Two Way Hard Three | Las Vegas Casino & Design Blog
UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
Posted by HunterCosmo has filed it's first 10-K for the year 2010. This comprises a year of opening expense but only 17 days of operations.
http://sec.gov/Archives/edgar/data/1485589/000119312511082977/d10k.htm
More analysis to come (I'm hoping Dave and/or Jeff will share their takes and I may have more to say too) but a few interesting figures:
We incurred a net loss for the year ended December 31, 2010 of $139.5 million
and...
The Company's gaming revenues were $4.3 million for the 17 days of operations during the 2010 fiscal year. Non-gaming gross revenues over the same period were $14.0m. The Company's gross room revenues were approximately $4.2 million. Average daily rate ("ADR") and occupancy for that period were $319 and 97.8%, respectively, generating revenues per available room ("REVPAR") of $312. Other non-gaming revenues included gross food and beverage revenues of approximately $9.3 million and convention and retail revenues, including the spa and salon, of approximately $0.5 million.
Revenues for the 17 days of operations in 2010 include retail value of accommodations, food and beverage, and other services furnished to our guests without charge. These amounts totaled $7.6 million and, in accordance with industry practice, have been deducted from revenues as promotional allowances.
Perhaps some of this stuff will show up on EBay?
We recorded an expense of $10.1 million in 2010 primarily relating to certain construction in progress ("CIP") related assets that we deemed had no future value to the Company. These abandoned assets consisted primarily of fixtures and furnishings, including assets which were in various stages of completion at our suppliers, as well as cancellation fees charged by some suppliers against deposits held by them. These assets were identified following the finalization of certain interior designs in the period leading up to the opening of the Property on December 15, 2010.
A big chunk of 2010's expenses were advertising related:
Total advertising costs were $44.3 million, $0.1 million and $0, respectively, for the years ended December 31, 2010 and 2009 and the period from July 30, 2008 (inception) to December 31, 2008.
Looks like John's taking home $800k per year:
The annual base salaries for Mr. Unwin and Mr. Burge have been set at $800,000 and $400,000, respectively.
That makes him a bit of a bargain, especially compared to his neighbor, Jimbo Murren, whose salary, not including stock or bonus, was $2.0 million in 2009.
If the hotel is sold, they want Unwin to stay...
Each of Mr. Unwin and Mr. Burge is entitled to earn a retention bonus based on continued employment through the date on which a sale of The Cosmopolitan is consummated. If, during the term of their respective employment agreements, The Cosmopolitan is sold to an unrelated third party and their employment has not terminated as of the completion of such sale, Mr. Unwin and Mr. Burge shall be paid a retention bonus of $4,500,000 and $1,000,000, respectively, within 60 days following the completion of the sale.
... and if it's shutdown, he still cashes in:
Similarly, if at any time during the term of their respective employment agreements, each of Mr. Unwin and Mr. Burge's employment is terminated due to a shutdown of The Cosmopolitan, they shall be paid 100% of their respective retention bonus.
As for the data itself, 17 days isn't much to work with... But, given the past few years of property openings, we do have some other resorts we can compare against.
According to the Las Vegas Sun, Aria generated operating income of $7m during it's first 15 days of operation. Aria is a much larger hotel than Cosmo though neither were able to ramp up all their rooms out of the gate. As Aria headed into the first quarter of 2010, it famously had occupancy of only 63%.
Wynn Resorts reports WLV and Encore together so we don't have specific figures for the latter, which opened in late 2008.
UPDATE: Dr. Dave here. Here are some of my thoughts.
It's notoriously difficult to evaluate opening numbers like these; there's never enough information to make a good comparison. What's a "good" gaming revenue number for a casino that's opening without a legacy player database? What kind of F&B numbers should the place be pulling in? There aren't any real benchmarks, which is kind of scary when you think about it. People invest billions in building these things and don't have any way to define what makes them a success. Or at least no definition that they'll share with the public.
In the absence of those kinds of apples to apples comparisons, I figured the best thing to do would be to take the daily average in each of the categories that Cosmopolitan reported and compare it to something I have: the daily average revenues for big ($72 mil plus in annual gaming revenue) Strip casinos for fiscal 2010. If you want to see that report, it's over here (pdf).
