Analyst: Room glut to hurt LV

Don't count Janney Montgomery Scott gaming analyst Brian McGill as someone who believes the opening of CityCenter will be good for Las Vegas.

The addition of almost 6,300 new rooms between Aria and the project's nongaming hotels will be an added strain on Strip resorts already hit by double-digit gaming revenue declines and hotel room rates that are down almost 31 percent from a year ago.

In a report to investors this month, McGill estimated 15,000 new hotel rooms would be added to Las Vegas' inventory by the end of 2010. Strip operators will need to attract $3.2 billion of new gaming and nongaming spending so that existing resorts, such as Bellagio, are not cannibalized.

"Las Vegas operators will be forced to continue offering low (room rates) to drive visitation for the next several years," McGill told investors. "Given the high (cash flow) margin of hotel revenues, we think (cash flow) is likely to stay at depressed levels."

McGill conducted his study before a June 9 bankruptcy filing by the $3.1 billion Fontainebleau, which was expected to open this year with 3,812 hotel rooms. Work on the project was halted.

A delay in the Fontainebleau's opening might help the Strip's prospects. But, McGill said Las Vegas still lacks the infrastructure to handle the number of visitors new properties will require.

"Airline seats into Las Vegas continue to fall from a peak of 85,000 to 69,000 last month," McGill said. "We do not foresee additional capacity coming into the market, which will force the Strip operators to rely on less profitable drive-in customers."

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Las Vegas-based Union Gaming Group is one of the advisers helping the Kansas Lottery Commission review the financial suitability of the state's casino applicants.

Five proposals from prospective casino operators in Sumner and Wyandotte counties are being reviewed. The Kansas Lottery Gaming Facility Review Board is expected to select the winners this summer.

"We look forward to working with Kansas officials and the other teams of advisers to provide a robust analysis of the casino applicants," Union Gaming's Grant Govertsen said.

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Missouri Gaming Commission Director Gene McNary assured gamblers that two casinos owned by bankrupt Herbst Gaming will continue operating as they have. The Las Vegas-based company is in a prepackaged restructuring.

McNary said the Terrible's St. Jo Frontier in St. Joseph and the Terrible's Mark Twain in LaGrange are "vital to their communities."

As part of its bankruptcy deal, Herbst Gaming will give up control of its 15 casinos, including the three Primm casinos and Terrible's Casino.

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.