Jeff Perea: Stakes are High in Las Vegas Transformation – Journal of Corporate Renewal
This article was written by Jeffrey Perea and published in The Journal of Corporate Renewal.
Las Vegas has long been known as the center of the gambling universe. However, over the past five to ten years, Las Vegas has received increased competition from Macau/Cotai Strip, Singapore, Atlantic City, Regional Indian Casinos, Regional Commercial Casinos, and the ever popular Regional Racino. The current gaming market is as saturated as ever and Las Vegas needs to get creative in order to retain and continue to capture market share into the future.
The Las Vegas Strip’s economic landscape is shifting to focus on the “tourism experience” that is an integral part of the Las Vegas brand. This includes substantial investments by the casinos in categories such as entertainment venues, restaurants, retail, day clubs/nightclubs/lounges, pools, and other luxury amenities. As a result, Las Vegas’ revenue mix has changed significantly over the past decade. Most significantly, the Las Vegas Strip now has 150,000 hotel rooms and room supply has grown +100% over the past 20 years. In this regard, property hotel revenues now exceed casino revenues in certain situations.
This shift to investing in and developing a “broader tourism experience” has been happening for a while now. In 1984, the city’s casinos accounted for 59 percent of all the money collected on the Strip. Last year, gambling made up only 36 percent of the revenue.
These days, consumers who want to gamble have access to online platforms, as well as destinations closer to home (regional casinos) that can offer similar gaming experiences. The increase in regional Indian Casinos, regional card clubs, regional commercial casinos, and regional Racinos has saturated the gaming market on a regional and national level. This changing reality has put pressure on Las Vegas to make its experience unique in other ways. Now, Las Vegas’ most powerful allure isn’t necessarily the tables or the slots, but rather state-of-the-art entertainment facilities, opulent boutique hotels, and lavish restaurants owned by celebrity chefs.
A number of chefs have embarked on Las Vegas including the following: (1) Gordon Ramsay (BurGR – Planet Hollywood Resort and Casino, Gordon Ramsay Steak – Paris Hotel and Casino, Gordon Ramsay Pub & Grill – Caesars Palace Las Vegas Hotel and Casino); (2) Bobby Flay (Mesa Grill – Caesar Palace Las Vegas Hotel and Casino) (3) Joel Robuchon (Robuchon – MGM Grand Hotel and Casino); (3) Wolfgang Puck (Wolfgang Puck Bar and Grill – MGM Grand Hotel and Casino, Spago – Caesars Palace Las Vegas Hotel and Casino, CUT – The Palazzo); (4)Tom Colicchio (Craftsteak – MGM Grand Hotel and Casino, Wichcraft – MGM Grand Hotel and Casino, Earl of Sandwich – Planet Hollywood Resort and Casino); (5)Emeril Lagasse (Lagasse Stadium – The Palazzo, Table 10 – The Palazzo, Emeril’s New Orleans Fish House – MGM Grand Hotel and Casino); (6) Mario Batali (Carnevino Steakhouse – The Palazzo); (7) Nobu Matsuhisa (Nobu – Hard Rock Las Vegas Hotel and Casino); and (8) Hubert Keller (Fleur – Mandalay Bay Hotel and Casino) just to name a few.
Additionally, Caesars Entertainment Corporation (CZR), is currently spending $550 million to develop an outdoor retail, dining and entertainment district largely based on The Grove in Los Angeles, CA. CZR omitted from the plans for this otherwise comprehensive tourism center one very significant component – a casino. The Linq aims to lure in a younger group of consumers. The development will span more than 200,000 square feet of gross leasable space and house 30 unique retail, dining and entertainment experiences.2 CZR is also currently developing a $185 million boutique hotel and club, complete with an observation deck and a panoramic view of the Strip. A decade ago, who would have ever thought that the world’s largest casino company would one day pursue new projects that don’t include gambling centric amenities?
The Las Vegas Cosmopolitan Hotel and Casino also illustrates a shifted focus from gambling to the broader, “New” Las Vegas experience. This property was a multi-billion dollar investment, aiming to put retail, restaurants, and nightclubs/bars at the front door.3 The Cosmopolitan’s day/night club, the Marquee, is a three-level club that cost $60 million to build.4 The casino features the following restaurants such as: 1) Estiatorio Milos (Costas Spiliadis – Fine Mediterranean cuisine); 2) STK Las Vegas (Stephen Hopcraft – Steak); 3) Comme Ca (David Myers – French brasserie); 4) Blue Ribbon Sushi Bar and Grill (Eric and Bruce Bromberg – Sushi/Japanese steakhouse); and 5) Jaleo (Jose Andres – Spanish tapas). The hotel plans on opening The Chelsea New Year’s Eve weekend which is an intimate arena which holds 3,200 seats. As a result of this approach, the Las Vegas Cosmopolitan Hotel and Casino, even in its short life, has become one of the more desirable destinations on the Las Vegas Strip, attracting a new generation of customers, many of whom may stay at the property for multiple days without ever gambling at its casino.