Here's what I found--all numbers are in thousands of dollars.
As you can see, the Cosmopolitan's got a lot of heavy lifting to do. In gaming, it woefully underperformed, lagging the Strip average by a whopping 55%. I'm not totally sure whether the casino took that million dollar hit from baccarat cheaters in December or January, so that might be skewing the results.
In rooms, it's also underperforming, but that's not surprising since it didn't have all of its rooms online.
The big surprise is food and beverage; here, the Cosmopolitan significantly outperformed the Strip average, by 172%. Of course, you might have casinos like Circus Circus and Riviera in the group, so it's hard to compare these numbers with, say, Aria, Bellagio, or Wynncore. But with this limited data, it looks like the "new to market food and beverage concepts" (I've got that burned into my brain now) are a success.
"Other" revenue is mostly retail and entertainment, and since the Cosmopolitan's big theater isn't yet open, and it doesn't have a staple show that will consistently bring in big bucks, this isn't a surprise.
So all in all, it's hard to say exactly what's going on, but judging from what we see here, in December the Cosmopolitan struggled with its casino, about par with its rooms, doing great with f&b, and straggling along with everything else.
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- Paco recently commented " Scien..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- briguyx recently commented "Was just in Las Vegas last week and got my first look at Cosmo. The place i..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Paco recently commented "Cosmo F&B of $545K/day is close to Venetian/Palazzo $611K/day right now. Bu..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Dramman recently commented "Just for fun I pulled up LV Sand's 10-Q from Q2'99 the quarter the Venetian..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Dram_man recently commented "Re: Unwin/Burge Bonuses – Seem pretty unremarkable in light of the circumst..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Paco recently commented "Bottom line is that it is difficult for me to call Cosmopolitan a success a..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Paco recently commented "These are the 23 strip properties that made over $72 m in FY2010. MGM Res..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- jinx recently commented "It's a completely subjective opinion, but from what I'm typically reading o..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Paco recently commented "In comparison with the Cosmopolitan, here is the other property with low ga..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Paco recently commented "The "strip average" for the 23 properties that made over $72 million in las..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- parchedearth recently commented "If Cosmo didn't have the hotel (and computer) operations problems, it would..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Dave recently commented "I wish that, under "promotional allowances," they had a separate category f..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Hunter recently commented "BobK - that's the part that's tough: as far as I know, no one has been able..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- detroit1051 recently commented "This is a fun subject, and 10-K's are usually interesting, but I ditto ever..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Javi recently commented "I agree with Jinx, thinking that the first 17 days were off to a solid star..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- BobK recently commented "17 days, $4.2 mil, REVPAR $312: under 800 rooms open?..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Jeff Simpson recently commented "Annual reports always have some interesting stuff in them, but not much sur..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- jinx recently commented "Chris hit on my thoughts in the history of numbers that Wynn advised was ne..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- Chris77 recently commented "In 1989 $1 million a day was the figure Mirage need to to hit to be profita..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- socalduck recently commented "You can't really draw any conclusions from only 17 days of operation, but i..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
- David McKee recently commented "Perhaps some of those "abandoned" assets will find their way to the Plaza o..." in UPDATED: Cosmopolitan of Las Vegas 2010 10-K Available
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Comments
Perhaps some of those "abandoned" assets will find their way to the Plaza or out to Primm ...
You can't really draw any conclusions from only 17 days of operation, but it looks like Cosmo is off to a decent start, especially compared to Aria's rocky launch. I think we will need to see a year's worth of data before we can determine if there are enough members of the "curious class" to adequately service that $3.1 billion of debt.
In 1989 $1 million a day was the figure Mirage need to to hit to be profitable.
In 1999 after 77 days of operation, Bellagio was averaging over $3 million a day, and Mirage was doing over $2 million a day by that point. (http://www.hotel-online.com/News/PressReleases1999_1st/Feb99_MirageYE.html)
In 2005, Steve said he needed to bring in $3 million a day to make a profit at Wynn.
