During this morning’s stint on KNPR-FM‘s State of Nevada, we were only able to cover a fraction of the scheduled questions. So we had the idea of answering here what was not asked there. Let’s take it away …
Why do you think hackers targeted a major casino company over, say, any other multibillion-dollar company?
Because, as Willie Sutton famously said, “That’s where the money is.”
What MGM Rewards member data might the hackers be so interested in?
What aren’t they interested in? Every bit of personal data that they can get their grubby mitts onto. If we were an MGM Rewards member, we’d be changing computer passwords, etc., nonstop today.
Does social media make things worse for MGM? The photos of unlit slot machines, the videos of winding queues for check-in, the tweets about MGM staff not answering phones?
Much worse. A tweet is worth several thousand words nowadays and goes around the world in the blink of an eye, and the photos of customers waiting forlornly by defunct slot machines spoke volumes.
CNBC reported yesterday that the credit rating agency Moody’s had some concerns about what risks this could pose for the company. If MGM’s credit rating took a hit, what could that mean for them?
It would depress the stock price and possibly impair the company’s standing with financial institutions it is counting on to finance its future in Japan and elsewhere.
Do you think any of that will happen?
Probably not.
Do you think they might lose more revenue than any potential ransom?
Judging by the scale of the catastrophe, including long-term reputational damage, yes.
Is there concern another gaming company could be hit next?
Without question. Sphincters all over the industry have to tightening this week.
Bloomberg is reporting that Caesars Entertainment was hit by cyberattackers, but ultimately paid a ransom. The company is not commenting. Why do you think it’s being so quiet about this?
Embarrassment. It was a terrible decision by CEO Tom Reeg to pay ransom to terrorists, which is what these people are. On principle, it’s the worst possible choice, as it will embolden others to strike Caesars again. In terms of dollars and cents, some are arguing that it was the smart thing to do because it spared them a much bigger hit—$15 million or so (Bloomberg says “tens of millions”) than the $40 million damage-recovery tab that faced Las Vegas Sands in 2014. It’s a lose-lose proposition, ultimately. You either pay millions of dollars to terrorists or pay it in terms of remediating the damage from their attack, as MGM Resorts International is doing. It called the bad guys’ bluff and is paying for it. Through the noise. Plus you have different kinds of PR damage. Caesars’ opprobrium will be short-lived, MGM’s eternal. Take your pick. For what it’s worth, Caesars, even after paying ransom, “cannot guarantee this [desired] result” in terms of reclaimed customer data. So much for appeasment.
With MGM and Caesars also having entered the Persian Gulf market, I wonder: Will this be another Macao?
With all due respect to decadent oil sheiks and corrupt petrocrats, no. Nor will there be the critical mass of casinos to make that happen, at least not in the short-term. Besides, this is a politically unstable region, filled with people too poor to gamble—unlike China—with stringent restrictions on who can and cannot patronize casinos. Aside from expatriates and local plutocrats, there’s not a huge, inherent audience for gambling. It may be a second Singapore or South Korea, but not the second coming of Macao. Caesars quietly tiptoed out of Dubai this morning, so the auguries must not be very good at all.
It’s hard not to connect Jim Murren’s appointment with MGM trying to enter the market. Do you see a connection?
He’s well-known in Dubai, thanks to the CityCenter experience but it doesn’t signal any larger coordination with MGM. After all, Murren left the company in less-than-voluntary circumstances, from which he’s been trying to recover ever since.
Nevada and Las Vegas keep defying odds in the gaming revenue department. July was the 29th straight month of billion-dollar-plus revenue for the state, which earned $1.4 billion. The Las Vegas Strip alone took in $835 million. Is this the new normal?
Yes. Hard to believe but true. Gambling has been on overdrive ever since Covid-19 lockdowns were lifted and shows few signs of slowing significantly.
The economy isn’t exactly soaring, so what explains this boon?
That’s an old mainstream-media narrative that simply doesn’t accord with the reality of the U.S. economy at large. Hiring is up, unemployment is way down and discretionary dollars are obviously plentiful, especially for the middle- and upper-class consumer. Low-value players are less in evidence It gets tiresome to try to reconcile best-ever casino revenues with the constant “the sky is falling” mantra coming out of Wall Street boffins.
