New Competition in Loss Vegas?

Peter Carlino, chairman and CEO of Penn National Gaming (Nasdaq: PENN  ) , has made no secret about his desire to enter the Las Vegas market.

But is buying the unfinished, bankrupt Fontainebleau Las Vegas the best way to compete against the likes of MGM Mirage (NYSE: MGM  ) , Wynn Resorts (Nasdaq: WYNN  ) , and Las Vegas Sands (NYSE: LVS  ) ?

The Wall Street Journal, citing an unidentified source, said Thursday night that Penn National is talking to Fontainebleau Las Vegas, whose casino resort complex is about 70% complete, but it has stopped construction due to lack of funds.

Fontainebleau is suing several financial institutions, including Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) , for withdrawing funds for construction. Fontainebleau recently told a bankruptcy court that it is talking to an unidentified potential buyer.

What's his motivation?
So why would Penn National -- which has the largest market cap among U.S.-based Not-Vegas companies -- want to enter a crowded and recession-tormented market?

You might say Carlino is trying to emulate Carl Icahn, who recently led an investment group in buying a bankrupt Atlantic City casino at a big bargain.

Or, you could say he is capitalizing on a recession-ripped market where companies like Station Casinos and Herbst Gaming have filed for bankruptcy and where big public companies wrestle with weak balance sheets.

Or, given the still-grim Las Vegas economy, you might say, "What the heck is he thinking?"

A tough environment
Las Vegas continues to suffer from fewer visitors and lower hotel occupancy rates per month as compared to the year-ago periods. In July, gambling revenue fell for the 19th consecutive month at Las Vegas Strip casinos.

The specter of overbuilding remains. For example, MGM Mirage said a few days ago that it might report a third-quarter non-cash impairment charge related to its CityCenter complex's for-sale residences.

Ah, but is the Las Vegas lure so strong that it will entrance a big-time CEO? "Time alone will tell whether we can find the right opportunity at the right price," Carlino told analysts during a first-quarter conference call in April. Investors and bondholders can only hope that if Carlino buys the Fontainebleau, he gets inducements reserved for that city's biggest whales.