In 2011, Cosmo seems like it has a fair bit of catching up to do. Unlike Aria, they can't simply hang on as a loss-leader subsidized by a dozen other profitable properties. They have to make their own money every day to keep the doors open, and they have to keep servicing their $3.1 billion debt.
17 days is not really a fair sample, especially considering during that period many rooms were not rentable, Marquee wasn't open, and there was no convention activity to speak of.
However, if they are still hovering around $1 million a day and/or not operating with a reasonable profit margin after their first full quarter, that would be a concern.
Chris hit on my thoughts in the history of numbers that Wynn advised was needed for his resorts. $1 million a day is certainly not a bad start for a property that opened on the strip which is crowded with 4 main players right now and had relatively no gaming base to pull from and only a handful of rooms online.
I'm guessing this would be considered a very solid start by the team considering those obstacles. Based on the continued buzz (even taking into account the horror stories that still are a fact in staying there). I'd say good things lie ahead.
Annual reports always have some interesting stuff in them, but not much surprising as far as I can see. Salaries and bonuses seem fair for a one-property team of executives. Not enough time operating in calendar year 2010 to read much into last year's performance.
I remain highly skeptical about the property's ability to recoup DB's total investment, through operations and/or an eventual sale. My best bet as to why DB made as big of an additional investment in Cosmo when Eichner's group flamed out is that the bank was able to defer its mammoth loss by increasing the investment and waiting to sell the property until the market has rebounded significantly and/or the bank has some large profits that need to be offset for tax purposes.
17 days, $4.2 mil, REVPAR $312: under 800 rooms open?
I agree with Jinx, thinking that the first 17 days were off to a solid start. Things to keep in mind: Not all the rooms were available at opening, and the amount kinks that they are still sorting out.
This is a fun subject, and 10-K's are usually interesting, but I ditto everyone else who commented that we need more operating experience to make any judgments. I'm interested in what level of comps Cosmopolitan will need to dole out to attract casino business, and also whether the F&B results will hold strong as the novelty wears off. Finally, since I'm not a member of the Curious Class, the rooms don't appeal to me. Will Vegas visitors be attracted enough by the balconies and decor to maintain room rates?
BobK - that's the part that's tough: as far as I know, no one has been able to get a straight answer on how many rooms came online and when. Chuckmonster and I each got different numbers from employees during the opening event... and then the PR and this filing indicate it was close to 2,000 (which seems impossible based on what we saw with our own eyes).
I wish that, under "promotional allowances," they had a separate category for apology scotch.
If Cosmo didn't have the hotel (and computer) operations problems, it would qualify as a resounding success at this point. It's essentially a race to solve those issues before all the buzz evaporates. I now believe the Marriott rewards connection is working and they will be able to keep the hotel full. The clientele they are bringing in is indeed new to Vegas and as a result gaming revenue will remain disproportionately low compared to other strip properties. They may be able to service the debt, but I have doubts about whether they can ever pay it off even when hitting on all cylinders.
The "strip average" for the 23 properties that made over $72 million in last fiscal year was $1442 per day (as was pointed out above). But the "median" of those properties was $1087.5 per day. The median is the exact value of the 12th highest casino of those 23 properties.
So there are at least 12 properties doing better than the Cosmopolitan.
BTW: The paired Wynn/Encore and Venetian/Palazzo and Mandalay Bay/THE Hotel are all considered as single licenses. Bally/Paris was a single license until two years ago (but they broke it into two licenses). Circus Circus & Slots-a-Fun were separate licenses, but now they are combined. Flamingo/O'Sheas is one license. Stratosphere is not considered strip. Palace, Rio, Palms, and Gold Coast ARE on the strip, but Orleans is NOT considered to be on the strip. Terribles and Hard Rock and Airport are counted with the strip numbers.
In comparison with the Cosmopolitan, here is the other property with low gaming revenue, but high F&B. These numbers are for Hard Rock Casino in $thousands/day for the first 9 months of 2010.
