The Future of Binion's

by Nick Christenson
December 27, 2009

As a sign of the troubled economy, especially as it impacts downtown Las Vegas, the venerable Binion's Gambling Hall & Hotel announced it would close its hotel rooms for an indefinite period. Needless to say, this has caused considerable consternation among those who follow Las Vegas. This article explores some possible implications of this move.

The Facts
It has been a bad year for Las Vegas. The downturn in the economy has hit the tourism industry harder than ever before. Moreover, this came at a bad time, while Las Vegas was in the middle of a large construction phase and just after several of the gambling industry's largest companies had completed a recapitalization at the peak of the market. Rooms stand empty, casinos are precariously leveraged, and executives need to make difficult decisions about whether to complete or moth ball projects.

As bad as things are on the Strip, downtown things are even worse. As Strip casinos discount rooms, they attract the few "value conscious" Las Vegas visitors able to afford travel to southern Nevada, normally downtown's target demographic, to their Strip properties. At the same time the "jewel of downtown", the Golden Nugget opens a brand new 500 room hotel tower, further diluting the available customer base.

It is possible for downtown hotels to continue to cut room rates, but there is a level below which it makes no sense to cut prices, and current pricing seems to be as low as casinos are willing to go. So, if nobody wants to stay in your rooms at the lowest price you're willing to sell them, what happens then? The rooms stay empty. A hotel will, essentially, close down as many floors of their hotel as the situation requires until demand comes back. Las Vegas often does this at especially slow times of the year, but this year times are so lean that many casinos justify closing one or more entire hotel towers.

If closing floors and even towers isn't enough, the next step is the one TLC Casino Enterprises has taken, and that's to close hotel service altogether. Binion's took this step on December 14, along with closing down their keno lounge and legendary hotel coffee shop (which was already operating on severely curtailed hours). The Binion's staff encourages its few putative patrons to sleep, dine, and play keno at their sister property, the Four Queens, while still patronizing Binion's Steak House, the expanded "cafe" (which used to be the east snack bar), and the casino, especially the poker room, for which Binion's is widely known.

Binion's has made some changes to the casino floor, probably in anticipation of lower traffic. They removed the gaming tables from the part of the pit that sits in front of the east cashier. They've removed the machines between the west tower elevators and the steak house and replaced them with temporary poker tables (I'm not sure why. It's not like Binion's didn't already have plenty of unused poker tables sitting around the casino floor.) They also expanded the capacity and menu of the west snack bar, now called the "cafe". Management put some thought into what operations made sense after hotel operations would be closed.

The Glass is Half Empty
Of course, this is a drastic step, in fact, as far as I know, it's unprecedented in the history of the Las Vegas casino industry. Where does a casino get it's customers? Conventional wisdom says they come primarily from guests who stay there. No guests? The result is very little business. The concern is that by closing the hotel tower, the casino will become a ghost town. If nobody comes there to gamble, then there will come a point where the casino isn't making enough money to support the cost of keeping the property open, and the fear is that management will shutter the property altogether, waiting for better times.

Does anyone want to gamble in a casino that has shut its hotel rooms? Will patrons not want to accumulate comps at a place they fear will shut down? Will employees react by redoubling their customer service in order to preserve their livelihoods, or will morale be so low that service declines, leading to a self-fulfilling prophecy of low customer expectations? Closing the hotel can have ripple effects throughout other services that drive customers away.

The Glass is Half Full
From management's standpoint, they largely view the Four Queens/Binion's relationship as one property separated by the intersection of Fremont Street and Casino Center Boulevard. In that sense, closing the Binion's hotel tower is not much different than any Strip property closing one of it's hotel towers. In fact, the walking distance between the Four Queens hotel and Binion's casino is shorter than a similar walk in a property such as the MGM Grand. Of course, it's not at all clear that casino customers will be as comfortable with this analogy.

It's also entirely possible for a downtown casino to drum up significant business via foot traffic. This is much more difficult these days on the Las Vegas Strip. One of the appeals of downtown is that the entire range of services available at each casino is available to any downtown patron after a short stroll. Other downtown casinos, such as the Golden Gate which has barely 100 hotel rooms, also depend on a combination of foot traffic from neighboring hotels and locals.

For many years, the Pioneer was a viable downtown casino without any hotel rooms. Of course, they eventually closed, but if they were backed by a viable company, and were limping along in a down economy that looked like it might be getting better, I expect they would have stayed open during the lean times in order to capitalize when business improved. There are obvious potential pitfalls with this analogy, but it simply aims to demonstrate that the notion that a downtown casino can get buy during lean times without visitors staying on the property isn't ludicrous on its face.

