[Diamonddog2801]

To give everyone an idea of how Vegas casino values are arrived at, here's a piece from the Las Vegas Advisor pages:

Q:
When a casino is placed for sale, how do they determine the value of it? Do they go by cash flow or land value or what? If its cash flow why would somebody like MGM consider selling something that brings in money and helps pay the bills?

A:
The most widely used yardstick for determining the value of a casino is its cash flow. For years, the preferred "baseline" is seven times annual cash flow (or EBITDA). For instance, MGM Mirage’s Beau Rivage, in Biloxi, is estimated to represent EBITDA of $100 million a year, so the bidding would probably start at $700 million.

If a casino sits on the Las Vegas Strip, though, that’s thought to bring a premium which puts the acceptable minimum price at eight or nine times cash flow. Even now, when the major Strip-based companies are hurting something bad, it’s been reported that they’re trying to get as much as 10-12X cash flow for places like The Mirage.

Cash flow is a more stable barometer of value than are land prices, which can fluctuate wildly. In March 2007, when land on the Las Vegas Strip was perceived to be a precious and rare commodity, Phil Ruffin was able to sell the New Frontier – not the most impressive casino on Las Vegas Boulevard – for a price that broke down to $36 million an acre. Ruffin freely concedes that, had he waited even a few months, he couldn’t have scored such a big payday.

As credit began to dry up and major Strip projects either slowed down or were scrapped altogether, land prices went into a tailspin. According to management of the Tropicana Las Vegas, it’s currently worth $11 million an acre. Needless to say, it sold in 2006 for a great deal more than that.

Sometimes you have people who are so eager to purchase a casino (or three) that both cash-flow and land-value metrics go out the window. For instance, Herbst Gaming paid nearly $350 million to acquire Buffalo Bill’s, Whiskey Pete’s, and Primm Valley Resort from MGM Mirage. That’s just under 12X the (very anemic) cash flow those casinos were generating – nor were they in an area (Primm, Nev.) where raw land is in short supply. The Herbst family was simply so overeager to get three casinos on I-15 that it allowed itself to be hornswoggled by MGM. The latter, of course, was doing what it’s supposed to do: maximizing the return on its assets.

In some cases when a company pays a cash-flow multiple that’s well out of the mainstream, it’s usually rationalized on the basis of a prime location, acquisition of a player database, or even "intangible assets." This gray area is then rationalized as something called "goodwill." Since the 2004-07 period was marked by a lot of exuberant overpayment for assets, you’re seeing such "goodwill" getting written down left and right.

By contrast, a kind of negative "goodwill" sometimes comes into play. Companies are occasionally able to acquire casinos at subpar EBITDA multiples (also known as "fire sale prices") because they’re in diminishing markets. Boyd Gaming is perceived to have gotten a bargain on its Sam’s Town casino in the Shreveport area because that area was losing customers – especially those from Dallas-Fort Worth – to newly upgraded tribal casinos in Oklahoma. With the likes of MGM Mirage and Harrah’s Entertainment strapped for cash and possibly needing to liquidate assets, potential buyers are waiting to see if they can snap up Strip casinos for seven times cash flow or perhaps even less.

That brings us to the "why" of your question: Unlike the good old days, when you sell off the low-hanging fruit, casino companies are having to contemplate parting with trophy assets because they’re so overextended they have few options remaining.

MGM Mirage, for instance, may have no other way of coming up with the money it needs to complete CityCenter. Consequently, it’s willing to part with practically brand-new MGM Grand Detroit and with Biloxi flagship Beau Rivage, gambling that the $230 million-plus in annual cash flow they provide will be made up by CityCenter. It’s very risky, not only because it means trading a bird in the hand for one in the bush but also since regional markets like Detroit and Biloxi have been more resilient during the current recession than has Las Vegas. If it parts with Beau Rivage, MGM Grand Detroit, the Gold Strike in Tunica, Miss., (also up for grabs) and maybe even its half of the Borgata in Atlantic City, MGM Mirage will be almost completely at the mercy of the ups and downs of the Vegas Strip.

For the moment, prospective sellers aren’t offering any discounts. They’re trying to get the best deal they can in a bad situation and hoping that the other guy blinks first. It’s a gambit with a limited window of opportunity, though. As CityCenter starts to open for business, between October and mid-December, the number of hotel rooms on the Las Vegas Strip will increase dramatically – and continue to do so as Fontainebleau and Cosmopolitan follow suit. Unless Las Vegas tourism and gambling revenues increase in direct proportion to the glut of new rooms, cash flows up and down the Strip are going to become even more diluted than they are now. When that happens, it’ll be a buyer’s market.
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Just for info!