Sometimes it is just too late

Sahara offers last good-byes after 60 years.

At some point most businesses find that their business model was built for the other times, times that have gone the way of the dodo bird.  Few of us of the kind of long term vision that transcends our times.  Although I did meet an Italian once whose family had been in the hotel business for 400 or 500 years.  He said, given enough time (you know, like hundreds of years) a person, family or business could developer a conservative business model that can out last the world in which it was designed; his family had lived through plagues and wars and depressions, as well as booming times of wealth and abundance: “Don’t spend too much, don’t get too much debt, keep lots of money in the bank and never follow the fads of the day,” was his family’s credo.  The hotels they operated changed from generation to generation and the locations changed, even the languages they spoke changed, but the family business did not change – they operate hotels.

Not many families have that much tradition or wisdom; most of us have at best a generation or two of accumulated wisdom.  The most unlucky amongst us have none; they have to learn to cope with the world on their own.  My family has a few generations of tradition, but little wisdom.  We have some rituals that may help center us and gives us confidence, but they are not much help in times of financial crisis or financial opportunity.  No one in my family had owned a business, in fact no one had managed one, I come from a family whose members worked for living; they had skill with their hands, and only occasionally with their brains.

That puts me in a very sympathetic position for the people who build the Sahara Casino in Las Vegas; and even more with those that followed and tried to remake it into a success.   The Sahara has not been a success in a very long time; although a few have tried.  Paul Lowden spent $50 million to buy the property in 19882 and spent another $50 million to bring it up to the competitive standards of the day.  Lowden sold it to Bill Bennett in 1995. who made his millions at Circus Circus; Bennett spent $193 million to buy it and then another $100 million to bring it up to his competitive standards.   Bennett died and his estate sold the property for an estimated $300-400 million in 2007.

The problem with each of the owners who spent a great deal of money to make a tired old property competitive was their definition of the competitive standards.  Lowden was, without knowing it, trying to compete with Steve Wynn and $500 million Mirage.  Lowden did know Wynn was coming back to town or what he would build; the odds Lowden got on his bet were not good odds.  Lowden was putting his $50 million against Wynn’s $500 million.  And he was putting his ideas against Wynn’s; Steve Wynn has always been able to predict and build for the future, Lowden was building for the past.  Bennett fell in the same category, he was building his vision, one that was by 1995, 20 years out of date; but worse by 1995 Bennett’s $100 million 1975 Circus Circus model had to compete against Steve Wynn’s $1.5 billion Bellagio.  Those odds were a lot worse than Lowdens.

The last owners were probably just speculating, buying the Las Vegas Strip, knowing that someone would come along and pay twice as much just for a chance to spend billions for the another Strip miracle.  Oops, the economy has gone in the tank and no one is buying or building.  Karl Icahn, the latest speculator to buy into the Strip, bought a multi-billion dollar stalled development for pennies on the dollar – he sold the fixtures and furniture at auction and is now said to be thinking of tearing the structure down and selling it as scrap. Icahn says he is willing to wait for 10 or 20 years to recoup his investment.

And that leaves the Sahara with nothing to do; no one wants to make it competitive with the last two billion dollar (1.5 billion and 9 billion respectively) money money losing developments, Cosmopolitan and CityCenter. No one wants to do anything with it.  Somewhere the long line of Sahara owners could have used the family wisdom of the Italian hotel family; don’t spend too much, don’t borrow too much, keep some money in the bank and don’t follow the current fads.  The Sahara held its most successful promotion as part of its funeral; all of the progressive liability was given away $500 at a time.  Players got drawing tickets and the drawings continued until all of the money was gone.  Fitting, no? Until giving away the money until it was all gone; a perfect recipe for business failure.


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