Debt Matters in Vegas Seven

This week in the Green Felt Journal I wanted to revisit an issue that continue to be relevant: casino debt loads”

It’s the dark matter of the Las Vegas casino business: there, but not readily apparent to the naked eye. You can spy reflections of it in deferred maintenance and longer check-in lines on the Strip. It’s casino debt, and it could remake the Strip over the several next years. Or not.

via Debt Matters | Vegas Seven.

I also have a web extra–some thoughts from Applied Analysis principal Jeremy Aguero on what’s happened on to the Strip’s mountain of debt. You can read it here.

Casino debt levels’ adverse effects in LVBP

My commentary piece on casino debt came out in the Las Vegas Business Press yesterday:

Like households, all businesses take on debt as a part of their usual operations. Without borrowing money, it is difficult, if not impossible, to grow. Casinos are no different; for decades, theyve been borrowing money to build, expand and renovate. Over the past four years, however, casino debt levels have risen to unprecedented heights, something that may have an impact on the financial performance of Nevadas casino industry in the future.

via Las Vegas Business Press :: David G. Schwartz : Casino debt levels could adversely affect future.

I think this is a topic that hasn’t gotten enough attention. It’s certainly got the potential to upset the applecart.

I’m aware that many analysts and experts don’t see problems with casinos having taken on this debt. But I’m also aware that many experts didn’t see any problems with casinos overleveraging themselves to take themselves private or investing on the continued growth of the condo market in Las Vegas. If more people with doubts had spoken up then, it’s possible that things would be different today.

And if you’re interested in what people who rate debt for a living think, Moody’s believes that debt might be a problem for certain Nevada gaming operators, too.

Talking Vegas debt in Vegas Seven

Another Thursday, another Green Felt Journal in Vegas Seven. This week, I tackle casino debt with the help of Eugene Christiansen:

It’s no secret that casino companies are more debt-encumbered now than they’ve ever been. In 1990, the average big Las Vegas Strip casino (those earning more than $72 million a year in gaming revenue), had $7.8 million in long-term debt attached to it. By 1999, that number had soared to $171.5 million. And as of 2009, the total stood at $860 million. That’s a lot of borrowing.

And yet casinos continue to borrow money—last month MGM Resorts International sold nearly $500 million in bonds that it plans to use to pay loans that are coming due in 2011. And Boyd Gaming is preparing a similarly sized bond offering for much the same purpose.

Gambling on debt | Vegas Seven

It’s almost hard to wrap your head around how much debt casinos have these days. This is definitely a concern for the financial health of the industry, and therefore the state, in the future.

I’ll probably be writing more about casino debt in the coming months, though it will likely be in a more academic channel.

Bad debts in perspective

According to the 2007 edition, page 2-19, in 2007 the 23 casinos in the Las Vegas Strip area that made more than $72,000,000 had total casino revenues of about $5.9 billion, and wrote off about $112.5 million to “bad debt expense.” So 1.9% of total casino income is lost to bad debts.

In the wake of the Ausaf Umar Siddiqui case, I’ve gotten a few calls from reporters about casino credit gone bad. Since individual casinos don’t generally release lists of which of their credit players are deadbeats and which aren’t, I had a hard time estimating just how common it is for players to run up multi-million dollar debts with casinos. Looking at the lawsuits filed tells you how many of them go to court, but what about those that don’t?

Looking at the Nevada Gaming Abstract I got something of an answer. According to the 2007 edition, page 2-19, in 2007 the 23 casinos in the Las Vegas Strip area that made more than $72,000,000 had total casino revenues of about $5.9 billion, and wrote off about $112.5 million to “bad debt expense.” So 1.9% of total casino income is lost to bad debts.

To put it in perspective, that’s more than the sports books made in the entire year ($83 million). It’s also roughly ten percent of the total spent on casino comps (about $1.3 billion). Unfortunately, I can’t tease out what percentage of markers end up unpaid, but as you see it’s clearly statistically significant.

