Circu Circus Casino
“a hippopotamus in a
bathtub,” because the building is too large for the land that supports it.
One player that doesn’t appreciate such strategy is MGM Grand. “To make deals
to block expansion is defensive and backward thinking. We don’t do that.” says executive
vice president and CFO James Murren. But ever been a master of the property-acquisition
phase of Monopoly, Murren added, it’s MGM Grand’s controlling shareholder, Kirk
Kerkorian. The billionaire “has brought and sold more of Las Vegas before we turn to
more development.” He fears more than his CFO brethren that Las Vegas will have
problems filling its new capacity. “It’s going to be a bloodbath,” he says, though blood
won’t be shed evenly across the industry. “There has never been such a borrowing spend
in Las Vegas. We borrow at 6 and change while effective rates of 15.
The weak will get weaker, and the strong will get stronger.” Helping MGM Grand,
Murren adds, will be Kerkorian’s personal example. “We have the kind of leader who
keeps you humble. He drives a 1992 Sable station wagon. It keeps thing in perspective.
And like a Monopoly conservative, MGM Grand currently refuses to spend on the
expansion game. Proud of “the best balance sheet in the industry.” Murren believes a
recent buyback of 6 million shares for $200 million was a strong statement that investing
in its own stock is a smarter move. “We can make land acquisitions.” Murren says, but
there’s also a lot that can be done with, say, an MGM theme park that “ultimately...may
not be the best use of the land.”
A fourth major player, Hilton Hotels Corp., also acknowledges that success in the
game is “not rocket science: it’s about location,” according to spokesman Marc
Grossman. The growth strategy of the company, best known for its huge, off-Strip Las
Vegas Hilton, concentrates on properties at the intersection of the Strip and Flamingo
Road. “Look at what we have,” he says. “The new Paris will be next door to Bally’s,
which is across Flamingo Road from the Flamingo.”
In the view of Circus’s Schaeffer, few investors understand the gaming business.
“Wall Street thinks Las Vegas is like the Mojave desert,” with miles and miles of land
ready for hotel development. “But it’s more comparable with Manhattan island”--a very
limited number of sites with desirable locations. Schaeffer has lengthened the board so
that Strip extends to property Circus owns near the airport--potentially “the gateway to
Las Vegas.”
“You really want to accumulate a mass position,” he says. “And you don’t want
to run out of money before the other guy does.”