Two Way Hard Three | Las Vegas Casino & Design Blog

November 12, 2010

SIMPSON ON VEGAS #009: The Armchair Executive

Posted by Hunter

Jeff Simpson is back and this time around he's sharing his prescription for some of the most famous assets on The Strip and nearby.

How do you think these properties can survive the downturn? Share your thoughts in the comments.


After reading Hunter's thought-provoking piece "Let the Bummer Years Begin" (Oct. 27) I thought I would explore what the next decade will be like for the Las Vegas Strip and what operators should do to improve their prospects.

First, what I think is most likely to happen. Big picture, I believe the economy will improve within a couple of years and that Americans will eventually resume most of their prior patterns of spending and consuming, although the memory of the recent recession may prompt more caution, saving and value-seeking. The aviation business will continue consolidating, ceding more business to Southwest Airlines and new startups, with air capacity into Las Vegas suffering because leisure travelers are less willing than business travelers to pay higher airfares. Asian casino markets will grow fast enough that the notion that Las Vegas is the casino center of the world will seem quaint.

On the Las Vegas Strip, property values will stay low until revenue streams, especially those from hotel rooms and the casino floor, rebound. I will be shocked if anyone opens a new resort in the next five years and it wouldn't surprise me if it's more than 10 years after Cosmopolitan opens until a new resort premieres.

Carl Icahn certainly isn't going to spend $1.5 billion or more to finish Fontainebleau. If, in the unlikely possibility someone wanted to buy it from him and finish building it, it could eventually open, but I believe the likeliest scenario is that Icahn implodes it, sells the scrap and holds or sells the property.

I was dubious about Sam Nazarian's plans to redevelop the Sahara before the economy cratered so I certainly don't expect him to do so during the next decade. I wouldn't be surprised to see him lose control of the property or sell it, sooner rather than later. Any buyer would likely be a bottom feeder looking to make a Tropicana-style real estate play, buying the Sahara for peanuts, whether or not it planned to spend a bit to prop up revenues.

I don't expect Boyd Gaming to resume construction of Echelon during the next decade -- but, if it does, I think its scale will be greatly reduced and its target customers won't be the at the very top of the market.

I expect Wynn Resorts to wait to develop any of its Strip property until the market has rebounded sufficiently to absorb the recent capacity increases and resorts have more pricing power for their hotel rooms. It wouldn't surprise me if Steve Wynn decided to buy a nearby property to bank for eventual development, allowing him to take advantage of low land prices and to delay development of the golf club. I'd rate the Plaza (old Frontier) site as the likeliest purchase, with Boyd's Stardust/Echelon site the next most likely. Although I believe Steve Wynn has no interest in selling his company I think it would be the best possible casino company that the notoriously acquisitive Harrah's Entertainment could want, with its Macau concession and top-of-the-market holdings in both Macau and Las Vegas. If the economy improves and Gary Loveman can persuade his company's deep-pocketed owners to dig deep enough, it might make sense for HET to see if it can buy out Wynn or at least buy part of his company.

Harrah's will continue spending as little as possible managing its Las Vegas operations. If the market improves the company will likely sell the Rio but it also may try to buy other attractive assets that become available, whether in the Las Vegas locals market, on the Strip or elsewhere.

MGM Resorts' future is probably hardest to predict. The company has some great assets but has a boat-load of debt. Its biggest asset is probably its half-stake in its Macau subconcession, but Bellagio and the huge upside potential of CityCenter are also valuable. If Jim Murren can time the market well enough, scrape enough quarters out of the furniture and buy out Dubai World's CityCenter stake before the market rebounds, MGM would stand to realize all of CityCenter's tremendous upside. A Strip market turnaround would be a huge boost to MGM Resorts because the company has so much mid-market and budget capacity (ranging from Mandalay Bay at the top to Circus Circus at the bottom) and could allow the company to pay down (or at least keep current on) its debt. I believe MGM Resorts will be able to overcome CityCenter's troubles and avoid bankruptcy, as I think the company will, Harrah's style, be able to persuade creditors to delay and reduce MGM's debt payments until economic conditions improve.