Another interesting tidbit–casinos lost about $5 million to bad debts in the rooms department, $1.1 million in food, and $47,000 in beverage. Is this a case of credit card chargebacks or something? I know that restaurants are getting expensive, but I don’t think they offer in-house payment plans or layaway.

Here’s something to make you feel better: no matter how bad things are going for you at your job, I’m pretty sure you didn’t make $5 million in bad loans during the year, as the average Strip credit manager apparently did.

The Nevada Gaming Abstract is full of such enlightening numbers, which is why it’s the inaugural featured resource over at

Casino debt hall of fame

A recent case of kickbacks opens up an interesting public policy question that will probably not be answered. From the LV Sun:

A vice president of Fry’s Electronics who is accused of swindling the company out of more than $65 million has long been on the radar of Clark County prosecutors.

The Internal Revenue Service accuses Ausaf Umar Siddiqui, who has since been fired as Fry’s vice president of merchandising and operations, of helming a kickback scheme to help pay off his enormous debts amassed at Las Vegas casinos.

Since 2001, the bad check unit of the Clark County district attorney’s office has filed criminal complaints against Siddiqui in connection with at least $12.2 million in unpaid markers, according to the head of that unit, Bernard Zadrowski.

Siddiqui, Zadrowski said, is a whale — someone who bets in excess of $100,000 — and is among the top five debtors ever to pass through the bad check unit.

The Palo Alto, Calif., resident has repaid his $1.71 million debt to Binion’s and paid another $4.8 million to Caesars, but still owes Caesars Palace about $5.7 million, Zadrowski said. “Mr. Siddiqui has been paying back his restitution according to negotiations,” Zadrowski said.

It’s unclear whether these debts are related to Siddiqui’s alleged kickback scheme. Siddiqui repaid the Binion’s and Caesars markers documented by the bad check unit through cashier’s checks, said Zadrowski, who added he does not know the origin of those funds.

DA says Fry’s executive was major debtor in Las Vegas

Maybe as a supplement to the Gaming Hall of Fame exhibit over at we should put up a “Las Vegas Bad Marker Hall of Fame.” It would certainly add some spice to the site.

I like the part about how it’s “unclear whether these debts are related to Siddiqui’s alleged kickback scheme.” Ya think?

According to the SF Chronicle article about the same story, Siddiqui’s paid $120 million to Vegas casinos since 2005, even though his annual income is only $225,000.

Do casinos have the obligation to make sure all of their customers earned their money on the up-and-up? Right now, they don’t, and unless we want to subject high rollers to intrusive background investigations by privately-hired auditors and investigators, I don’t see it happening. The casinos already have their hands full keeping up with Title 31 filings, which they see as doing their part to prevent money laundering. They can say, with some justification, that no other business is asked to investigate its clientele to mitigate the possibility of previous malfeasance. If Nevada casinos were required to verify that all of their clients were completely law-abiding, many players would visit other jurisdictions rather than submit to lengthy investigations.

As a practical retort, though, critics can respond that most other businesses don’t take $120 million from customers over three years. And most lenders, before loaning out their money, ask for some kind of income verification.

From a law-enforcement perspective, it would probably be a better world if guys like Siddiqui could get caught before they had swindled others out of $65 million. Politically, though, neither the casinos nor the players, nor, I suspect, the states have any strong desire to rewrite the regulations to prevent someone from doing what he did. To the extent that anyone in Nevada actually talks about the issue, the need for revenue will likely trump criminal justice here.

There’s another question that I’ve always wanted to know the answer to, but don’t think there’s a practical way to find out: what percentage of money gambled in legal casinos is illegitimate–either embezzled or otherwise obtained unlawfully? That’s a subset of the bigger question of how much money circulating in the American economy is dirty. The answer can’t be zero, because we know that there is a great deal of crime that’s quite lucrative, and those criminals have to spend their money somewhere, unless they’re stashing it all in the Caymans. I guess if you totaled the entire amount of money that’s been discovered to have been embezzled, stolen, seized in drug raids, etc, you’d have an idea of what’s been detected, but how many criminals, particularly smaller ones, never get caught?