Monday, January 11, 2010

Lerner v. LaFleur: Analyst #CityCenter Smackdown!

Reading the analyses of Wall Street smarties on Vegas interests used to be a snooze. Looking at all the same data, these wonks usually came to the same conclusions.

Not anymore! I've been watching two analysts in particular who seem to routinely come up with dramatically different takes and today's email puts it in very, very high relief. Here are the headlines from emails Monday:

Bill Lerner of the Union Gaming Group: "2010 Off To Good Start in Vegas, MGM Most Leveraged to Recovery."

Robert LaFleur of Susquehanna International Group: "Is MGM Having Trouble Filling Rooms at CityCenter?"

Those are two rather different sides of that story, aren't they now?

Lerner has been a persistent cheerleader for MGM Mirage and CityCenter, so his daily "Heard On The Strip" e-blast fit that trend. He suggested that New Year's "may have been the strongest in MGM MIRAGE history" and that "CityCenter and Bellagio foot traffic have been quite strong based on our observations (across a significant number of days and day-parts)." He also wrote that MGM Mirage's 95% occupancy in its 3rd quarter of 2009 after laying off 12 percent of its staff suggests they're doing more with less. That would be good for the balance sheets, assuming those guests are enjoying the diminished service enough to return.

LaFleur, meanwhile, has spoken quite negatively about what CityCenter and Aria are, contradicting much of MGM Mirage CEO Jim Murren's loftiest rhetoric. In my big L.A. Weekly piece on CityCenter, for instance, he said: "At the end of the day, the product is the gaming experience broadly defined. There’s nothing unique in the product offering. People don’t go to hotels because of the architecture of a hotel on a recurring basis. You go to a hotel because you like the hotel, you like the service, you like the ambiance."

On Monday, LaFleur reported on his firm's findings of "a notable reduction in asking rates at the Aria, the main hotel at CityCenter." Susquehanna every week catalogs Aria room rates for Saturdays and Wednesdays over the coming three months. Click on this graphic below to enlarge it and see what's been happening:

Wrote LaFleur: "After seeing in last week’s survey that MGM reduced asking rates by $20 a night for weekend nights in January, we saw MGM again reduce asking rates on these January weekend nights by another $30 in this week’s survey. In addition, we saw more sizable reductions in both weekday and weekend asking rates at Aria in February and March, the first time we’ve seen reductions in asking rates for these periods since we began tracking them. MGM management publicly said last week that occupancies were high at CityCenter. Our findings in this week’s survey suggest that MGM may have to engage in more aggressive price discounting to achieve these high occupancy levels."

Whom to believe? Well, at the moment the edge must go to LaFleur because he has actual data and Lerner says their analysis is based on, essentially, eyeballing the scene "across a significant number of days and day-parts," whatever that means. So they've come out of the best weekend in their HISTORY, per Lerner, only to cut room rates two weeks in a row?

Also, Lerner was happy to cite as fact things he can't know any other way than from publicists. For instance, from Monday's e-blast: "The combination of CES and AVN’s (Adult Video News award show) at the Palms this weekend generated incomparable volumes at the casino resort while The Hard Rock’s recently opened expansion is driving record gaming volumes at the property." Says who? What data supports such dramatic claims? Also, assuming the Hard Rock claim is true, wouldn't this volume spike just be the logical outcome of DOUBLED their gaming floor? Isn't win-per-machine or similar data more valuable than such a broad remark?

Meanwhile, LaFleur showed actual data and it is damning. Aria room rates fell $90 for Saturday, Feb. 6? That's 25 percent! It also means that Aria that night, at $269, is less than Bellagio, which is presently at $299. The place has only been open a month; surely if there's as much excitement about it as Lerner believes, Aria would be able to stay at least even with her own older sister?

So is CityCenter an out-of-the-box homer? Lerner would have us think so and, having had more than a decade as a top analyst for Deutsche Bank, he's no newbie. But then how about some real data to back up his exuberance?


detroit1051 said...

Steve, this is one of your most important posts. Excellent!

Lerner has been the Strip's greatest cheerleader for years. It would be great if he would comment on your post and explain his "facts".

Anonymous said...

Believe RLF, they're starting to discount the NCAA tournament weekends and the superbowl (that feb 6 date), plus is BL in Vegas and susceptible to being too close and RLF from out of state? Something to consider....

mike_ch said...

It is doing fairly well, but they are also nearly giving it away compared to where they wanted to be.

It depends on where your expectations are. CityCenter will never be the $500-$800 a night fountain of excess drawing well-heeled with-it crowds who are here for fine art, haute couture, and avant garde entertainment that MGM sold it to us as. It can not be. But it will do well enough that MGM Mirage will keep their doors open. They have so much on their plates at their other hotels though that I wish they would sell another one to somebody without a CityCenter to sink money into.

atdnext said...

Well, Goldman Sachs just upgraded MGM Mirage's stock to a "Buy" rating... So it seems Goldman is betting on Lerner's outlook.

Nevada casino winnings are also up, for the first time in 23 months.

So while LaFleur does have some solid data behind his pessimistic projections, it now seems like Lerner is starting to get some evidence to back up his bullish projections. And for all we know now, either may be true or the truth may fall somewhere between the two.

Anonymous said...

Lerner's new firm has been retained on occasion by MGM Mirage, which may color his views on the subject. Lerner was also the first to float the notion of a 30% cut in CityCenter condo prices, which MGM later adopted as its official stance.

David McKee said...

Eyeballing walk-through traffic is worthless. For both Crystals and Aria Casino revenue, the lookyloos are worthless. Yes, most visitors are going to see CC because it is new. But are they spending?

Those numbers will tell the tale.

I'm hoping that MGM does well, but you won't catch me as a premature cheerleader.

atdnext said...

Mr. McKee & AccessVegas-

True, true. Perhaps Lerner is too cozy with MGM Mirage execs, and we probably won't have a clearer view of its future until we see Q4 '09 earnings.

I guess I usually lean a little more Pollyanna-ish, and the overall good Vegas news now coming out is making me feel a little better these days about the overall casino industry here.

robertw477 said...

Dont just focus on MGM/City Center. All hotels are dropping rates like crazy. I am in town for a trade show next week. Paying 39.00 a night plus some $9.00 a night resport fees at NYNY? Resort fee is a load of garbage. Why pay 150 a night at ARIA. ARIA offered $50.00 meal credit and some cashback also. By the way standard Bellagio rooms stink if anyone cares. Same room at Planet Holywood for a lower cost. I used to always try the new hotel but now I figure save a few hundred toward my expenses. There is no need.

Got these email offers. No need to pay anything more. Wynn emailed me rates of approx 129 during the week with cashback. All ROOM rates will be under huge pressure for the entire 2010 if not more. The lesser places are also getting killed. They need to offer vouchers and real promos to entice customers. Over the past 10 years the only promos with the room would be 10% off at the cafe sun-thurs between the hours of 1AM-4AM with additional limits.