Las Vegas Sands has clearly executed a flawless cliff dive and climbed back up to the top of the mountain. Its Singapore casino has been an apparent gold mine and, if LVS can avoid squabbles with the Macau government, its ambitious operations in the Chinese enclave should continue to grow and grab a sizeable chunk of the amazingly robust Macau market. Sands' Strip operations seem less and less significant to the overall strength of the company and I'd be surprised to see additional development by the company in Las Vegas unless the market rebounds more than I expect. I do expect LVS to do something with its halted Stripfront condominium project, possibly reducing its height and building fewer units and/or converting it to hotel rooms, Cosmopolitan- or Vdara-style.

As for Cosmopolitan, I've long wondered about Deutsche Bank's ultimate plans for the property. Although the owner has incredibly deep pockets, I don't believe it wants to be a long-term owner in the casino business. I like what I've seen of the Cosmo and its management seems hip and media-savvy, but I expect the property to struggle to generate the kind of return Deutsche Bank would normally expect from the size of its investment and believe that the bank will eventually bail on the property, selling it at a considerable loss before the decade is half over.

As for my advice to operators during the next decade, I'll start at the top of the market, which I consider to be, in order: Wynn/Encore, Bellagio, Aria/Vdara/Mandarin Oriental, Venetian/Palazzo and Caesars Palace. Cosmopolitan will likely earn a spot in this group.

• Don't scrimp on quality. Even when times are tough, protect your brand.
• Embrace youth-oriented trends like bottle-service nightclubs and daylife pool scenes and their big-money cabanas but do it in a way that doesn't alienate the older folks who fill up your suites and your gaming floor.
• Remember that the customer comes first, even the smaller-spending customers. They may be tomorrow's big spenders. Emphasize superior customer service to all, even the nongambling visitor.

Next is advice for the very wide middle-tier of properties, which I consider to be Mandalay Bay, MGM Grand, Mirage, New York - New York, Paris, Planet Hollywood, Monte Carlo, Luxor, Treasure Island, Rio, Flamingo and Harrah's.

• When times are tough, lower prices on entertainment, spas and food and beverage to give customers a taste of the some of your better amenities.
• Don't go crazy with cost savings and reducing the number of amenities, especially restaurants. A 4,000-room hotel with only a few non-fast food restaurants is a joke. (Luxor, this means you. MGM Grand is a great example of doing F&B right. Mmmm, Craftsteak.)
• Don't run away from your theme; embrace it.

My advice for the two youth-oriented properties, Palms and Hard Rock:

• Be hip, but don't be so hip that regular folks feel unwelcome.
• Your locations make locals-market appeal a natural, so continue making a strong effort to tap that market.
• Continue embracing celebrities, as our culture worships them, but try to discern between the cool stars and the jerks. Avoid the jerks.

Last is my advice for the budget-oriented properties, which I'd rank as follows: Tropicana, Bally's, Excalibur, Imperial Palace, Stratosphere, Circus Circus, Riviera and Sahara.

• Cleanliness, cleanliness, cleanliness. Keep everything very clean, from the parking garage to the casino to the buffet to the hotel rooms. Especially the hotel rooms. There are far too many gross hotel rooms in Las Vegas.
• Make your casino floors and entertainment venues fun and exciting so your guests will want to stay and play at their own resort instead of using it as a dorm and taking their spending elsewhere.
• Improve your properties one area at a time, do it right, and then move onto the next project. Renovate and refurbish and spend as much as you need to keep the place fresh.

