Two Way Hard Three | Las Vegas Casino & Design Blog

April 27, 2011

SIMPSON ON VEGAS #020: Cosmopolitan and the "Gambling Class"

Posted by Hunter

Jeff's back with his latest piece and this time he's examining the performance and challenges facing The Cosmopolitan.

Click through for the full text, it's a good read.

I was just at Cosmo last week for another stay. I've got a bunch of scribbles and other notes that I'm (slowly) working to turn into a piece of my own.

Anyway, enjoy!


In November, I penned a column offering advice to different categories of Las Vegas Strip casino operators. This time I'm going to try something a little different, as I'm taking a look at how the Cosmopolitan has done during its first four-plus months of operation. I'll explain some things I think it is doing well and doing poorly and, if there are reasonable solutions, what the property could change for the better.

I have long mentioned what I see as the near-impossibility of owner Deutsche Bank making a profit on its gargantuan investment (buying and completing the property) although DB may be positioning itself to use a gigantic investment write-off on Cosmo as a way to offset taxable profits on some other deal. There is nothing Cosmopolitan's executives can do to erase DB's investment, so their focus, rightly, should be on generating operational profit.

Leaving the Cosmo's seemingly hopeless finances aside, let's take a look at its design and operations. The biggest complaints I've heard so far have been some major hotel screw-ups: Major check-in delays, failure to deliver reserved room-types, new rooms with non-functioning electronics and significant housekeeping delays and mistakes were among the many poor reviews I've read. I don't really have insightful advice on these problems other than the obvious ones: Learn from mistakes, train staff better and communicate better with customers. When things do go wrong, make it up to the customer with a speedy apology and generous compensation.

That said, Cosmo seems to be doing a great job attracting folks willing to spend more on hotel rooms, success I attribute to a few factors. First, the property has strong room product, with many rooms enjoying superior views, balconies and other features. Second, terrific marketing, public relations and word-of-mouth has fueled demand for the Cosmo's rooms. Third, the affiliation with Marriott's frequent guest program is a big advantage, as the Marriott program is one of the biggest and best in the hotel business and has no other resort alternative near the Strip. On the other hand, a fourth factor that may be boosting rates may not be a long-term positive: Restricted inventory that artificially boosts reported average daily rates. Resort executives' claims about how many rooms have been open and available don't seem to jive with anecdotal reports suggesting fewer rooms have been offered, and it wouldn't surprise me if executives have decided it is more important to maintain the appearance of a high daily room rate than to maximize short-term revenue by increasing occupancy. Limiting the number of available rooms is one way to artificially prop up rates and an illusion of quality compared with top-of-market competitors.

Terrible traffic jams into and out of the property have also been cited on several occasions, a problem Steve Wynn predicted before Cosmo opened. I'm really not sure how the problem can be fixed other than an expensive property redesign, and the hotel's long, narrow footprint and exceptionally limited supply of available space makes a change unlikely. Perhaps the property can figure ways to spread out the timing of arrivals and departures, for hotel guests and for dining and club customers, but the nature of the resort business (lots of Friday afternoon arrivals and Sunday morning departures), the Cosmopolitan's heavy emphasis on dining (many evening arrivals and departures) and its popular nightclub (lots of late-night arrivals and departures) make likely continued vehicular delays in and out of the resort.

With hotel service delivery and traffic problems out of the way, I'd like to tackle what I see is the property's biggest obstacle to operational profitability: An anemic casino floor. I think Cosmopolitan's well-documented casino troubles can be linked to a few problems. Some will improve with time but some probably will not. Several problems facing the Cosmo's gaming floor are well-known. The sluggish Las Vegas gaming economy that continues to hurt the majority of Strip casinos (especially those without the resources and inclination to be a player in the expensive, competitive, complicated and exceptionally volatile baccarat market) is a big factor and one the Cosmo's bosses can't do much about. The lack of an established casino customer base is another obvious negative.