Is gaming hot elsewhere in the country as well?
Las Vegas is unique within America, so that gives it an edge. Other regions of the country have cooled off somewhat but are still generating healthy numbers, by and large.
With Formula One drawing tens, maybe hundreds of thousands of relatively affluent people in November, could we have a record breaking year?
I don’t buy the “hundreds of thousands” contention but, yes, this will be Las Vegas’ best year ever. More fool me for predicting during the Great Recession that the good old days would never return. They’ve done so with a vengeance.
Will it just be the casinos and the hospitality industry benefitting? Does much of that Formula One money really trickle down to regular Las Vegans?
No … unless you’re in the Culinary Union and can leverage its windfall into higher salaries.
Has Las Vegas’ headfirst dive into sports encouraged casino companies to increase affiliations with sports entertainment in other cities?
Surprisingly not. Caesars has franchised the erstwhile Superdome in New Orleans and Mohegan Sun owns the Connecticut Sun of the WNBA. But outside of Sin City, Big Gaming is reluctant to dip a toe into major-league sports. We won’t see the MGM Braves of Atlanta anytime soon.
In November, the southwest valley finally gets its locals’ casino with Durango Resort, owned by Station Casinos. After offloading the Palms and closing three other locals properties during the pandemic, how important is this property to Station?
Very important. Leaving aside the downsizing of Station’s presence in the valley, Durango Resort‘s importance lies in its $750 million budget. That’s one of the biggest bets made on a locals casino. And one of the best. That part of the valley is drastically underserved for gambling, unless you want to go to a slot route or play video poker at Sierra Gold Tavern. Durango will offer all facets of the Vegas casino except for having the barest minimum of hotel rooms. Even at the steep price tag this is an exceptionally savvy bet by the Fertittas.
Station also plans on opening properties in Inspirada near Henderson and North Las Vegas just east of Aliante. Can the valley sustain having a locals’ casino in every single major neighborhood?
It has and will continue to, I expect. Inspirada has the upscale demographics to be a success, despite an uninspired design. “Losee Station” in North Las Vegas is an interesting case, since Station Casinos has been pining for a casino there for almost 20 years. It all depends on whether the area is sufficiently developed, in terms of home ownership, to support it. That was the critical mistake Station made with Aliante Station, which was like a beached whale on an undeveloped stretch of the Beltway. Now that Boyd Gaming has made a success of Aliante, Station is willing to test that neighborhood again, obviously.
Fontainebleau is finally opening. Yes, it’s actually gonna happen. What was once an eyesore on the northern part of the Strip is now a luxury resort that’s nearly complete. How much excitement has this caused in analysts and the industry as a whole? Is this a really big deal to them?
Since F-blue is privately owned the analysts have been pretty mum. The media seems very excited, though, which in turn may whip up public excitement. The big question is, What is the final cost? It’s very likely that this will be the most expensive casino resort ever built anywhere in the world, more so than Marina Bay Sands or Resorts World Las Vegas. It will be under a great deal of pressure to make its nut.
We’ve been talking for years about the resuscitation of the north end of the Strip. But it just hasn’t happened yet, even with Resorts World opening in 2021. Do you think Fontainebleau changes things?
Probably not, if only because it reinforces the character of that neighborhood as being strictly for high rollers. At the far north end of the Strip you have the extreme-bargain properties like Circus Circus and Sahara. The you have the Resorts World/Wynncore/Venelazzo clump of high-end resorts, soon to be joined by F-blue. Getting the value-oriented (but not cheapskate) Vegas customer to migrate from Flamingo Road or Tropicana Avenue north to F-blue is going to be a marketing challenge, one I don’t envy.
The Koch Brothers are part-owners. Throw in the takeover of Strip properties by VICI Properties and Blackstone and I wonder if the era where a gaming company owns the entire property is officially over?
Yup. Stick a fork in it. It’s done. There are maverick outliers, like Phil Ruffin and Alex Meruelo. But the REIT boys are the wave of the future, one fears, the latest manifestation of the gray, Wall Street suits that were pioneered by the likes of Jim Murren. Gut instincts are out and slide rules are in, no doubt to stay.