-- Jeff Simpson, November 2010

Categories: Business of Gaming, Simpson on Vegas


Comments

Read archived comments (18 so far)
November 12, 2010 10:28 AM Posted by Phil

Cleanliness, what a novel concept, its not rocket science, but man have priorities changed. Its something that sticks in my craw right up their with service, because us long termers remember how different things were. Its like a broken record with me, but it was so common to see hotel staff polish brass railings, polish marble floors, shampoo carpet as a daily routine 20 -30 years ago. The same with the outdoor gardening, literally casinos had staff trimming bushes, cleaning the grounds daily. This, like everything else in Vegas, has taken a back seat. Is it a matter of budget, do managers know the history of how things used to be to recognize how far it has slipped, is it the Jersey Shore/Affliction t-shirt crowd who don't care or know what clean is and the hotel knows they can get away with it, or a combination of all of the above. Whats even more troubling is nobody in casino management seems to care about cleanliness. I know most of casino floor cleaning takes place it seems between 12am-4am, but the only hotel I've seen in the past 5 years that at least seems to have a visible staff is Wynn/Encore and even their efforts pale to what it used to be years ago. I guess I'm guilty in this for not speaking up, I assume if many of us did things would change.

Maybe that should be an off-shoot website, patrons take pictures of all the filth at all the hotels followed up by direct contact to hotel management to see if they do anything about it.

November 12, 2010 10:55 AM Posted by parchedearth

A few comments/observations:
1) The top properties are suprisingly far along in recovery. Wynncore and Venelazzo have been raising rates; especially if you consider resort fees.
2) Occupancy has been significantly helped because Vegas has become a safe alternative to Mexico for college spring break and sunny vacations. These tourists are not here to gamble.
3) There are still alot of properties with big debt problems that are going to change hands (HR, Palms, Rio, Westin , Hooters, LVHilton; maybe the Mirage, Cosmo, Sahara, Plaza (downtown), GVH, RR, Aliante)
4) While golf fees have always been off-the-charts in Vegas (Wynn @$500/rd); the top restaurants, bars, and spas are now charging above non-vegas prices ($20 drinks and $160 massages). If this continues, a Vegas vacation (at a top resort) will be more expensive than a Miami or LA vacation.
5) I just don't see the economics of tearing down the Harmon or FB. Even assuming the debt is wiped clean, it is far cheaper to repurpose at least a portion of the existing buildings than to tear them down and build something new. I'm guessing MGM could even hold a strip-side NYE party in the Harmon this year if it wanted to. The St. Regis tower (at Venetian) is being capped and used as is. Echelon is a different story and most certainly will be torn down.
6) Very excited for Cosmo; the last opening in a long while. I'm thinking it will end up being what we hoped Aria was going to be. Aria, Palms, and HR will be impacted most by Cosmo.

November 12, 2010 11:21 AM Posted by Mike P.

Boomers are retrenching permanently and we are not going to go back to our old spending habits, that much I'm pretty sure of. I'm also quite sure that Steve Wynn and Cosmo's management are thinking the same thing.

If I'm not mistaken LVS announced recently that the condo project is being abandoned, and they're capping the tower at its current height. Hopefully they'll get around to wrapping it sometime soon too.

It's hard to argue with your operational advice. I'll give MGM some credit for recognizing years ago that some people are willing to pay for a level of luxury that used to be reserved for whales and trying to cater to that group with enclaves like the Skylofts at MGM Grand. I haven't been back there in a while, but customer service at Bellagio has held up pretty well and even improved in some areas (for example the Executive Lounge is a huge improvement over the front desk at registration and checkout time).

Last comment: if you want to cater to youth with night and day clubs without alienating us older folks all you have to do is keep them out of sight and out of earshot. I'm happy to say I've never noticed the Bank at Bellagio except for occasionally seeing a drunken kid in party clothes stumbling back to her room while I'm heading down to Palio for my first hit of caffeine in the morning.

November 12, 2010 1:45 PM Posted by BigHoss

Very insightful and interesting, Jeff. I hope some of the execs read and heed your suggestions.

November 12, 2010 8:29 PM Posted by mike_ch

What about the other side of the Wynn property, Resorts International and the Las Vegas Hilton? I think buying and tearing down the Hilton would be a good option for any major casino player that can afford to buy something. It has quite a bit of property, but with Paradise Road splitting it. It is close to older condo developments (the Turnberries, Sky, Hilton Grand Vacations) that have had more success than new ones like Veer, Trump, Palms Place, and PH Towers. It is also, as I mentioned, across the street from Wynn development already.

