Leveraging Las Vegas

CrownCityCorey

CrownCityCorey

Sock it to 'em!
Silver Member
LONG, but worth it for those in the cuesports business...

The Biggest Bet in Vegas
MGM Mirage's 67-acre CityCenter is the ultimate test of Sin City's bigger-is-better business model

Every Friday morning, James J. Murren heads to the Las Vegas Strip in his chauffeur-driven SUV to check on the status of his dream project. "Look at that," says the chairman and CEO of MGM Mirage (MGM), pausing inside the Aria Resort & Casino. "The marble, the vaulted ceiling—it looks like the Vatican."

Not everyone shares Murren's enthusiasm. Aria is one of four hotels in MGM's CityCenter resort, which will start opening its doors to the public in December. The $8.5 billion development is the debut that every casino manager in Vegas dreads. It will add 4,800 new hotel rooms to one of the country's most saturated markets, not to mention 2,400 condo units and a Cirque du Soleil tribute to Elvis Presley. With luxury rooms in Vegas already approaching roadside motel prices, many worry that the tsunami of fresh supply will drown the city's nascent recovery. And the biggest victim of CityCenter's launch may prove to be MGM itself, which dominates the Vegas landscape with nine other casinos and is staggering under $12 billion in debt.

CityCenter isn't just another real estate development in danger of flopping. It's the largest privately funded construction project in the U.S. and could prove to be a barometer of the health of the overall economy. It's also the ultimate test of a business model that has guided Sin City for decades: that building bigger and flashier resorts will bring ever more visitors and keep Vegas competitive with rival destinations. Even Murren, 47, predicts that "there won't be another property built like this for a long time."

Although advertised as a high-end destination, CityCenter has rooms starting at $129 a night, about $40 less than the lowest rates at competing properties such as the Wynn and the Venetian (LVS). "They'll end up cannibalizing themselves," predicts David Baron, a casino analyst at Baron Funds, a major shareholder of rival Wynn Resorts. (WYNN) Vegas tourism is down 6% this year while the convention business has dropped by almost a third. Meanwhile, average room rates are down 25% and casino revenues continue to drop. Matthew Jacob, a gaming analyst with Majestic Research, predicts CityCenter will "prolong the recovery" for practically every operator.

Murren argues that CityCenter's unique attractions could draw a new breed of visitors. Some of the world's top architects are involved in the project, including Daniel Libeskind, César Pelli, and David Rockwell. Sculptures by Henry Moore and Maya Lin line its air-conditioned walkways. As an environmentally friendly touch, MGM will whisk high rollers around in natural-gas-powered limos.
A SCRAMBLE FOR FUNDS

For Murren, who once dreamed of becoming an architect, the project is the culmination of a life goal. After working for 14 years mostly as a casino analyst at what is now Deutsche Bank Securities, Murren joined MGM in 1998. In 2004, as president, he came upon the chance to develop 67 acres on the Strip that contained a parking lot, vacant land, and the low-rent Boardwalk Hotel. Murren wanted to create a development that connected parks, residential towers, and shopping so that guests could feel like they were going someplace new even if they weren't leaving the property. "There are 2 million people in Las Vegas," he says, "and there's been no urban planning."

Kirk Kerkorian, MGM's largest shareholder, was enthusiastic when Murren presented his plans. But then the financial crisis hit. After the banks cut off lending, MGM's 50/50 partner in CityCenter, the Dubai World investment firm, sued to limit its contributions. MGM'S stock fell from more than $16 to less than $2 in the first three months of 2009 as occupancy rates crashed and investors grew pessimistic about the company's fortunes.

Murren had to scramble to raise funds to continue construction, including selling MGM's Treasure Island casino and raising $1 billion in a new stock offering. Through it all, he says, Kerkorian reassured him and took the younger man under his wing. He told Murren to make sure to spend more time with his wife and nagged him to get enough exercise to relieve stress. Murren says the 92-year-old investor is convinced that both Las Vegas and CityCenter will thrive.

Yet CityCenter's opening comes at a time when MGM is still vulnerable. The company's cash flow has slid from about $2.4 billion in 2007 to an estimated $1.4 billion this year. With $5.8 billion in debt coming due in 2011, MGM is in danger of default if profits slide further, says Michael Paladino, a casino analyst at Fitch Ratings. On Oct. 20 the company took a $1 billion write-off on CityCenter. Kerkorian announced on the same day that he's considering "strategic options" for his 37% stake in MGM. Valued at $15 billion two years ago, his shares are worth $1.6 billion today. Kerkorian said in a filing that he is considering bringing in outside investors to unlock "substantial unrecognized value." Analysts speculate that he may be trying to drum up interest in the company's beleaguered stock, which is now at about $9.60.
OLD-SCHOOL VEGAS

The immediate priority is making sure that CityCenter's rooms are filled once it starts opening its doors. In October, MGM sent teams of sales people out to visit meeting planners around the country. Part of their pitch: Vegas is suddenly the great value-for-money destination. Moreover, they're also being told to say, booking an event at CityCenter is good for the economy because the project is creating 12,000 jobs.

