Boyd Gaming Strategic Analysis: SWOT and Competitive Position

Introduction and Overview

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 difficult economic environment. Through this, Boyd has continued to be profitable, but the company is facing a period of stagnation. This analysis examines Boyd Gaming and attempts 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 an evaluation of its competitive position. Possible strategy options for Boyd are identified at the conclusion of the paper.

SWOT Analysis

Boyd has several strengths on which to draw. The first 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 deep experience allows Boyd to make sound strategic decisions and to read the industry environment better than many competitors. Another strength is its portfolio of properties, which represent significant geographic diversification. As a result, the company is not dependent on Las Vegas for its income, maintaining properties in Atlantic City, Indiana, South Florida, the Gulf Coast, and other markets.

With respect to weaknesses, Boyd's financial position is mediocre at best. The current ratio in particular is a challenge, standing at 0.46. Given that the latest quarterly report shows a substantial amount of debt maturing, Boyd needs to find a way to finance that payment. The company is more highly leveraged than most firms in the industry and has an interest coverage ratio of only 1.16 times. Revenues are declining and the book value of the company's equity is stagnant. This points to a company that is generally weak financially, though not so weak that it faces immediate jeopardy.

Another weakness stems from the loss of the Stardust, its former flagship property. Boyd demolished the Stardust because it was aging but failed to replace it. Given that the Stardust was a major source of income, its loss has hurt the company considerably. Boyd now holds a strong brand in gaming that it is not using, and its attempt to launch a new, generic brand — the Echelon — was subsequently scrapped. Long-term planning does not appear to be Boyd's strong suit.

There are only a handful of meaningful opportunities in the market at present. Industry revenue is growing slowly and dipped during 2009 following the economic downturn. Growth rates in the industry average only around 1% per year, indicating that customer volume has changed little over the past five years and that inflation is largely driving any growth. With that in mind, geographic expansion into new territories, restoring the company's position in Las Vegas, and industry consolidation represent the best opportunities in a challenging market.

There are a number of significant threats. The first is the economy, as evidenced by a 3.3% decline in industry revenues in 2009 when economic conditions stagnated. A slow-growing economy should produce a slow-growing industry, and any further downturn would hurt Boyd directly. The company also faces strong competition. Major casino companies — including Wynn, MGM Grand, Caesars, and Sands — are all larger than Boyd Gaming, each with a stronger roster of properties. This gives them the ability to attract more customers, operate more cost-competitively, and secure top-tier entertainment talent. Another threat lies in the legal environment. The gambling industry is heavily regulated, so any changes to regulations — or any violation of existing rules on Boyd's part — could materially constrain the company's ability to conduct business.

In order to determine strategy, the company needs to evaluate its strengths with respect either to capturing opportunities or to mitigating threats. Conversely, the company must also seek to address its internal weaknesses. Unfortunately, there is relatively low congruence among the SWOT elements from which to form strategy. The firm likely does not have the financial capacity to take full advantage of the new opportunities before it. The best it could hope for is to leverage its industry experience to facilitate consolidation with smaller competitors. Merger and acquisition activity is one way for Boyd to continue to grow, and the company can use its equity to fund such acquisitions.

Another key strategic point emerging from the SWOT analysis is that the company can improve its performance simply by addressing its internal finances. Boyd is facing lean times characterized by slow growth, possible industry consolidation, and an almost certain increase in competitive intensity. As a result, Boyd should expect the need to cut costs and become more efficient in order to maintain existing profit levels going forward. Such financial austerity can also help to lower the debt-to-equity ratio.

Environmental Analysis

The remote environment is challenging given prevailing economic conditions. No significant threats are anticipated in the legal environment, but the industry relies on a healthy level of consumer spending, since gaming is a form of discretionary expenditure. If the economy does not improve, Boyd will face not only ongoing slow-growth conditions but will also be unable to replace the Stardust with any new development — the Echelon project has already been postponed indefinitely.

The industry environment is essentially in a holding pattern. Many of the major firms have experienced reduced revenues — MGM Grand in particular is struggling financially. Sluggish growth will drive all firms to compete vigorously for existing customers, compressing margins across the industry. Firms may also begin to consolidate if organic growth and geographic expansion are not viable options. Mature industries frequently undergo successive rounds of consolidation, and this outcome may come to the U.S. gaming industry if overcapacity continues to characterize the sector.

The operating environment is generally favorable. Firms in the industry continue to hold significant bargaining power over staff, largely due to the elevated unemployment rate. In addition, the importance of the gaming industry to local economies in states that permit gambling generally creates a favorable regulatory climate. There are few constraints in the operating environment that would impede Boyd Gaming's ability to implement its chosen strategies.

Conclusion

Boyd Gaming is facing difficult conditions but has managed to contain the damage thus far. However, the firm's major strategic thrust has been sidelined, and this has caused the company to shrink over the past several years. Boyd needs to take deliberate steps to reverse that trend. The recommendations outlined here — cost reduction and growth through acquisition — would position Boyd as a larger and more efficient company, enhancing its ability to compete with industry leaders. Boyd can implement these recommendations over the next one to five years as a gradual process of self-improvement. There is reason to believe that, if executed effectively, these steps can build Boyd into a market leadership position within the U.S. gaming industry and deliver meaningfully better value to its shareholders in the process.