Boyd Gaming is facing a challenging operating environment. The company is shrinking, having demolished the Stardust and placed construction of its replacement project -- the Echelon -- on hold. The past few years have also seen a challenging economic environment. Through this, Boyd has continued to be profitable, but the company is facing a period of stagnation. This analysis will take a look at Boyd Gaming, and attempt to determine what the company's strategic options might be. The SWOT framework will be used to help identify the key internal and external factors. In addition, there will be a discussion of the different operating environments, an assessment of its resources and its competitive position. Some possible strategy options for Boyd will be identified as well, at the conclusion of the paper. Boyd has some strengths on which to draw. The first of these is the company's extensive experience in the industry. Boyd was one of the earliest casinos in Nevada, and is still run by the founder's grandson. This extensive experience allows Boyd to make good strategic decisions and to read the industry environment better than the competition. Another strength on which Boyd can draw is its properties. These represent significant geographic diversification, such that the company is not dependent on Las Vegas for its income. It has properties in Atlantic City, Indiana, South Florida, the Gulf Coast and others.

With respect to weaknesses, Boyd's financial position is mediocre at best. The current ratio in particular is a challenge for the company, at 0.46. Given that the latest quarterly report shows that the company has a substantial amount of debt maturing, Boyd needs to find a way to finance that payment. It is more highly leveraged than most firms in the industry, and only has an interest coverage of 1.16 times. Revenues are declining and the book value of company's equity is going nowhere. This points to a company that is generally weak financially, although not so weak that it is in immediate jeopardy. Another weakness comes from the loss of its flagship property the Stardust. Boyd demolished the Stardust because it was aging, but failed to replace the property. Given that the Stardust was a major source of income for the company, the loss of the property has hurt the company. Now it has a great brand in gaming (Stardust) that it is not using, and for some reason Boyd thought it could launch a new, generic brand (Echelon) only to scrap that plan. Long-term planning does not appear to be Boyd's strong suit.

There are only a handful of opportunities in the market at present. IBISWorld reports that industry revenue is growing slowly, and dipped during 2009 with the economic downturn. The growth rates in the industry is only around 1% per year on average, indicating customer volume probably has not changed much in the past five years and only inflation is driving growth. With that in mind, geographic expansion into new territories, restoring the company's position in Las Vegas and industry consolidation form the best opportunities in a challenging market.

There are a number of threats, however. The first is the economy, as evidenced by the 3.3% decline in industry revenues in 2009 when the economy stagnated. The company is facing a slow growing economy that should result in a slow-growing industry, but any further downturn will hurt Boyd. The company also faces strong competition. Major casino companies like Wynn, MGM Grand, Caesar's and Sands are all larger than is Boyd Gaming, and each of these companies has a stronger roster of properties as well. This can allow them to attract more customers and be more cost-competitive than Boyd, in addition to having superior abilities to attract star performers. Another threat lies within the legal environment. The gambling industry is heavily regulated, so any changes in the regulations or any violation of existing regulations on the part of Boyd could constrict the company's ability to do business.

In order to determine strategy,...

Conversely, the company must also seek to eliminate its own internal weaknesses. Unfortunately, there is relatively low congruence within the elements of the SWOT with which to form strategy. The firm probably does not have the money to take advantage of the new opportunities afforded it. The best it could hope for is to use its experience within the industry to help it consolidate with some of its smaller competitors. Merger and acquisition activity is one way for Boyd to continue to grow, and the company can make acquisitions with its equity.
Another key point of strategy that emerges from the SWOT analysis is that the company can improve its success level simply by addressing its internal finances. Boyd is facing lean times with slow growth, possible industry consolidation and nearly certainly there will be an increase in the intensity of competition. As the result of this, Boyd should expect that it will need to cut costs and become more efficient in order to keep existing profit levels going forward. Such financial austerity can also help to lower the debt-equity ratio.

The remote environment is challenging, given the prevailing economic conditions. There is not expected to be any significant threats in the legal environment, but the industry relies on a health level of consumer spending, because gaming is discretionary spending. If the economy does not improve, not only will Boyd be faced with ongoing slow growth conditions, but it will never be able to replace the Stardust with any project -- the Echelon has already been put off indefinitely.

The industry environment is essentially in a holding pattern. Many of the major firms have seen reduced incomes -- MGM Grand in particular is struggling financially. Sluggish growth is going to result in all firms competing vigorously for existing customers, and this should reduce the margins for all firms in the industry. In addition, firms in the industry may begin to consolidate, if organic growth and expansion are not options. Often mature industries face success rounds of consolidation, and this may come to gaming if the industry continues to be characterized by overcapacity.

The operating environment is generally favorable. Firms in the industry continue to have a high level of bargaining power over staff, largely the result of the current high unemployment rate. In addition, the importance of the industry to the local economies in areas that allow gambling generally makes for a favorable operating environment with respect to the regulatory environment. There are few constraints in the operating environment that would impede the ability of Boyd gaming to implement its strategies.

Boyd has a neutral competitive position. The company is one of the larger gaming companies in the U.S., but does not hold a super-premium position. It seeks the mass market, and in that has a fairly neutral position within the industry. Boyd generally lacks the prestige of its larger competitors, but holds a good position over its smaller competitors. Being in the middle of an industry is risky, however, and the company should attempt to find a clear strategy for itself.

Boyd has decent human resources and some good properties with which to work. Its stock is also something it can use, especially to help it grow. Boyd's resources, however, are not superior to those of its competitors, so the company needs to use its resources better in order to derive competitive advantage. The core resource that the firm has is with respect to its properties, and Boyd can bolster this resource by acquiring more properties.

Based on the analysis of Boyd's internal strengths and resources, and the prevailing external conditions, there are two key recommendations for Boyd Gaming. The first is to reduce costs. The industry does not look especially favorable going forward, unless there is a…