Gaming $73.35K per day
Rooms $55.59K
F&B $124.91K
Retail $8.56K
Other $45.63K
Gross $308.03K
Less: promotional allowances -$40.94K
Net $267.08K
===============
The Cosmopolitan nor the Hard Rock are making nearly enough to service that massive debt, but neither are many other properties. The Cosmopolitan can't be foreclosed like the Hard Rock.
It's a completely subjective opinion, but from what I'm typically reading on Vegas message boards and talking to people, it seems that Cosmo is being fairly generous with comps at the moment, and to a degree I think they are doing it without being careless, meaning, they've got a solid idea of the type of player they want and are working to bring them in rather then sending out free or discounted room offers in mass mailings to their database.
These are the 23 strip properties that made over $72 m in FY2010.
MGM Resorts Inc
1 30814-01 ARIA RESORT & CASINO
2 00655-05 BELLAGIO
3 14727-01 EXCALIBUR HOTEL AND CASINO
4 00022-03 MANDALAY BAY RESORT & CASINO
5 02982-07 MGM GRAND HOTEL/CASINO
6 11018-01 MIRAGE, THE
7 20682-01 MONTE CARLO RESORT & CASINO
8 19590-01 NEW YORK - NEW YORK HOTEL & CASINO
9 17041-01 LUXOR HOTEL AND CASINO
Ceasars Inc
10 01297-02 CAESARS PALACE
11 01891-02 BALLY'S LAS VEGAS
12 00008-04 FLAMINGO LAS VEGAS/O'SHEAS
13 02689-01 HARRAH'S CASINO HOTEL LAS VEGAS
14 30377-01 PARIS LAS VEGAS
15 01713-07 PLANET HOLLYWOOD RESORT & CASINO
16 13154-01 RIO SUITE HOTEL & CASINO
Other Corporations
17 08524-01 GOLD COAST HOTEL AND CASINO
18 01998-04 LAS VEGAS HILTON
19 03149-02 PALACE STATION HOTEL (in City of LV)
20 26541-01 PALMS CASINO RESORT
21 16937-01 TREASURE ISLAND
22 01957-05 VENETIAN CASINO RESORT
23 01888-07 WYNN LAS VEGAS
==============
There are 17 other "gaming licenses" that the commission calls "strip region" that made over $1M for the fiscal year in gaming.
02037-03 CIRCUS CIRCUS HOTEL & CASINO
01177-04 IMPERIAL PALACE HOTEL & CASINO
17586-04 HARD ROCK HOTEL & CASINO
00360-05 TROPICANA RESORT AND CASINO
03005-04 BILL'S GAMBLIN' HALL & SALOON
00289-04 CASUARINA CASINO LAS VEGAS
00015-04 RIVIERA HOTEL & CASINO
00944-05 SAHARA HOTEL & CASINO
03619-04 CASINO ROYALE
04157-05 TERRIBLE'S HOTEL AND CASINO
12673-02 TUSCANY LAS VEGAS
02077-03 ELLIS ISLAND CASINO
02807-10 HOOTERS CASINO HOTEL
03016-04 WILD WILD WEST GAMBLING HALL & HOTEL
30835-01 PALMS CASINO RESORT - SPORTS POOL
00793-03 MICHAEL J. GAUGHAN AIRPORT SLOT CONCESSI
==============
* This definition is made by the NGC. * It does no good to argue to me that Orleans should be in there, or Stratosphere, or that Palace Station, Wild Wild West, Terribles or the airport shouldn't be in that group. Properties like "Mardi Gras" probably did not make the $1m cutoff.
Bottom line is that it is difficult for me to call Cosmopolitan a success at $1M a day for a $4B construction cost. Not given that the Mirage is still pulling in $1.5M a day after 20 years (down from $1.7M last year).
-----
Cosmopolitan seems to have revenue in the vicinity of Treasure Island, which was purchased for only $775m.
====
According to NGC for FY2010 the 6th highest casino on the strip made $2m per day. The corresponds to Mandalay Bay's stats. So the first five are Wynn, Venetian, Bellagio, MGM Grand, and Ceasars.
----
The value for number for #10 is 1.099m and #12 is 1.087m . So the next group should include Aria since it only operated for half the fiscal year.
