While The Motley Fool offers a variety of strategies to beat the market, there is one constant among all of them: a focus on the premium players. Almost without exception, we want the top dogs, the best brands, and the companies with sustainable competitive advantages. Even the Motley Fool Inside Value picks focus on premium companies such as Anheuser-Busch and Berkshire Hathaway.
The fact is that Las Vegas locals king Station Casinos
Upfront, I should qualify my statements by establishing that I am not bearish on Boyd Gaming. The company is well-run, it makes tons of money, and it has long-term potential. But it is what it is -- a value player in the gaming industry.
Let me explain why Boyd has never really piqued my investment interest. Outside Las Vegas, the company has exactly one property that qualifies as the best player in its market, and that is the Borgata in Atlantic City, a 50-50 joint venture with MGM Mirage
Granted, it's not such a bad thing to be the third-best player on the Indiana side of the Chicagoland market. But it is perhaps telling that the company's Blue Chip property is still only third best of the four players operating on that side of the market, despite being the only competitor among them operating a next-generation gaming facility, which it introduced last year. The other three players still operate yachts -- relics from the day when the gambling boats were required to cruise. I guarantee you those boats will eventually be replaced.
Moreover, in each of the other major regional gaming markets in which Boyd Gaming competes -- Tunica, Shreveport-Bossier City, New Orleans, and Lake Charles -- the company is no better than third best in any of them.
Which brings us to the Las Vegas locals market.
Back in February 2004, Boyd scored a major coup when it announced the acquisition of Michael Gaughan's Coast Casinos, a big player in the Las Vegas locals market and a company in which both Harrah's and Ameristar Casinos
But even now, Boyd is still second best in that market. The company has since sold the South Coast (now called South Point) back to Michael Gaughan, and as such, Boyd's Las Vegas portfolio is conspicuously lacking in premium quality. In my opinion, the highest-end casino left in the company's Las Vegas locals portfolio -- the Suncoast casino in Summerlin, at the northwest corner of the beltway -- is nothing special on the inside. I also believe Suncoast suffers from a relatively weak competitive location. To get to the Suncoast from the beltway, you have to drive past the Station Casinos' Red Rock Station from the west and the J.W. Marriott resort coming from the north. Those characteristics leave something to be desired.
Station Casinos simply has the best collection of locals in the Las Vegas market, with the biggest properties, the best locations, and a lock on the some of the best sites zoned for future casino development. Nevada also features the most favorable regulatory environment among gaming states, while Las Vegas remains the fastest-growing area in the country.
Station Casinos pioneered the "locals" casino concept and continually raises the bar for what a locals casino should be. Meanwhile, the relatively recently opened Red Rock Station in Summerlin and jointly owned Green Valley Ranch in Henderson represent two of the highest-quality locals casinos in the business. As a result, the Station Casinos brand carries substantial value.
The company's Boarding Pass program is the most wide-reaching slot club in the market and encourages loyalty among Station's patrons even when they're playing outside their regular casino. This works well when your patrons expect to be able to use their Boarding Pass points at other properties of like quality. In contrast, Boyd's properties are disparately linked -- for example, the players' clubs at the Coast properties link with each other, but not with any others, while Boyd's other properties aren't interlinked, either.
Station's development pipeline is also enviable. In addition to plans to replicate its network of locals in Reno, Station has a lock on some of the best sites left in Las Vegas zoned for gaming. The company has planned the Durango Station in the southwest corner of the beltway, the Aliante Station in the new part of Las Vegas north of the beltway, and a site just south of Michael Gaughan's South Point on Las Vegas Boulevard several miles south of the Strip. The company also owns the Wild Wild West casino and adjacent land just west of I-15 on Tropicana (just off the Strip), an area that the company will likely redevelop into a major gaming complex to rival Boyd's nearby Orleans.
It's true that Station is about to be taken private in a management-led buyout, though likely at a price higher than the original $82 bid. But the question is this: With a portfolio like that and an exceptionally attractive development to go with it, why settle for something less competitive?