One unusual aspect to the operation of several of the downtown casinos is that the casino owner/operators don't always own all the land on which their enterprises reside. This is true for Binion's as well as the Four Queens, and TLC has disputed the rent agreement currently in place with its landlords. It might be the case that closing a hotel tower provides some additional evidence that the current rent structure is unreasonable in the event that the situation ends up in front of some sort of arbitrator.

In any case, it's not entirely clear to anyone, even, I think, to TLC's management, whether closing the Binion's hotel rooms is a temporary measure designed to help the company get through temporary lean times or if it's the prelude to shuttering the whole property, again, either temporarily or for an indefinite period of time. What can we look for in the short term that might indicate which way things might tip?

Bad Signs
As long as the casino is doing a good chunk of the business they would be doing if the hotel rooms were open, I expect the property to stay open. So, the worst indicator for the viability of Binion's would be to see an empty, or nearly empty casino. If nobody is staying there, eating there, or gambling there, there's no reason to keep it open at all. While carrying a money-losing property for a little while would be preferable to the money and good will lost by closing and soon reopening, there are limits as to what TLC can absorb.

Another bad sign would be if the economy gets significantly worse. There's no question that as a whole the downtown Las Vegas resort industry isn't profitable at the present time. If things slide further and fewer people come to Las Vegas and spend less money, something has to give, and it's definitely Binion's that is most in jeopardy downtown.

Yet another bad sign would be if Binion's continues to cut back operations as they go. Taking out shared jackpot or high payoff games, closing down banks of machines or additional portions of table games pits, or continued layoffs and cutbacks in service would all indicate that the bleeding continues. Escalated tensions between TLC and its creditors and landlords would also be an additional cause for concern.

We also have to keep an eye on what's going on at the Four Queens. One of the hopes is that by closing Binion's, room occupancy at the Four Queens would go up. It remains to be seen if that will be the case. If business at the Four Queens also declines markedly, then that would indicate that the efficiencies from consolidation weren't working.

Good Signs
Binion's has talked about using the fact that the rooms will be unoccupied to perform some much needed upgrades and renovations. Evidence that TLC is doing just this would be a good sign. There's no good reason to upgrade if one doesn't anticipate reopening those rooms. Moreover, if TLC is taking in enough money to still feel comfortable spending on capital improvements, that would be a very good sign.

Reversing some of these negative factors, considerable activity in the casino, Binion's reopening some closed services such as the coffee shop, and a general improvement in the overall economy, would all be good signs. Finally, what would be really good is if Binion's could announce an expected time frame in which they expect to reopen those rooms. Even better would be if they met their goals. Of course, since this depends on external factors, I don't expect to hear such a public announcement from TLC. Announcing a projected reopening time and failing to meet it due to circumstances beyond their control would be a larger net negative in terms of PR than the credit they'd get for reopening on time over and above the fact that they actually reopened.

How Does It Look?
I took a stroll through Binion's on Monday, December 7 (during the National Finals Rodeo) before the hotel tower had closed and again on Saturday, December 26 after the rooms were taken out of service. Obviously, there's not much you can tell from these two times. The first visit was on a Monday, one of the slowest days of the week, but it was during NFR, a relatively busy time, at least for the winter season. The second visit was on a Saturday, but on one of the slowest weekends, especially since Christmas fell on a Friday this year.

So, it's dangerous to overgeneralize from this sample set, but it actually looked pretty rocking on the 26th, more than I had expected. It wasn't crowded, not by any means, and Binion's was considerably less busy than the Four Queens, but the place wasn't deserted by any means. Of course, looking at the trend lines, whether the number of customers stay constant or decline over time, will be more telling. We'll just have to see about that.

Conclusions
So, will Binion's closing their hotel rooms be a temporary measure that helps them get through the lean times, or will this be a first step on a spiral down that eventually closes down Binion's, spells doom for TLC, and eventually turns the heart of Las Vegas into a radioactive ghost town? Well, the latter eventuality is rather unlikely, but the bottom line is that nobody knows what's going to happen. However, we do know what to look for that will indicate whether this move represents a setback or an omen for this venerable casino. Along with many other people, I'll be paying close attention to what happens next. Until I have more evidence, it's probably best to remain calm and see how events develop.