Many think the days of $1,000-a-night suites and $400 bottles of tequila are over, with Vegas likely to return to its roots, offering cheap rooms and all-you-can eat buffets. "We were Bargain City, U.S.A.," says William Thompson, a professor of public administration at the University of Nevada at Las Vegas and a longtime observer of the casino business. Timothy Arnold, a meeting planner in Dallas, just booked a group of 150 at the Bellagio next door to CityCenter for $129 a night—with free meeting space. "Vegas is so full of deals now that I'm directing a lot of my clients there."

For MGM, the challenge is to make sure those clients are profitable. Its four-star MGM Grand, down the street from CityCenter, offers $79 rooms with $35 in food credits. Murren says that kind of bargain makes Vegas irresistible: "Doesn't it make you feel lucky?" But Alex Yemenidjian, a former president and COO of MGM who remains close to Kerkorian, says Murren is in a tough spot: "This is the very first time that Vegas finds itself with supply increasing while the market is contracting."

Work Cited

Christopher Palmeri. "Strategy & Competition - The Biggest Gamble in Sin City." Business Week November, 9. 2009: 056. Print.

The Biggest Bet in Vegas - Clicky Click
 
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CrownCityCorey said:
Many think the days of $1,000-a-night suites and $400 bottles of tequila are over, with Vegas likely to return to its roots, offering cheap rooms and all-you-can eat buffets. "We were Bargain City, U.S.A.," says William Thompson, a professor of public administration at the University of Nevada at Las Vegas and a longtime observer of the casino business. Timothy Arnold, a meeting planner in Dallas, just booked a group of 150 at the Bellagio next door to CityCenter for $129 a night—with free meeting space. "Vegas is so full of deals now that I'm directing a lot of my clients there."

For MGM, the challenge is to make sure those clients are profitable. Its four-star MGM Grand, down the street from CityCenter, offers $79 rooms with $35 in food credits. Murren says that kind of bargain makes Vegas irresistible: "Doesn't it make you feel lucky?" But Alex Yemenidjian, a former president and COO of MGM who remains close to Kerkorian, says Murren is in a tough spot: "This is the very first time that Vegas finds itself with supply increasing while the market is contracting."
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This is the short version.

For those that are not aware, the upcoming Mosconi Cup is being held at the MGM Grand Dec 10-14, 2009. Book now while rates are low.

Pool should be utilizing these opportunities to get our butts out of dilapidated Riviera's and step up to a hotel like the MGM Grand for the same rates! The Riv during the BCA Nationals and APA Nationals have room rates at $89 a night!

The MGM on it's worst day, is still 10x better than the Riviera.
 
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Don't know if I have told you, the company that I work for is doing a large portion of the glass/glazing work at the City Center.

:smile:
 
So what happens when you leave the Riv for the MGM (You are not gonna get $79 a night rooms at the MGM for a three year deal anyway) and when your contract is up the MGM decides you need to pay $199?

There is a lot more that goes into those events at the Riv than the room rate. Go try to do something at a union hotel besides the Riv in Vegas and see what those labor, set up and convention services fees add up to.

There was some talks with another strip hotel recently. They ran the numbers and decided it did not make sense. Vegas is a bodies game. Bodies in the host hotel not in the cheapest rooms at the Sahara or Motel 6. So what if you have it at the MGM for the same $89 as the Riv when you can get rooms for $25 elsewhere? Many players will choose to stay at the cheapest place which I can understand but doesn't help when you are trying to make deals with hotels.

Plus the pool events are usually 7-10 days. That is a big block of time for a Vegas hotel to tie up the required space for an event that size. There is a lot more to it than room rates and who has the nicer joint. Mosconi cup is one small ballroom and and a long weekend. Not to mention what they spend on the labor to set up their lighting and electrical. I talked to one of the lighting techs two years ago and he mentioned $80,000 for the light rig alone without the hotel electrical.

What do you think it would cost to hang a couple hundred pool table lights at union wages and then take them down? That is just one of the things the Riv helps out with that people never see. Yes, the hotel hangs the lights and does all the electrical. That pesky insurance thing. A hotel can gut you on convention services and it is rare to get a deal where everything works out. Hence why things are still at the Riv.

Want to have a weekend conference for a couple hundred in Vegas? You can get smoking deals now. Want to lock up long term contracts using up a ton of space for 10 days? Tougher sell.
 
I got an offer for free rooms, plane ticket to the grand opening of the City Center but can't go. It looks like it's gonna be a really nice place, but really, how different (good or bad) can it be from any of the rest of them?

I usually stay at the Belagio or the Mirage simply because I get comped from my play at the Beau Rivage in Biloxi (MGM/Mirage properties). If I got comped as good at Harrah's properties then I'd probably stay at them.
 
JCIN said:
So what happens when you leave the Riv for the MGM (You are not gonna get $79 a night rooms at the MGM for a three year deal anyway) and when your contract is up the MGM decides you need to pay $199?

There is a lot more that goes into those events at the Riv than the room rate. Go try to do something at a union hotel besides the Riv in Vegas and see what those labor, set up and convention services fees add up to.