And of course, there's the convention access. I wouldn't put it past Wynn to make the trip to the convention center as easy as possible, simply to shove the thorn that much harder into Sands.

November 13, 2010 5:44 AM Posted by Jeff in OKC

I LOVE the Hilton and think the basic design is still attractive and functional. I'm certain it could use some healthy capex, but the front entrance/lobby/casino floor is still the most beautiful version of what a classic hotel-casino should look like, IMO. I would be thrilled if Wynn bought it and worked it over, but I would be heartbroken if it were torn down.

November 13, 2010 11:04 AM Posted by Mike P.

Steve Wynn has said repeatedly in the past few years that he's not going to expand in Las Vegas. Adelson said the same recently. I wonder why so many of you don't take him at his word.

I can see him changing his mind in, say, November 2012 (just pulling a random date off the top of my head), but for now at least I believe him and think he's right not to even consider expansion there.

November 13, 2010 2:26 PM Posted by Jeff Simpson

mike_ch is absolutely right about LV Hilton being a potential Wynn target, along with the neighboring LV Country Club (although the Country Club may be tougher to buy.) Wynn certainly wouldn't operate the casino longterm, but as an attractively priced location near the back side of Wynn's golf club and next to the convention center, the property does have appeal as a redevelopment site.

Jeff in OKC: I also like the retro look of the LVH. I'd rank the Hilton's rectangular casino behind the Caesars' circular version in terms of its classic appeal, but agree that it is a sweet-looking place. I used to like the old DI casino but Wynn tore that down and I can't imagine him keeping the LVH's if he bought the property.

November 13, 2010 3:04 PM Posted by Hunter

Well, not expanding is not necessarily the same thing as grabbing some land as a pre-positioning move, while land prices are severely depressed.

November 13, 2010 7:20 PM Posted by detroit1051

We all talked about Steve Wynn and the LV Country Club here at TWHT in July. When Wynn tried to buy the country club in 2004, he was rebuffed by the membership, but times have changed so much in six years that he may get a much better reception now,
http://www.lasvegassun.com/news/2004/jun/24/plot-thickens-in-maneuvering-for-las-vegas-country/
Who knows? He may already be trying to do another deal for the LVCC, and with LV Hilton's latest performance report, he might get The Hilton, too. I'm repeating myself, but in the late '80s and early '90's, The Hilton was a terrific property. Now, it looks old, chopped up and would be ripe for a tear-down.

November 14, 2010 9:26 AM Posted by detroit1051

Cosmopolitan and Jockey Club:

Had Sunday brunch with friends who returned yesterday from six nights at their Jockey Club timeshare. They are enthused about Cosmopolitan and believe it will benefit CityCenter because of the increased foot traffic in the area, especially when construction is completed and the pedestrian bridges are opened.

Factoids they shared over breakfast crepes were interesting. Obviously, the planning of Cosmopolitan was prior to Deutsche Bank's ownership and the hiring of what appears, pre-opening, to be an excellent management and marketing team, led by John Unwin.

Jockey Club received $8+ Million upfront from Cosmopolitan's original developers, led by Bruce Eichner. Cosmopolitan is built on the south side of Jockey Club on land which was originally Jockey Club's surface parking lots.

Jockey Club will receive 350 dedicated, self-park spaces in Cosmopolitan's underground garage. The private entrance is on the two lane drive between Cosmopolitan/Jockey Club and Bellagio. The drive will apparently also be used by Cosmoplitan for deliveries to the rear of the property.

Elevators from the garage open two ways. The north door opens into Jockey Club. The south door, on a staggered, different level, opens into Cosmopolitan.

Jockey Club's private tennis courts will be on Cosmopolitan's third level. My friends don't believe they will be used by Cosmopolitan guests.

Jockey Club will receive 75 day passes, every day, for Jockey Club guests to use Cosmopolitan's pool area.

Jockey Club has two buildings. Rooms on the south side face the cement wall of Cosmopolitan just a few feet away from the windows. North side rooms are premium because they face Bellagio and the lake.

