The guys at Boyd Gaming have been busy increasing their position in the Las Vegas locals market in buying Aliante casino for 0 million and the two Cannery casinos for 0 million.
The price raised some eyebrows given that Aliante generated just $17 million in EBITDA this year, Boyd expects $30 million in its first full year of ownership and aims for $40 million in three to five years.
Cannery is cheaper on a EBITDA return basis as it’s expected to generate $32 million in its first full year.
Several analysts raised the question of whether Boyd paid too much for Aliante.
CEO Keith Smith called the purchase a compelling opportunity as he rattled off the tremendous current and expected growth of North Las Vegas where Aliante and the larger Cannery of the two casinos are located.
The purchase was a strategic move, he said.
We tend to agree with Smith. As former banking entrepreneur Vernon Hill used to say, picking the best location is almost always worth the price.
As a Sun Belt city, Las Vegas will grow for a long time to come, and buying up casinos outside the Las Vegas Strip entertainment district will give Boyd assets that it can grow commensurately.
Further, the purchases strengthen the value of Boyd’s B Connected players club and provide economies of scale that will drive down costs at what are now independent operations.
Combined with its properties in resurging Downtown Las Vegas, Boyd is developing cash cows at a fraction of the price of Strip mega resorts in the nation’s third-fastest growing metropolitan area.
Another question about the purchases is running up debt at a time when Boyd has promised to bring down debt. The company says its debt-to-EBITDA ratio will return to current levels in nine months, so we’ll have the answer to that question soon enough.
The fact is that Boyd’s entire portfolio is strategically located throughout the country. And, while the company doesn’t have the glamor and glitz of a Wynn or even MGM Resorts, it has a steadiness that should reassure investors concerned with both preservation of capital as well as growth of capital.
This is a case where strategic vision should beat short-term financial metrics
Biloxi Bound
Next week is my annual visit to the Southern Gaming Summit in Biloxi to appear on the Wall Street panel.
As before, the questions will be on the future of Gulf Coast casinos and how they will fare against surrounding markets, both those now competing and those that might join the fray, such as Georgia.
Here’s a little preview on the perspective I intend to offer to that question:
One of the truths about tourism is that whatever a man can build, another man can build, also, and often bigger and better.
We’ve seen this lesson played out over and again in the casino industry.
The first riverboat casinos made money hand over fist—until competitors came in with bigger casinos.
Likewise, Atlantic City casinos were gold mines until their East Coast monopoly was broken.
The key to sustained success in tourism is to have attractive assets that others cannot duplicate.
Like water. Like warm weather. Like distinctive history and culture. Like location. In other words, like the Mississippi Gulf Coast.
Upon those bases, tourism developers can build the man-made assets: attractive, clean and safe properties, critical mass, diverse amenities.
So the Gulf Coast will never rival Las Vegas, but it will have a solid future as long as people gravitate to its natural assets.