The Sahara Hotel and Casino closed in May 2011 and is currently being redeveloped by SBE Entertainment. SBE Entertainment plans on replacing the Sahara with the SLS Las Vegas Hotel and Casino which will include a 1,620 room boutique hotel and casino which will be filled with SBE’s nightclub brands and restaurants. SLS Las Vegas is set to open in late 2014. The restaurants will include The Bazaar by Jose Andres, Katsuya by Starck, Unami Burger, and The Griddle Café.
Finally, in March 2013, Malaysia-based Genting Berhard and Genting Assets, LLC purchased the stalled Echelon development project, Boyd Gaming’s proposed multifaceted, world-class resort complex located on the Las Vegas Strip, for $350 million. Genting’s first destination resort in Las Vegas (Resorts World Las Vegas) will be a world-class complex which will include 3,500 rooms, 175,000 square feet of total gaming, luxury dining and retail and convention space. Construction will begin in 2014 and the casino is planned to open in 2016. Resort World will be an Asian themed Las Vegas resort. The resort will also assist in driving traffic to the North section of the Las Vegas strip which only has two casinos/hotels currently open (Circus Circus Hotel and Casino and Riviera Las Vegas Hotel and Casino).
Developments like The Linq, Las Vegas Cosmopolitan Hotel and Casino, SLS Las Vegas, and Resorts World Las Vegas offer a partial view into a future where Las Vegas will continue to shift away from its historically gaming-centric business model. This is not to say that Las Vegas will ever reject the core gaming customer. Rather, gambling in Las Vegas will continue to be an important, but much less significant component of property-wide revenues. This shift toward the “broader tourism experience” is also a compelling demonstration of the constant motion and evolution inherent in Las Vegas’ economic ecosystem, which will continue to grow, move and adapt to the changing consumer and increasingly saturated global gambling market.
Although this shifting business model is necessary to protect the long-term viability of Las Vegas as a destination market for leisure and tourism, operators should not forget that gaming revenues will always be a relevant and important part of the overall business model. The old adage of “The House Always Wins” is one which still rings true today and will continue to hold true well into the future. Importantly, operators in Las Vegas need to utilize non-gaming revenue outlets (specialty restaurants, retail, and nightclubs/arenas/lounges) to help facilitate and increase gaming revenue and traffic throughout the casino. Employing a strategy that maximizes the complimentary effect of gaming, entertainment, food & beverage and lodging offerings is of paramount importance for those operators hoping to maximize profits and preserve market share in today’s highly competitive gaming economy.
Las Vegas gaming operators need to continue to focus on marketing plans and strategies that maximize cross pollination across revenue streams by embracing the unique combination of leisurely offerings that only Las Vegas operators can provide. There are a finite number of gamblers across the United States, many of whom now live within hours, if not minutes, of regional gaming facilities. Unlike the bygone days of yesteryear, a reason other than “we offer gambling” must be provided in order to incentivize these people to get on an airplane and travel to Las Vegas.
Lastly, and although somewhat rudimentary in nature, stellar and outstanding casino customer service will always remain critical to casinos’ long-term success. For casinos to prosper, they must consistently provide a better guest experience in service, comp play, comp meals and rooms, and making the customer feel that he or she is important. Gaming customers tend to be fastidious so satisfying their needs on a consistent basis (each stay) could be challenging over time. The enhancement of the guest experience is a basic, yet important way for operators to differentiate themselves from the competition – and unlike so many other capital intensive strategies designed to enhance financial performance – is relatively inexpensive.
Jeffrey C. Perea, CPA, CIRA, CTP is a Managing Director in the Los Angeles office of Conway MacKenzie, Inc. Mr. Perea’s practice focuses on providing financial and restructuring services to clients across a number of different industries, with a special focus on gaming and hospitality business clients. Jeff’s prior client engagements include serving as financial/restructuring advisor to Jerry’s Nugget, Inc/Spartan Gaming LLC, Riviera Casino & Hotel in Las Vegas, Nevada, and Black Gaming. LLC in Mesquite, Nevada. Jeff can be reached at JPerea@ConwayMacKenzie.com.