Boyd Gaming Slimming Down To Bulk Up

Boyd Gaming is finding itself in a down cycle as softening demand and an influx of new casinos in the Las Vegas locals market is taking a bite out of its profits.

The company is even shedding its recently opened South Coast Hotel & Casino and selling it to Michael Gaughan, the founder of Coast Casinos which Boyd purchased as a wholly owned subsidiary two years ago. The South Coast property was under construction at the time of the purchase.

However, Bill Boyd, Chairman and Chief Executive Officer of Boyd Gaming, downplayed the emerging problems in the local market as a blip rather than a trend. "After eight consecutive quarter-over-quarter increases in Adjusted EPS dating back to the second quarter 2004, this quarter turned out to be a transition period, as we continued to ramp-up at Blue Chip, re-introducing our new facility within that market, and to adjust operationally for a capacity increase of approximately 14% in gaming positions in the Las Vegas Locals market,” said Boyd.


In fact, Boyd is expanding on all fronts and is actually lowering its dependency on the locals market in Las Vegas, recently announcing its purchase of Dania Jai Alai for $152.5 million, located near Fort Lauderdale. The facility is one of four facilities approved under Florida law to operate 1,500 Las Vegas-style slot machines. According to Keith Smith, Boyd Gaming's President and Chief Operating Officer in a conference call this week, construction will commence on the slot parlor before the end of the year and will take at least a year to build.

During the analyst conference call, Smith gave an update on Echelon Place, a $4 billion casino resort project currently under development which will replace the Stardust Casino on the Las Vegas Strip. Construction, he said, should commence during the second quarter of next year and is expected to open in mid 2010. While the property has no specific closure date, the Stardust will no longer accept reservations after November 1.

The addition of the first phase of two part expansion at the company’s Borgata in Atlantic City (which they share ownership with MGM Mirage), debuted to much fanfare last month and is already adding to the bottom line. “The Borgata expansion further positions us as a leader in the Atlantic City market”, said Smith indicating the new 85-table poker room, “has been virtually at capacity.” Additionally the trio of new restaurants have not impacted existing dining options and the additional gaming space has been quickly absorbed by the property.


The property is already well under way with its second expansion, a new hotel dubbed the Water Club. According to Smith, the cost of this addition has increased an additional $75 million to $400 million due to the rising costs of construction and materials. But he also added the new hotel tower should be able to command a premium rate for guests looking for a more upscale experience.

Earlier this month, New Jersey casinos were forced to shutter for three days, which occurred just days after Borgata opened its $200 million expansion. According to Boyd executives the closure cost the property $7 million in gaming revenue and will affect 3rd quarter earnings per share by as much as $0.55.

The company also owns 63 acres of undeveloped land in Las Vegas which will be a cornerstone of its expansion strategy in the future, delivering strong shareholder returns, said Smith.

Overall, net revenues for Boyd increased 10.2 percent to $610.9 million during this just ended quarter, which the company attributes to the addition of South Coast, as well as an expansion of its Illinois property, the Blue Chip, recently expanded.

The Las Vegas locals segment posts net revenues of $264.4 million versus $228.3 million in the second quarter 2006, an increase of 15.8% over the 2005 quarter, while the Central Region records net revenues for the second quarter 2006 of $245.9 million versus $220.3 million in the same quarter 2005. The story in Downtown Las Vegas was especially rosy with its three casinos chalking up the second best 2nd quarter ever with net revenues of $65.1 million. The second quarter of 2005 was this segments best ever.