhood. This news is great for Las Vegas as this disaster of a project finally gets someone who can get the job done and great news for Vegas visitors who will get 3,500 brand new hotel rooms at bargain prices.


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