Free markets are a beautiful thing -- most of the time. People and companies can spend money on whatever they want, and in the case of casinos, they can be built anywhere gaming is legal and profitable.
But do you remember the last time people got too excited about investing in casinos? It began a casino building boom that only sort of got off the ground before it fell flat on its face. It was right before the recession hit, and Las Vegas' gaming revenue was rising, room rates were sky high, and Cristal was flowing in the world's hottest nightclubs.
But when the recession hit, construction and planning came to a halt. Here are just a few of the colossal failures in Las Vegas at the time:
- The most "successful" major project built on the Las Vegas Strip at this time was CityCenter, which is stretching the terms of success. The development, half owned by MGM Resorts (NYSE: MGM ) , cost somewhere around $9.2 billion and generated only $64 million in property EBITDA last quarter.
- In early 2008, Cosmopolitan was foreclosed on by Deutsche Bank (NYSE: DB ) after the resort's developers failed to pay a construction loan. The building was eventually finished but is facing continuing losses on its operations.
- Fontainebleau Resort Las Vegas was supposed to be a $2.9 billion development that would add more high-end rooms to Las Vegas. But now it's a half-built hotel that's being stripped of anything that can be sold.
- Boyd Gaming (NYSE: BYD ) was supposed to build the Echelon Las Vegas after tearing down The Stardust, but that $4.8 billion project only got a few floors off the ground.
- My favorite is the Las Vegas Plaza, a giant development by Vegas outsiders that was supposed to cost somewhere south of $8 billion! But after blowing up the New Frontier Hotel and Casino, at a cost of $1.2 billion, the developers woke up from their dream and saw they had bitten off more than they could chew.
Where there's growth, we will build
It was good that the building boom barely got off the ground, or all of Las Vegas may be bankrupt right now.
But in Asia, a limit to the number of competitors and casinos may save Macau and Singapore from overbuilding. Macau has tight control over where and when Las Vegas Sands (NYSE: LVS ) , Wynn Resorts (Nasdaq: WYNN ) , and Melco Crown (Nasdaq: MPEL ) build casinos. In Singapore, there are even more restrictions, with Las Vegas Sands holding one of only two concessions.
Considering that both foreign markets are growing faster than Las Vegas was before the disastrous demolition and construction boom of a few years ago, investors should be thankful. Sure, both locations could handle a few more casinos, but that's what we thought in Las Vegas until the world came crumbling down.
Maybe this time the government is saving business from itself.
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