Las Vegas casino customers generally visit once or twice a year so it will take time for Cosmopolitan to build up its database and make pitches for repeat visits. Aggressive marketing -- by advertising, offering easier credit and making generous comp offers -- is an expensive way to more quickly develop casino business, but each method has its own down side. The property has shown its ability to market its hotel, restaurants and clubs, so my advice would be to invest in strategic advertising to attract new business. Smart casino executives say that trying to generate more casino business by offering easier credit is a losing proposition, so I won't argue that Cosmo should loosen its credit standards, as long as they are near the industry norm. But I do think that generous comps are a solid way to get new players on the casino's database. Once the players have demonstrated their value -- or lack thereof -- comp offers can be continued or limited. More aggressive appeals to casino customers staying at nearby competing resorts through magazine, mobile billboard and other advertising methods (pitching bonuses for Identity-card signups, free slot play and the like) would be one smart way to quickly connect with prospective customers.

Those are the two casino problems that have been most often mentioned when Cosmo's troubles have been analyzed, but I think two other casino-related problems stand out. First is the resort's design. Because of its small footprint the property was originally designed to spread out its casino action over several floors. Experts questioned that design, noting that Las Vegas casino customers have generally preferred to stay on one floor. The property was then redesigned after Deutsche Bank took over ownership of the property, moving all of the casino action to the ground level and moving most restaurants above the casino floor.

The problem with the redesign, as I see it, is that the energy of the property's restaurants and some of its bar crowd is separate from the casino. Splitting the casino floor was a bad idea, but so is the distinct separation of the casino from most of its restaurants. Much of the property's advance public-relations blitz has been tied to its restaurants. The property's exceptionally small footprint is the culprit, as there was no way to shoe-horn a resort-size casino and most of its restaurants onto one Cosmopolitan floor. I don't think resort designers have to force customers through the casino on their way to every meal and nightclub (as Steve Wynn has demonstrated at Wynn Las Vegas and Encore) but I also don't think making customers take an elevator or escalator trip away from the casino is the best way to prompt guests' decisions to hit the tables or slots. And, to compound that problem, a Cosmo restaurant- or convention-goer can take the elevator from the parking garage or valet right to the dining and convention levels, never passing a slot machine or table game. That's not good for the casino.

And that design flaw due to the property's footprint leads to the next reason I think the Cosmo's casino under-performs: Its entire marketing appeal is to a demographic much less likely to gamble. When Cosmopolitan first opened I noticed a lot of folks in the media, particularly those who seem to enjoy fine dining, clubs and entertainment much more than the gambling side of the resort business, saying how much they liked the Cosmopolitan's design and loved having the ability to avoid the casino. I have a feeling that's true for a lot of Cosmo's "curious class" -- a lot of folks who don't really like to gamble or don't care to try. That new demographic, I believe, is a nice complement to the traditional two-fisted gambler long targeted by Las Vegas casinos, whether as a spouse of a gambler or as a significant spender on their own. Casinos that appeal to gamblers certainly also like the revenue that comes from other streams. But I think the Cosmo's appeal to the curious class doesn't attract most gamblers.

Obviously Cosmopolitan can't easily add to its footprint enough to allow it to move some of its upstairs vibe through and to its casino. Perhaps small changes can be made over time that will energize the casino floor. One change that can be made is to enhance its advertising to make Cosmo more appealing to the Vegas casino staple: The players who want to play the slots and the tables and hit it big. A Venn diagram of those demographics would probably show there isn't a big overlap of big gamblers with those in the curious class, and a single marketing message is unlikely to appeal to both. But a well-executed marketing appeal to the "gambling class" might be enough to generate some additional casino business. Although I doubt a smart marketing approach will be enough to overcome the effect of the resort's design limitations on Cosmo's casino, modest improvement may be enough to keep the property's results in the black, given the initial strength of its hotel and food and beverage operations.

-- Jeff Simpson, April 2011

Categories: Business of Gaming, Cosmopolitan, Simpson on Vegas


Comments

Read archived comments (10 so far)
April 27, 2011 11:24 AM Posted by jinx

After visiting Cosmo over 3 days of my last trip. I can't disagree with your thought on it. The floor could use some energy, although it has the potential with the bars they have on the main floor being open to the casino floor. I think if they can build there gambler base a bit, they'll be ok in that respect.