There was some talks with another strip hotel recently. They ran the numbers and decided it did not make sense. Vegas is a bodies game. Bodies in the host hotel not in the cheapest rooms at the Sahara or Motel 6. So what if you have it at the MGM for the same $89 as the Riv when you can get rooms for $25 elsewhere? Many players will choose to stay at the cheapest place which I can understand but doesn't help when you are trying to make deals with hotels.

Plus the pool events are usually 7-10 days. That is a big block of time for a Vegas hotel to tie up the required space for an event that size. There is a lot more to it than room rates and who has the nicer joint. Mosconi cup is one small ballroom and and a long weekend. Not to mention what they spend on the labor to set up their lighting and electrical. I talked to one of the lighting techs two years ago and he mentioned $80,000 for the light rig alone without the hotel electrical.

What do you think it would cost to hang a couple hundred pool table lights at union wages and then take them down? That is just one of the things the Riv helps out with that people never see. Yes, the hotel hangs the lights and does all the electrical. That pesky insurance thing. A hotel can gut you on convention services and it is rare to get a deal where everything works out. Hence why things are still at the Riv.

Want to have a weekend conference for a couple hundred in Vegas? You can get smoking deals now. Want to lock up long term contracts using up a ton of space for 10 days? Tougher sell.
Click to expand...

Dangnabbit! Great explanation. Thanks!

tim
 
The Riv apparantly is the only one willing to make a deal good enough for the pool events. Thats fine. I hate the pricing but I really hate the gouging.
Over the years I have met several managers and workers there. They raise prices when we come in and as one guy put it"make sure that the games all make money". Now I dont know about the last part but they do raise the table limits.
Whats odd is that you can call and book a room during the APA for about 35-45 a night if you have some points on your comp card.

A few years ago while attending the APA Nationals I was apporaced and
pulled aside by some "suits". They were visiting from the Tropicana and were looking into the event. I found it odd that the guys were there and were with the Riv guys. They asked many people some questions and looked around. I heard later that they decided not to have it or that it was too expensive.

I wonder if anyone has looked into locations off the strip. State Line casinos would probably beg to have the event but I am not sure that they are big enough.

theres always more than what meets the eye with these deals but I have always thought that the riv was a little high. Not that the rooms should be 50 but not 90.


JCIN said:
So what happens when you leave the Riv for the MGM (You are not gonna get $79 a night rooms at the MGM for a three year deal anyway) and when your contract is up the MGM decides you need to pay $199?

There is a lot more that goes into those events at the Riv than the room rate. Go try to do something at a union hotel besides the Riv in Vegas and see what those labor, set up and convention services fees add up to.

There was some talks with another strip hotel recently. They ran the numbers and decided it did not make sense. Vegas is a bodies game. Bodies in the host hotel not in the cheapest rooms at the Sahara or Motel 6. So what if you have it at the MGM for the same $89 as the Riv when you can get rooms for $25 elsewhere? Many players will choose to stay at the cheapest place which I can understand but doesn't help when you are trying to make deals with hotels.

Plus the pool events are usually 7-10 days. That is a big block of time for a Vegas hotel to tie up the required space for an event that size. There is a lot more to it than room rates and who has the nicer joint. Mosconi cup is one small ballroom and and a long weekend. Not to mention what they spend on the labor to set up their lighting and electrical. I talked to one of the lighting techs two years ago and he mentioned $80,000 for the light rig alone without the hotel electrical.

What do you think it would cost to hang a couple hundred pool table lights at union wages and then take them down? That is just one of the things the Riv helps out with that people never see. Yes, the hotel hangs the lights and does all the electrical. That pesky insurance thing. A hotel can gut you on convention services and it is rare to get a deal where everything works out. Hence why things are still at the Riv.

Want to have a weekend conference for a couple hundred in Vegas? You can get smoking deals now. Want to lock up long term contracts using up a ton of space for 10 days? Tougher sell.
Click to expand...
 
frankncali said:
I wonder if anyone has looked into locations off the strip. State Line casinos would probably beg to have the event but I am not sure that they are big enough.

theres always more than what meets the eye with these deals but I have always thought that the riv was a little high. Not that the rooms should be 50 but not 90.
Click to expand...

A few years back there was a new hotel built, the South Point, with convention space built just south of the strip.

I have yet to walk in there, but with it's location being a little bit away from the strip, I am thinking the hotel/casino/restaurants would have a much better chance of getting the max $ per person coming in for a major event.

I am sure happy that there is a venue like the Riv that is willing to work with us and give us someplace to have these events, but at the same time we should look to take advantage of the Las Vegas economic climate and push for higher standards and greater value to the event participant.

It is only my opinion, but the industry seems to just sit on its hands and accept the status quo. Perhaps feeling lucky to just have business, but that is not how progress is made.

We need to be aggressive!

Pool actually does have some numbers to get the attention of these other places, just nobody is spearheading it.

Let's stimulate action!
 
Like i said before if anybody needs anything out there in the desert let me know and ill take care of it :smile:
 
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