Aztar Corporation - Early 1990s Struggles
Early 1990s Struggles
The initial few years after the restructuring were difficult ones for Aztar. Revenues fell from $522.3 million in 1989 to $508.2 million in 1990 to $481.3 million in 1991. Following an operating profit of $67.4 million in 1990, Aztar managed only a $61.4 million profit in 1991. Many factors contributed to the company's struggles. In 1990 a breach of contract case, which was originally brought against Ramada in the early 1980s and assumed by Aztar following the restructuring, cost the company $34.3 million. Competition was increased with a casino building boom in 1989 and 1990, which saw the completion of the 3,000-room Mirage and 4,000-room Excalibur in Las Vegas, a 2,000-room Hilton in Laughlin, and Atlantic City's 1,250-room Taj Mahal (which made TropWorld the second largest casino in Atlantic City). This increased capacity greatly exceeded demand with the onset of economic recession, and in particular when the Persian Gulf crisis of late 1990 and the war in early 1991 greatly decreased travel and tourism traffic. Adding to the difficulties for the Nevada casinos was California's severe recession, while TropWorld felt the impact of the deep recession in the northeastern United States.
Aztar's management—now led by Rubeli who took over the CEO slot in February 1990 and then the chairman position two years later—adopted several strategies to address the difficult environment. While many casinos battled each other for customers through such bargains as reduced room rates, package deals that included transportation, and cheap buffet-style meals, Aztar decided not to chase after people lured by these bargains because they did not tend to spend much money gambling. Rather than trying to attract all potential gamblers, the company decided to take a niche approach to its marketing by concentrating on what they called the "high end of the middle market." Such customers spend between $100 and $400 gambling during an average day. In Las Vegas, for example, this placed the Tropicana between such lower-end casinos as Circus Circus, whose guests spend less than $100 per day, and upscale casinos such as Caesars Palace, a facility for high rollers. In essence, the company sought to attract fewer people who would spend more in their casinos than to seek a high volume of gamblers. To this end, Aztar eliminated many of the bargains it once offered. One strategy to reach its desired clientele and to encourage repeat visitors was the initiation of a program modeled after airline frequent-flier programs. Another tactic was to deemphasize baccarat, favored by high rollers, and concentrate on slot machines.
While the company pursued its new marketing strategy in Atlantic City and Las Vegas, it decided in 1991 to expand its Ramada Express casino in Laughlin. Laughlin had also seen a huge increase in hotel rooms in 1990 and 1991 (nearly doubling to more than 8,000 rooms), but Aztar management saw a window of opportunity for expansion during the next two years based on the limited capacity of Laughlin's water and sewer system. Because the Ramada Express had been designed to accommodate 1,200 rooms (at the time it was built, Ramada lacked sufficient capital to build it to its capacity), it could be expanded with its current water and sewer allocations. Aztar calculated that other casinos could add only an additional 1,500 rooms in Laughlin based on their water and sewer capacities. In late 1992, the $75 million expansion began. Upon its completion in September 1993, Aztar had increased the hotel space of the Ramada Express to 1,500 rooms with the addition of an 1,100-room tower, and also added 20,000 square feet of additional casino space (for a total of 50,000 square feet), a new parking garage, and additional meeting space and restaurants.
The company's strategies began to pay off with revenues beginning to turn around in 1992. That year Aztar realized a 6 percent increase in revenues over the previous year, from $481.3 million to $512 million. The slow but steady growth continued the next two years with revenues of $518.8 million in 1993 and $541.4 million in 1994. Evidence that the company's marketing strategy was working came in the form of increased revenue from slot machines, up 19 percent in 1992. Aztar was also able to solidify its financial position during this period. Late in 1992 the company refinanced $171 million in high-yield notes, reducing its debt payments in the process. In 1993 it bought out the limited partners that had owned a majority interest in the TropWorld property for approximately $62 million in cash, gaining complete control over Aztar's largest asset.
Join eNotes
Over 3,500 study guides, question and answer forums, literature criticism, reference content, and much more!
Navigate
