Vegas is on edge following the fourth quarter results announced by MGM Mirage and Las Vegas Sands Corp. Both companies’ shares tanked hard, based on realizations that the economic recovery isn’t helping Vegas just as yet.

Vegas

MGM Mirage announced a fourth quarter loss of $433.9 million (98 cents per share). While this was actually quite an improvement year-on-year, analysts are concerned about the continuing slide in revenue (down 6% to $1.45 billion) and RevPAR (down 16% on the Strip).

Slashed rates (ADR down to $111 from $135 last year) forced room revenue down 14% even as occupancy climbed to 86%.

Even if you discount a charge of 73 cents per share on account of undeveloped land holdings in Atlantic City (more on this below), MGM Mirage still ends up with a loss of 25 cents per share – well above average analyst estimates which had the loss pegged at around 14 cents.

Las Vegas Sands Corp.’s fourth quarter results showed a loss of $113.9 million (17 cents per share) with revenues of $1.28 billion (an improvement of 17.5%). The boost in revenues doesn’t reflect the company’s Vegas performance, though. The boost in revenues is related to performance in Macau. In Vegas, revenues for Sands actually tanked 19% to $264 million.

At close, shares of MGM Mirage (NYSE:MGM) had dropped 7% and Las Vegas Sands Corp. (NYSE:LVS) had dropped 9%. To make it even more of a critical juncture for Sin City, MGM Mirage is facing imminent and huge decisions related to its debt amendments, Dubai World’s shaky partnership in the $8.5 billion CityCenter project, and also its holdings in Atlantic City, NJ.

Debt amendments:- MGM Mirage is seeking to extend the maturity for most of its $5.55 billion of senior debt from Oct 3, 2011 to Feb 21, 2014. Lenders are expected to respond by Feb 24. The issue will likely be resolved, in part due to the many phone calls placed by Sen. Harry Reid (D-NV).

President Obama himself will also put in an appearance at CityCenter on Friday, Feb 19. In a speech at the ARIA resort, the President is expected to praise CityCenter and its 12000 jobs as an engine to fire up the Vegas economy.

Dubai World:- Dubai’s $60 billion default has been well chronicled, as have their past attempts to exit the CityCenter partnership. Dubai World has now started its financial restructuring by selling off investments where possible. 

In the last month or so, they’ve already kicked off the sale process for their 13% stake in Spicejet (an airline in India); another $700m investment in the UK based Inchcape Shipping Services; and agreed to give up prized assets like the Queen Elizabeth 2 and Cirque du Soleil. 

The  disposal of Dubai World’s CityCenter stake is lurking around the corner, and this adds another  level of uncertainity to what has already been a roller-coaster 4 year ride for MGM Mirage and Vegas.

Atlantic City:- AC’s gaming economy is in trouble, and one part of it has to do with their troubled relationship with MGM Mirage. The 4Q results included a $548 million charge related to ‘undeveloped land holdings’ in Atlantic City. The $4.5-5.5 billion City Center Atlantic project was supposed to be modeled after CityCenter Vegas.

Leave alone a new project, turns out that MGM Mirage is instead selling off its 50% stake in the Borgota casino resort in a bid to get NJ state regulators off its back.

NJ has been looking into MGM Mirage’s ties with its Macau partner, and further enquiries could hurt the company in other US states where it is doing business. It could also impact the company’s impending Hong Kong IPO, which is intended to take the Macau property public and free up the investment.   

All three aforementioned issues will be settled in due course by MGM Mirage, but with Vegas sitting on the cusp of a recovery, it’s hard to tell if these issues slow down the recovery or whether increased visitation and spending in Vegas helps MGM Mirage settle these issues faster. Either way, it is going to be interesting.

Photo by Serge Melki

A Super Bowl ad by KIA Motors with sock puppets in Vegas is drawing heavy fire from the NFL for violating its ban on Vegas casinos. The NFL must be very peeved, because the Las Vegas Convention and Visitors Authority (LVCVA) got to have the outlawed cake and eat it too, since they didn’t pay for an ad this year.