I think the big issue for them right now is as you mentioned, there isn't a ton of overlap in the curious class and gambling class, but I think you are right in that some marketing towards gamblers would get them there as well, as many gamblers would enjoy a lot of the amenities the property has too without being the curious class. I do think their drink comp policy is a step in the right direction. The fact that they will comp their specialty drinks at the vp bars in the lounges is the only policy like it on the strip, not to mention they seem very liberal with all of their alcohol comps, there were at least 4 rums at the book and stage that a glass of at Rhumbar would have been in the $15 range that Cosmo had no problem comping.

I think the problem at the moment though is number of rooms available as you mention. If they don't have enough available and are still pulling high prices for the ones they have, there's no point in over comping players with rooms to start. They probably would benefit to trying out some mailers with buffet or free play w/o stay requirements to some medium range gamblers. It would be a good PR move, and likely help them develop some loyalty with that base.

April 27, 2011 11:44 AM Posted by parchedearth

While historically casino revenues have been critical, we should also consider the trend away from reliance on gaming and more towards F&B and entertainment dollars (e.g. Encore beach club). It may be the Cosmo is counting on a higher percentage of “other” category dollars to make it work. Whether this is sustainable over the long haul is another question, but I think they have a chance at turning a profit in the short term. If DB were to write-off another billion they should be able to service the debt until they can sell the property.

Personally, I think the floorplan is working for them. I haven’t observed a lack of energy or foot traffic through the casino areas. I am actually more concerned about overcrowding and pedestrian traffic jams in the casino once all the rooms are open and the summer foot traffic hits. I can’t speak to the vehicle flow issues, as the porte cochere has been relatively empty every time I have visited.

My view is that the casino is almost doing enough business as is. I expect the additional rooms, pool revenue, and eventual showroom will be enough to make it solidly profitable (excluding debt). There are needed design changes in the rooms and the rates need to settle out, but otherwise I don’t see any showstoppers. I definitely agree the room rates have been artificially inflated due to limited availability and Marriott’s first-time Vegas visitors (more used to business expense rates). The City Rooms are currently available for $140, but need to drop to about $110 to be competitive (no resort fee and free WiFi).

My #1 greivance is they need to offer bottled water in the spa and casino.

April 27, 2011 1:48 PM Posted by Jeff Simpson

parchedearth may be right that the property never intended to make the gaming floor as much of an emphasis as its rooms and F&B are. I would say that I think that is a mistake. Wynn Resorts has always been right at the top in understanding gamblers but also fights to own the room rate, restaurant and nightclub wars.
One point that I've made before that I neglected to include: The Cosmo casino also suffers from the lack of a normal sports book (see Mirage, Bellagio, Wynn, Aria, LV Hilton, etc. as good examples) and a poker room. Both are gambling amenities and convey a message that there is serious gambling going on. Race/sports bettors and poker players are often strong gamblers and strong gamblers sometimes like to take a break and play poker or hang out in the book. There may be plenty of nearby sports/race/poker options and the Cosmo's footprint obviously doesn't allow much space, but I think the casino would do better with poker and a real book.

April 27, 2011 1:57 PM Posted by Sam

As a rare member of that overlapped "curious gambler class" (a twenty-something who enjoys nightlife (or at least the idea of nightlife) while spending the majority of my money and time at the tables), I think the Cosmo has a great opportunity to take a long position here and generate loyalty amongst my generation for the next 20-40 years. Kids (like myself) who go to the clubs now aren't going to go forever - but we will always come back to Vegas. Only, as has always been the historical trend, as we age, our interests will shift towards the casino. Cosmo has the unique opportunity to culture a relationship with the "curious class" now, and over time, turn that into a "gambling class" that, in 20 years, will truly be the monetary source that feeds the casino.

The key, however, is to start tying in loyalty and gaming into the experience that the "cultured class" (cc'ers) currently enjoys. One great gambling experience can go a long way to forming a lifetime of gambling decisions - rather than throw gimmick games and no comps at entry-level younger players, the Cosmo needs to encourage the cc'ers to get their feet wet now, and needs to give them an experience they will come back for. Maybe throw some 3:2 tables into MARQUEE, and give people $25 or $50 in promotional chips when they enter. Once you get them hooked...it's a lifetime of return visits.

Just my two cents, how I would run the place - and yes, I'm clearly biased by the idea of being treated like a valuable commodity as a young gambler...

April 27, 2011 2:44 PM Posted by mike_ch

Cosmopolitan is definitely the hipster casino, and hipsters aren't really a common gambling group.

