Can Vegas Ever Build Too Much Convention Space?
Steve Wynn dreamed about a lagoon, but new management has drained his swampy fantasy and Wall Street hates it. WYNN shares were down 12+ percent today and the share price has been cut in half since May. What gives? Vegas is reportedly smokin’?
The company’s financials show nothing but green arrows for Q3 with net earnings up over 95 percent from a year ago.
Wynn owns some of the most valuable real estate on the Las Vegas Strip, part of which has been held in what can only be called an expensive temporary holding use called a golf course. Steve, before raising money for Trump and the RNC, and in turn #Metoo, changed his life, had planned, as the R-J explained,
A two phase effort that included construction of a 400,000-square foot convention center followed by the addition of a 38-acre lagoon and three new hotel towers. As Steve Wynn envisioned it, the lagoon would host water sports by day with nightly parades of decorated floats and fireworks every night.
New Wynn CEO Matt Maddox told analysts on the company’s earnings call, “From April 2016 to today, we always struggled with Phase 2 of Paradise Park. How are we going to make a room tower in a town with a lot of rooms pencil along with a lagoon? We weren’t really interested in building a large public swimming pool for the Las Vegas Strip. So we just decided, ‘Let’s go with Phase 1.’ We know the convention center is going to work.”
“It’s 200,000 square feet of net rentable space, coming basically in 12 months,” Maddox said. “We believe that convention center will add somewhere between 4 to 6 (percentage) points of occupancy (rate) to this hotel, which will allow us to really drive (room) rate in those peak times because we will be in the low to mid-90s in occupancy over the full 365 days.”
Evidently, they’ve boogered up part of the golf course and intend to bring famed golf course designer Tom Fazio back in to re-do the exclusive 18 hole layout. Golf is not a profitable business these days, but Maddox claimed, according to the R-J reporting, “the company lost $10 million to $15 million of domestic casino business from people coming in for golf trips who decided to go elsewhere.”
However, in the big picture, there is no question golf participation is shrinking. In 2006, there were 30 million golfers. That number has steadily declined to below 24 million. Few young people are interested in taking time away from their computers to spend five hours in the sunshine whacking a little ball around, badly.
As for the Maddox contention, “We know the convention center is going to work,” according to the Las Vegas Convention Visitors Association (LVCVA) there is 11.5 million square feet of convention space in Las Vegas already. Plus, “The LVCCD Phase Two expansion project will feature stunning design, cutting-edge technology and contemporary meeting and working spaces. It will add 1.4 million square feet to the current convention center facility, including at least 600,000 square feet of new, leasable exhibit space.”
There was a time, when Tiger Woods was winning major golf tournaments, that it was believed more golf courses had to be built to accommodate the growing demand for the sport. Is it possible, Las Vegas, which already has more exhibition space, by many multiples, than any other U.S. city, might build too much convention space? That more space won’t automatically turn into more heads in beds at premium prices?
True believers reading this will scoff, and reply, “no way, besides, the Raiders are coming.”