First, we kill all the optimists
by Charles Anderer
June 1, 2009
As the casino industry's top companies struggle to stay afloat financially it’s worth wondering whether they are repeating the cycle of false expectations that brought them such misery in the first place
The world economy is swimming in debt, and so,
not coincidentally, is the American casino industry. This is less a result of
the failure to regulate the financial system than it is an inability to temper
human expectations, a reality people are slow to accept.
That’s my
take-away from Colin Negrych.
Negrych is a bond trader whose compelling perspective on
the meltdown was relayed through journalist Nick Paumgarten of The New Yorker
in an article last month titled “The Death of Kings”. Cockeyed American
optimism, a trickier problem to tackle than shoring up the Securities and
Exchange Commission and coming up with a new regulatory regime for derivatives,
tells us far more about how we got to where we are today. In the run-up to our
collective march off the cliff, the truth-tellers were few and far between, and
their impact on the business culture was minimal.
“What constituency is there for pessimism?” asks
Negrych. “People believe optimism is necessary, an American right. The
presumption of optimism is the problem. That’s what creates the debt we have
now.”
Paumgarten also hilariously quotes a French investor who
sighs and says, “There is no spirit of resignation in the American people.”
The willing suspension of disbelief is what brought us
to the edge of financial ruin, and it took two to tango. The current crisis is
too big to blame on Wall Street. Without looking at what went into taking on
high levels of debt we can neither begin to avoid a repeat nor think somewhat
clearly about the future.
“What Wall Street offers is the continual
rationalization that ever-increasing indebtedness is sustainable,” said
Negrych. “It concocts believable, defensible arguments for the prices they
think things ought to be. Financial engineering fills the gap between people’s
desires and their wherewithal. So what you have is optimism buttressed by
pseudo-science and statistical legerdemain. Wall Street is the roach walking around
on a dinosaur; it’s the symptom, not the disease.”
As many of the top companies in the casino industry
struggle to stay afloat financially it’s worth wondering whether they are
repeating the cycle of false expectations that brought them such misery in the
first place and what role creative financial engineering still plays in the
process. Are proven, albeit devalued, assets being jettisoned to support
unproven, overvalued assets? Is the basic quest for near-term survival at all
balanced against the long-term health of the organization?
One thing should be clear: The industry has benefited
mightily from strong leadership companies such as MGM Mirage and Harrah’s
Entertainment. If a new “Era of Entrepreneurs” is in the cards their happy inheritance
will be more than just sold-off properties.
Meantime, the reality
of the here-and-now was on full display at the Southern Gaming Summit last
month, where IP President and GM Jon Lucas led a thoughtful panel discussion on
current market conditions. For all of the finesse displayed by the speakers I
just can’t get Tim Wilmott’s line about Atlantic
City “being in a freakin’ death spiral” out of my
head. No false optimism there, even though Wilmott, president and COO of Penn
National Gaming, can afford to offer unvarnished opinions of a market whose
troubles aren’t a problem for his company. Also interesting was Atlantic City veteran and current Isle of Capri Casinos
President and COO Virginia McDowell’s warning that the Gulf
Coast market needs to avoid the
descent into the aggressive couponing of slot play that has long been a problem
in Atlantic City.
When Mississippi Gov. Haley Barbour stepped up to the podium the next day and
predicted that Mississippi would one day in
the not too distant future overtake Atlantic
City in terms of revenue, the Gulf Coast/Atlantic City
comparisons had come full circle. It will be interesting to chart the results
of these geographically distant and commercially similar markets going forward.
Common sense and realism similarly prevailed in another
panel, “Loyalty Marketing in Tough Times”. Participants regularly admitted to
overworking the upper end of their data bases as their first response to the
down economy, much to the irritation of their most important players, who felt
hounded. Industry consultant Randall Fine seized on an example of self-delusion
at one of his Las Vegas Strip customers who said the demise of his high rollers
was being offset by growth at the level just below. When asked to check and see
how many of his former high rollers were now residing in the next lowest level
of his data base it turned out that many of his best players had indeed just
traded down.
Operators are split between two modes:
problem-solving and survival. All signs are that they are dealing with the
operational challenges head-on. Hopefully, the same spirit of realism prevails
among those more preoccupied with survival.
Charles Anderer
is executive editor of BNP Media Gaming Group and also oversees content development, sales and marketing for the company’s trade shows and conferences, which include Bingo World, Southern Gaming Summit, Gaming Technology Summit, New York Gaming Summit and Casino Marketing. He can be contacted at andererc@bnpmedia.com.
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