So Mirage, Paris, Palms, Planet Hollywood, Aria (6 months), Treasure Island are the next best guesses. So Cosmopolitan is operating at lower revenue than these 6 properties.
====================
But Cosmopolitan is doing better than these 11 properties
EXCALBUR
MONTE CARLO
NEW YORK - NEW YORK
LUXOR
BALLY'S
FLAMINGO/O'SHEAS
HARRAH'S
RIO SUITE HOTEL
GOLD COAST
PALACE STATION
LAS VEGAS HILTON
+ properties above which made less than $72 million in gaming revenue
IMPERIAL PALACE
CIRCUS CIRCUS
etc.
Re: Unwin/Burge Bonuses – Seem pretty unremarkable in light of the circumstances. It seems to say “If you run this well enough to get somebody to buy this, and allow Deutche Bank to cash out, you get rewarded. If we end up in bankruptcy, or fire you for not running it well enough to sell it, you get nothing.” That said, it does make an interesting case if Cosmo goes to middling success so as to fire Unwin, but enough to get a buyer. Unwin may have a good argument the firing was done to avoid the bonus.
Just for fun I pulled up LV Sand's 10-Q from Q2'99 the quarter the Venetian opened (and thus Sand's sole casino). and tried to project them into the future using LVCVA numbers for room and casino tax growth, and inflation in general. Then to compensate, I calculated numbers per day of operation since the Cosmo numbers are for 17 days and Venetian for 57 days.
The results are disturbing to say the least. The Venetian was making around three times more on the Casino floor, and four times the amount for rooms open. Dave might be right about the dining, with a 25-30% increase over the opening of the Venetian (in dollars per hotel and casino revenue). On the other hand, that might be deceptive. The Casino books comps as a "sale", and then takes them off as a "promotional expense" (separate from marketing or ad expenses). Cosmo gave out twice the amount of comps during its first few days than the Venetian. If most of these comps were dining, that advantage goes away. With around $7.5 mil in comps, even if just half of that was in dinning credits the advantage evaporates.
In comparison, there is an interesting difference in the operation. The Cosmo's rooms are much more profitable than Venetians. Then again, the real cost of that could be the fact nobody can get into their rooms. Also, the Venetian in its opening had a greater margin on dining. Perhaps giving even more hesitancy on my part for declaring dining a "win" for Cosmo.
Ugly, just ugly.
Cosmo F&B of $545K/day is close to Venetian/Palazzo $611K/day right now. But not relative to the construction cost.
Was just in Las Vegas last week and got my first look at Cosmo. The place is so beautiful that it will be a must see on the Strip. Interestingly, the layout doesn't force you to walk through the casino like other properties. If anything, the draw is upward to restaurants and the Marquee club and away from the casino. This may partially account for their low casino draw.
I'd also be interested in statistics that show how age reflects gambling. How much do younger people looking to party spend in a casino? Many Vegas commentators blame the recession, but I believe more people are coming to Vegas to party than gamble these days.
Scientific Article This is a link to a scientific article about gambling and age.
I think that is probably a complicated question to answer simply, but from looking at Hard Rocks annual reports, it seems to me that the younger people are not nearly as inclined to gamble. Even people who are not thrifty, but willing to spend a lot of money on rooms, food, and partying.
---------
The Hard Rock opened on March 9, 1995. An approximately $100 million expansion of the resort was completed during May 1999. By 2004 they were making $156K per day in the casino which is far less than they make in most neighborhood casinos like Sam's Town. But they made a lot of money on concert tickets, food, and drinks and rooms. They had less than 700 rooms, but they always turned a profit.
---
The next owners tried to turn it into a big gambling place, but after sinking hundreds of millions into the place the casino got up to $176K per day by the 3rd quarter, but their costs balooned and they went bankrupt.
---
I know that The Palms makes more than $200K per day on gambling, but I suspect that most of their money comes from non-gambling.
---
While there may have been the illusion that the Cosmopolitan was going to draw gamblers when it was first conceived, I think that they knew by opening time that they weren't going to come.
That said, they still made far less than I would have guessed.