Adjusting to the Changes

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Reno has long been dependent on tourism; over the last hundred years there has been more than one “draw” that brought people to town. There have been rodeos, air races, balloon races, bike races, kayak races, cook-offs, easy marriage laws, city wide gaming tournaments (Festival Reno), Hot August Nights, Chautauqua, music festivals, Artown, conventions and numerous other events, including Burning Man and Camel Races in Virginia City the bring people to Reno on their way to another place; some lasted a year or two others have been ongoing for decades.

Of course, there was a time when we believed the casinos themselves were a strong enough magnet to keep our economy going – with the advent of casinos everywhere we no longer believe that, but we do still rely on special events to help bring the approximately 3 million people who visit annually and help us pay our taxes.  The special events in Reno are one of reasons that the gaming industry has survived here, regardless of the economy and competition; casino gaming is certainly smaller than it once was, but it is not at point of dying out completely.

But gaming in Reno is changing, downsizing as it were.  The picture above is of the Marina in Sparks as it was imagined prior to the economic downturn.  The hotel-casino part of project was put on hold, but the retail portion driven by Scheels – billed as being the largest sporting goods store in the world – was build out, a little slower than first thought, but it did not stop.  This week, the hotel-casinos developers have resubmitted special use permits.  The project is now envisioned as being done in phases, with just a casino and retail constructed in the first phase; the nearly 1 billion dollar hotel casino development conceived in the days of never-ending increases in income, stock prices and real estate values is not part of today’s plan. A new reality exists today and not just in gaming, it is harder to borrow money and developers are equally cautious in forecasting the revenues they will generate.

Putting a little perspective on the changes the first decade of this century has brought to Reno and Reno’s casino industry is the Siena.  It too was conceived in more ambitious days; the developer spent something in neighborhood of $80 million remodeling the old Holiday Hotel-Casino.. The Holiday was once famous for its entertainment and modern hotel, but that was 60 years ago and by 2000 was a run-down, barely functioning business. The developer, Barney Ing promised the city he would not only bring glory to his project, but he would redevelop an entire section of the river-front near his hotel-casino.  The Siena was to be the best of the best, luxury, gourmet and endless service and pampering; only the rich, famous and hip need apply. Mr. Ing even thought he would draw the best and prettiest of the casino employees of the city as they too would be eager to be part of the hip environment.  Barney intended to capture the bright young and very rich Silicon Valley Internet crowd and their ilk from around the world.  However,  then came the crash, the 9-11 attack and subsequent cut-back on travel nationally; suddenly he was left with a very large debt and no market for his hotel; and of course the Great Recession has only made things worse.

The hotel casino has struggled along, mainly by ignoring its debt until December when the developer’s father – incidentally the lender and holder of the debt – sent his son a Christmas card demanding back payment of interest payments totaling $6 million or he, the father, would foreclose. This week the city and the convention bureau said the property is delinquent on its room taxes and might lose its business licenses.  The hotel countered with a plan: Over the next year it will pay the back room taxes – $140,000 – and keep up-to-date with current taxes.  Taking a year to pay back 140 thousand dollars frames the problem, there just is not enough business to pay operating expenses, much less service the debt.  The Siena might survive, if Barney’s father doesn’t foreclose, but if it does it will do just that survive, not prosper.

That is the lesson for the developers in Sparks, don’t build more than you can support.  There are more problems with the Siena than just back taxes and debt; its design, products, management over the last nearly ten years have all contributed to its problems.  However, even without any other issues it was simply too expensive for the business it was able to attract.

The Siena is not the only business in the world to have such problems and when thinking about the businesses in trouble and the issues that might have caused the problems I frame them differently depending on the times.  Sometimes I think it is ego;  people that believe they are infallible and always right plunging into something they really don’t understand.  Other times I think it is poor planning; developers and business people who do not do enough research or put enough thought into a project before pulling the trigger and starting construction.  Other times, and these days are of that category, I think we cannot predict some major shifts in the economy or culture brought about by major events that we also cannot predict; meaning the best laid plans of mice and men can easily go wrong when the world turns upside down.


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June 2010
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