I'm no longer in Vegas, but I still ride a lot of public transit around and I've had a few Vegas conversations with the people who live around here. I would up talking about it to a couple guys who were dressed in fairly pricey hipster fashion and were picked up outside the little concert venue that usually hosts acts nobody has ever heard of (Vegas the actual city could use one of these, because honestly.)

They weren't interested in my talk of Wynncore or CityCenter, but as soon as I started describing Cosmopolitan everything just started lighting up. That sort of retro-mod design in the casino that carries just slightly into the rooms, the occasionally garish sculptures hanging around, the gallery on the third floor and the program of having some in-house artists to keep making new things for the casino like the Art-O-Mat works. It certainly was more exciting to them than CityCenter flying in famous artists that maybe their parents know.

Even running down some of the pool concerts excited them. Who ever thought that Girl Talk, a one-man remix tape who just blends together a bunch of pop songs and releases them on the internet (he can't sell them, it's a copyright nightmare) would ever have a show at a big place in Vegas?

This reminds me of that thing about how if you can dominate a niche on the strip, you'll make a lot of money without having to compete with the rest of the entire Strip for that general purpose gambler cash. There's really one issue in the Cosmo's current direction: hipsters are young and many of them aren't old enough to gamble (the two guys I were talking to were finishing up high school), and because the majority of them are young even the ones that can afford to gamble are getting hammered by the recession.

It doesn't matter if you're 23 and very definitely the curious class, if you're unable to get out of your parents' basement (not that there's anything wrong with that, I'm quite a bit older than that and still haven't moved out.)

April 27, 2011 3:00 PM Posted by Scott W

Impressive insight, Jeff. Well done.

April 27, 2011 11:07 PM Posted by briguyx

Having visited Cosmo recently, you can see there's no such thing as the curious class. You had beautiful people dressed up to go to Marquee, the same crowd that you'd see trying to get into XS. Then there are typical tourists taking in the beauty of the hotel. Some of the restaurants were doing well, some weren't. But as long as the escalators take you upward to the restaurants and away from the casino floor, gambling will never be a money leader at Cosmo.

April 28, 2011 12:20 AM Posted by 2xodds

In my opinion, the biggest Cosmo problems are: The sports book at the Cosmo is weird, and I don't like it. The table limits are at a Wynn/Venetian/Bellagio/Aria level, when the hotel is attracting Palms/Hard Rock/P.H. demographic. There are long stretches of unused hallways on levels 2-3. The hotel lobby and valet area can be nightmares. There's no headlining show to draw people in.

Solutions: Change the sports book to a real, authentic sports book. Add slot machines to the long corridors of level 2 (maybe 3), Open more tables on level one to offer different buy-in levels. They should also make the poker room more visible and relevant... Young people like poker. (Maybe the bottom floor of Chandelier would be a great spot. Why do you need 3 levels of bar? Not to mention, Bond and Zephyr are on the first floor)

Dream scenario: DB should borrow more money to purchase the Polo Club next door, and knock it down. A second porte-cochere should be added to that side of the property for non-hotel guests, as well as additional casino, F&B, and convention space would allow the Cosmopolitan to really compete.

Right now, they're a long shot, but I love long shots. (change that damn sports book).

April 28, 2011 8:28 AM Posted by detroit1051

2xodds, it's Jockey Club that's next door. Polo Club is across the Strip, closer to MGM Grand. I believe Steve Wynn tried to buy it when he built Bellagio. It was an impossible task because of all the time share owners and the fact that there are also some actual condominium units in Jockey Club. Maybre Jeff Simpson has more information on that., but you're right, the Jockey Club land would really help Cosmopolitan.

April 30, 2011 2:53 AM Posted by goldy

We stayed at the Cosmo for 9 nights and gambled there every night(got to rack up those Identity points!). I can agree with everything said in the above posts. Talking to all my table mates every night(I'm a yacker) it seems most people were just passing through. Dropping by from their serious gambling haunts to check things out and maybe play a bit.

Their biggest nightmare has to be the weekend nights. Impossible to turn on Harmon do to clubbers trying to park. The place is overrun with young people clogging the walkways just hanging around to see and be seen. Very little gambling going on.