KIA Super Bowl ad

Titled Joyride Dream, the 60-second third quarter KIA spot follows a colorful cast of life-size children’s characters – including Muno, Sock Monkey, MR. X, Robot and Teddy Bear – who take a Sorento CUV for a spin through a series of dream-like adventures.

In Vegas, the ad starts with the gang in front of the Fabulous Las Vegas sign, and goes on to show them rolling past the Statue of Liberty at the New York-New York casino and then into the Monte Carlo casino, and dancing in a nighclub. Both properties are owned by MGM Mirage.

An NFL spokesman told Portfolio that they did not see the ad before it aired, and it was CBS’ responsibility to make sure the ads did not violate NFL policy. The NFL did not allow Vegas to advertise until December last year, at which time the rules were loosened to allow Vegas to advertise itself as a destination, so long as the ads didn’t show the Strip, casinos, drinking, or sexual activity.

It seems the creators of the ad, Los Angeles ad agency David&Goliath, has both KIA and Monte Carlo as its clients and while the ad was made with the approval and cooperation of all parties concerned, it somehow still managed to avoid getting flagged by CBS.

To make it even more of a raw deal for the NFL, the LVCVA decided to forego a Super Bowl ad this year and instead spent $1.4m on targeted markets, aimed at getting people to visit Vegas for the Super Bowl weekend.

End result – Vegas got free air-time during the Super Bowl courtesy KIA’s sock puppets, and used the ad money saved to good effect by bringing in 280,000 people to Vegas for the game, much more than the approximately 100,000 people who were in Miami.

Just when Sin City was beginning to forget what AIG Effect means, President Obama has restarted the whole debate by saying that people trying to save shouldn’t be spending money in Vegas.

President Obama & Fabulous Las Vegas Sign

On Feb 2, 2010, President Obama delivered a speech at a townhall in Nashua, New Hampshire. In the speech, he says that “When times are tough, you tighten your belts. You don’t go buying a boat when you can barely pay your mortgage. You don’t blow a bunch of cash in Vegas when you’re trying to save for college. You prioritize. You make tough choices.”

Here’s the full transcript of the speech. This is the second time that President Obama has piled on Vegas. Exactly one year ago, on Feb 9, 2009, at a townhall meeting in Elkhart, Indiana, President Obama said “You can’t get corporate jets, you can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayer’s dime.”

That statement last year was made due to concern over public anger at federal bail outs for companies who were spending hundreds of thousands of dollars on meetings and events. It was widely seen as a move to deflect public anger over the bailouts from the government and focus it on the corporates.

This time around, President Obama is trying to tamp down worries about federal deficits. He made the statement about ‘blowing a bunch of cash in Vegas’ in the context of wasteful government spending, which he says needs to be prioritized. This could be translated by federal agencies as a sign that they shouldn’t be considering Vegas for meetings and conferences.

There has already been a big kerfuffle over a federal blacklist for Vegas and other resort cities, and Senate Majority Leader Harry Reid (D-NV) has even introduced the Protecting Resort Cities from Discrimination Act (S. 1530 & H.R. 3732) to make it go away.

The President’s new remarks open up the entire debate all over again.

Reaction from Vegas officials and Nevada lawmakers:-

Senator Harry Reid (D-NV) – Issued statement titled “Reid to Obama – Lay off Las Vegas.” Also called White House and told them that “the president needs to lay off Las Vegas and stop making it the poster child for where people shouldn’t be spending their money.”

Las Vegas Mayor Oscar Goodman – Called Press Conference and said “I’ll do everything I can to give him the boot.”

Congresswoman Shelley Berkley (D-NV) – Issued statement saying “Enough is enough! President Obama needs to stop picking on Las Vegas and he needs to let Americans decide for themselves how and where to spend their hard-earned vacation dollars.”

In response to the criticism, President Obama sent a conciliatory note to Sen. Harry Reid. In the letter, he says that “I hope you know that during my Town Hall today, I wasn’t saying anything negative about Las Vegas. I was making the simple point that families use vacation dollars, not college tuition money, to have fun.  There is no place better to have fun than Vegas, one of our country’s great destinations.  I have always enjoyed my visits, look forward to visiting in a few weeks, and hope folks will visit in record numbers this year.”