All good things do come to an end, and there appears general agreement that additional multi-billion dollar casino resorts on the Las Vegas Strip are there.

A Bellagio or a Wynn is fine, but there simply isn’t enough of a market for every casino company and every aspiring casino developer to put up two, three or four upscale mega resorts each.

Thus Echelon sits unfinished. Fontainebleau might become the most expensive Potemkin Village in history. And El Ad ought to count itself lucky to have paid $1.25 billion for an empty lot.

A $3 billion or $5 billion resort just doesn’t pencil out, anymore

And even if a developer insists on building a mega resort in Las Vegas, no one will lend him the money. So it’s a moot point.

As such, in order to thrive, Las Vegas casino companies are going to have to quit being real estate developers, dust off the old gambler-centric business model and do something that’s really hard—grow revenue through operations.

It will be a perfect environment for Steve Wynn, who does everything right by his target customer and who should grow profits post-recession without massive new development.

It should work for Harrah’s and its national network of mid-market feeder casinos, once the company grows past its debt burden and freshens its properties,

And it’s a good environment for suppliers because, when a casino operator can no longer borrow billions to grow, he’s going to have to spend millions on the most efficiency-building and revenue-enhancing new products.

Some properties won’t survive the coming increase in casino capacity. Others will follow the historic Las Vegas pattern of moving down the food chain.

Remember, Tropicana and Riviera once were first-rate properties.

Higher up in the market, one-time Las Vegas flagships such as Caesars Palace and Mirage have been bumped down a notch by the likes of Bellagio and Wynn.

Meanwhile, properties now near the bottom, and maybe some mid-tier single property operators, risk being pushed out all together.

Yet, despite such worries prospective resort sellers are not desperate.

In fact, the message from prospective buyers is that prices haven’t come down to reality, yet.

At some point they will.

At some point, bondholders will want to cash out with what they can realistically get for a property they got in bankruptcy. At some point, prices will rationalize to a level that a buyer can both get financing and earn a profit running the joint.

If CityCenter, Cosmopolitan and Fontainebleau were all opening this year, we’d call 2010 the day of reckoning.

But the process may be drawn out if CityCenter is the only new resort, and Planet Hollywood and Hard Rock hotel towers the only big expansions in the coming year.

Still, Cosmo and Fontainebleau will get built and a fall out will come. So here are some scenarios thrown out to juice thinking, not as predictions:

• Deconsolidation. MGM Mirage sells some properties. Harrah’s maybe sells the Rio. Station Casinos sells some or all of its properties. Herbst is broken up.

• Getting out. Some companies just can’t make it and have to sell out, or some buyers who had mega resort dreams give up and get out.

Candidates for getting out include the lenders that now, or soon, may own a number of casinos—Deutsche Bank at Cosmopolitan, and perhaps Fontainebleau, are the most prominent.

There is speculation whether single-property companies can hang in as the supply increases. Names bandied about include Riviera, Hard Rock and Planet Hollywood.

And then there are the would-be mega resort developers who might now decide owning the Sahara or the Frontier site isn’t worth the cost.

• Eager to buy at the right price. A lot of names have been thrown about as prospective buyers—Pinnacle, Penn National, Wynn, Jack Binion. Boyd is an announced suitor of Station Casinos.

And as the recession ends and capital markets return to normal, the number of buyers could multiply—Sol Kerzner? George Maloof? Mohegan? Pinnacle? Foxwoods? Neil Bluhm? David Cordish and Dennis Gomes?

Or how about ambitious international operators? Genting wants to be the third-largest casino company in the world and admits it can’t do that just in Asia. Crown has had Las Vegas mega resort ambitions.

Certainly, there are enough sale candidates to appeal to every price point and urge—modest to extravagant, latchkey to development opportunity.

So, we’ll say the day of reckoning will play out later than sooner, and more like slow motion than a crash.

Of course, there’s one caveat to be hoped for—CityCenter, Cosmo and Fontainebleau reawaken the public fancy for Las Vegas boosting demand in a recovering economy.

But we’ll stick with the idea that the casino ownership will look considerably different by 2012.

By Frank Fantini

Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at www.gaminginvestments.com.

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