If any of this information is not accurate, please share corrections with us.

November 14, 2010 10:53 AM Posted by Mac78130

Detroit, that information matches what is posted on the JC website http://www.jockeyclubvegas.com/about-us/ (bottom two paragraphs talk about the Cosmopolitan) I believe the tennis courts will be for everyone, Cosmo and JC guest. The tennis courts will be on the fourth or fifth level.. not the third

November 14, 2010 6:21 PM Posted by Mike P.

Detroit -

I had a great panoramic view of Cosmo and Jockey Club last trip and for some reason didn't take so much as a crappy cell phone camera shot of them. Yes, the south side of JC is within a few feet of blank concrete walls. The north side has a view of a storage area for Bellagio's replacement landscaping and of course Bellagio itself. The top floor or two might get a glimpse of the lake.

Cosmo will have entrances on the northwest corner facing the strip right across from the Bellagio bus stop and upstairs where the pedestrian bridge crosses from PH to CityCenter, so they will definitely improve pedestrian access to CC. No doubt they are hoping to siphon off some of that traffic into their own property. I wonder what the average margarita toting tourist is going to think of a property that's trying so hard to be hip.

I hope they have a poker room.

November 14, 2010 7:52 PM Posted by Hunter

They are opening without a poker room.

November 17, 2010 9:26 AM Posted by Jeff Simpson

I thought the Penn National story in the LV Sun was interesting as a point of comparison with Deutsche Bank's Cosmopolitan investment. Basically Penn National's CFO said that the company overestimated the strength of CityCenter competition for midweek tour and travel customers and that estimate dissuaded them from topping Icahn's Fontainebleau bid (and then spending the $1.5 billion to finish the resort).
Compare that with DB's decision to throw another $3 billion or so after the $1 billion it had already put into Cosmo. Obviously DB has much deeper pockets than Penn, but if FB didn't pencil out at another $1.7 billion for Penn (with a bigger property), I don't see how Cosmo penciled out for DB.
My own hunch is that both were wrong: DB spent more than Cosmopolitan will be worth and that Penn missed out on an attractive asset that would have soon been worth more than $1.7 billion. Maybe there's still time for some entity to save FB, but the longer it takes the less likely it is that it will be completed.

November 17, 2010 10:35 AM Posted by Don

Your comments are spot-on as usual. My question regards the classifications you use. I have stayed at both the Planet Hollywood and the Luxor in the past year, and I'm not sure that each hotel doesn't belong in a different class. The Luxor is a dump. I tried two different rooms while there, and neither was clean or in good repair. The only reason I was there was there was because it was one of the cheapest places on the strip to stay when we were in town, and my friend insisted. I would put it in the bargain bin.

Planet Hollywood has gone after the youth market with a vengance. Loud music and dancers abound, and not a single person over 40 could be seen. Admittedly, its at a lower price point than Plams and Hard Rock but I think that is how Harrahs is positioning it.

November 22, 2010 6:57 AM Posted by jinx

Great article as always. I understand your separation of properties and classification, although I'm having similar thoughts to Don, in that some of the properties, may not fit in that middle category anymore. Luxor and Flamingo come to mind, as reduced upkeep budgets seem to be hitting them very hard.

For any of the low tier properties, Jeff has hit it right on, cleanliness and liven up your casino floor a bit and you can build a base, just realize what your base is. All one needs to do is look at the IP around 02 or 03, renovated rooms, update to casino floor felts, carpets, and deatertainer pit, turned the property from a shady dive, to a party property. (Then of course HET came in and Harrahized it)

November 22, 2010 7:04 PM Posted by Jeff in OKC

Damn! This could be my best crackpot idea of all time!!
Since it is a given that Steve Wynn should buy the Hiton, the only question becomes what is he going to name it? "Steve Wynn's Desert Inn"
Classic name for a classic property .
"I'm tired of blowing stuff up," said Wynn, "and besides, the property has good bones. There's a lotta life left there and the WD&D people are itching for a challenge that fits within a budget. Wynn, Winn, win."