Hype, Hope Aren’t Enough : Vegas Tower Fails to Cash In

Even in this era of bigger and better, few recent Las Vegas openings matched that of the Stratosphere tower less than four months ago.

Once designed as the largest free-standing tower in the world, the 1,149-foot Stratosphere came equipped with two sky-high thrill rides, cloud-level wedding chapels and a revolving restaurant.

Alas, the structure now stands as proof that even in Las Vegas, glitz doesn’t guarantee success.

Facing a cash crisis, the company said Wednesday that it hired an investment banker to somehow reorganize its eroding finances because its casino take is insufficient to finance its debt. That followed weeks of disastrous business, financial and managerial reversals.

Stratosphere is a case study in how extreme hype--even in glitzy Las Vegas--can blur investors’ vision of whether their company is tending to the mundane business fundamentals that will make it successful.

It also demonstrates that a poorly executed hotel-casino project is still a gamble in Las Vegas, even though the city last year set records for visitor attendance (29 million) and gaming revenue ($5.7 billion).

Stratosphere’s problems became clear almost immediately after its April 29 opening. Much of the $550-million casino-hotel complex was unfinished, and a good part of its retail space opened late. (Even today, only 1,560 of the 2,500 planned hotel rooms are open.)

Also a problem is its very location: a a seedy site on the north end of the Las Vegas Strip, distant from both the mega-resort southern end of the Strip and the recently refurbished downtown casino district.

Attendance at the tower, once projected at 100,000 visitors a week, has averaged only 77,000. As roller coasters go, Stratosphere’s was judged so lame that shortly after the launch, it was closed for “enhancements” that will include making it faster and longer, a spokesman said. It has not yet reopened.

Worse yet, many visitors to the tower have bypassed the casino--in part because the designers ignored the Vegas axiom that all foot traffic should be funneled through the casino area.

Stratosphere “just relied on the tower itself” to draw enough people, said Anthony Curtis, publisher of the Las Vegas Advisor, a local tourist newsletter. “That wasn’t a big enough sizzle.”

The result: Stratosphere lost $11 million on revenue of $29.9 million for the second quarter ended June 30, and its president, David Wirshing, quit July 29. Its stock has plunged from $14 a share in May to a close Wednesday of $1.625 on the Nasdaq Stock Market, and prices of its publicly traded bonds have skidded 20% or more. Investors have filed several lawsuits against the company, blaming their losses on alleged mismanagement.

“We had an underwhelming opening,” acknowledged Richard Schuetz, who took over as Stratosphere’s president three weeks ago. “And we’re going to fix it.”

Stratosphere hopes its investment banker, Donaldson Lufkin & Jenrette, can straighten out the company’s cash crunch by restructuring its more than $200 million of debts and raising more funds.

No matter how it’s done, its likely Stratosphere’s bondholders will demand ownership of the company, analysts said.

“Whatever equity is left the creditors will get,” said Bruce Turner, an analyst at Salomon Bros. “If you’re an equity holder, you should expect zero, and if you get more than zero, you’ll be ahead of the game.”

Already bailing out is the complex’s original promoter, Bob Stupak, who has been aggressively selling thousands of his Stratosphere shares as the price has tumbled.

Stupak founded the company and razed his gaudy Vegas World casino-hotel to make way for the tower. He later sold much of his stake to Grand Casinos Inc., as a way of raising cash to finish the tower. Grand Casinos today owns 42% of the company.

There has been speculation that Grand Casinos will step forward with another cash infusion to help bail out Stratosphere. But Turner noted that “Grand Casinos has a responsibility to its own shareholders. They can’t throw good money after bad.”

As for the complex itself, Schuetz said he’s aggressively working to get gamblers into both Stratosphere’s casino and tower.

How? By giving gamblers better odds on slot machines and other games. Schuetz also cut admission prices for the tower (from $7 to $5) and its rides.

Curtis, the newsletter publisher, thinks the changes will lead Stratosphere to, well, higher ground--assuming the company gets its finances in order.

“This new campaign is going to get this place discovered,” Curtis said. But he added: “This is a work in progress.”

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Downhill Coaster

Stratosphere Corp. stock prices, every other week since April and latest:

Wednesday: $1,625

Source: Bloomberg Business News