Two Way Hard Three | Las Vegas Casino & Design Blog

September 21, 2008

Vegas Gang #17 - September 18th, 2008

Posted by Hunter

Vegas Gang #17 is online here:

This time around we cover:

* Economic Update
* Kansas Update
* Strip Clubs in Strip Resorts?
* Mega-Resort Designs of the Future?
* ARIA Update

Feel free to leave your comments below.


Read archived comments (9 so far)
September 22, 2008 4:33 PM Posted by mike_ch

(big rant post)

Well, I was just casually listening to the show as background noise until the discussion of pricing, land values, and so on on the Strip came up. That's like a dog whistle for my attention.

The resort companies are as greedier than they've been since the corporate era started. They're greedier in their room pricing, they were getting tighter with their comps (this trend has slowly reversed), they're greedy with things like Robopoker. It seemed to have started around the same time they became focused on nightlife and young, hip entertainment. I'm not sure though if that's causation or simply correlation. One could argue that someone who thinks $300 is a reasonable rate to stand in the same crowded room as Katy Perry and Michael Phelps for an evening probably is probably relying on someone else to foot that bill anyway.

I watched the new "90210" the other night. I saw numerous businesses that have a location on the Strip mentioned or shown, and characters who drive Ferraris to school and fly on private jets across the country for a dinner. It's like one of the Strip bosses thinks this is a documentary, these are real people, and they should be the new target market.

It's not that they're building so much capacity, or that they're only building luxury resorts. It's that they're doing both at the same time. As you look further up the income scale, the pool shrinks. You can make rich boutique hotels like Skylofts or Four Seasons or whatever, or you can go for massive numbers of less well-off visitors and make it up in volume, but you can't do both. You can't get massive numbers of wealthy visitors to fill up a cluster of 4,000 boxes with nothing but the upper crust.

I just can't imagine a hotel of 7,000 fat cats all hanging out together; turning a whole casino into a giant high-limit room, shopping in a mall full of designer label stuff, rubbing elbows at the buffet, and asking the barista at Starbucks if he takes change for $100. The wealthy don't all want to be bunched up at Aria, they want to hide out in boutique places overlooked by the common folk.

Jeff is right that nobody is building Stratospheres anymore because of the land values, but that's where I find the current adjustment will eventually come in. People like Elad paying as much money as they did for property really don't have any way out that doesn't involve feeling like you want to jump out a window, as I see it. With so much supply all due to appear in about 18 months for the top dollar. I wouldn't be shocked to see somebody have to pull a Trump and give a 5-star room away for 3-star prices.

Agreed with David (I think?) that companies are biting off more than they can chew. MGM is only building CityCenter because they can, and Dubai was invited to the party because someone looked at the finances and said "holy cow, we stand to really choke on this if it doesn't work out." Companies like Boyd and Harrah's and even Wynn should not be bothering to tackle it all at once.

When you look at it, CityCenter is realistically a hotel that came with all it's expansions built on. It's Caesars Palace opening on day one with the six towers and the mall instead of adding them on over years. The upside of that is you get a much better floorplan than the Caesars sprawl with hallways to nowhere, elevator cores hidden in odd places, and so on. The downside is you're building out your whole footprint immediately.

Think about it: When Aria is a few years old and everybody has walked in and kicked the tires, what happens? Wynn had Encore up his sleeve, and even though it seems derivative of the original work from all we've seen so far, people are still interested in checking it out. Mirage had Treasure Island and the most recent redo, Bellagio had spa tower and some refurbs, Mandalay had THEhotel and the mall, Palms had the new tower, the older Luxor and MGM Grand have each taken two shifts from theme park to upscale hotel to nightlife. The places that haven't done something worth checking out in 5-8 years after open, aren't thought of as often. NYNY, Paris, Monte Carlo, these are all solid places that at least until recently in some examples all basically have barrelled along with what they opened with. And all of them have comparatively less buzz about them. People come back to see what's changed since they were last there.

So what do you do with Aria when it's five years old, and entrenched in the middle of this massive complex? Do you squeeze another tower into the already crowded CityCenter footprint? Do you knock down Monte Carlo and grow it south? What is the phase 2 here?

On a indirectly related note, here's something that I think would help go a long way into making people feel less screwed, and I'm borrowing from Disney again but what the heck, they've got the whole trip-planning thing down very well: Disney World classifies it's hotels into tiers and divides the year into blocks of dates that always have the same rack rate.

So what I'm saying is, let's slice up the MGM Pie like this, based on a standard room:

* Luxury (Aria, Bellagio)
* Deluxe (Mandalay Bay, MGM Grand, Mirage)
* Moderate (Luxor, Treasure Island, Monte Carlo)
* Value (Circus Circus, Excalibur)
* Home Away From Home (Signature, CityCenter boutique condo-hotels)

Each tier has two standard rates, a weekday rate and a Fri-Sat rate, for any block of dates through the year. So you can have a value season that includes the summer and the winter, and higher up blocks of the calendar for busier times, and then an extreme Event tier that's very highly priced and used for times like New Years Eve and Labor Day Weekend.

So, if you're going in the summer, the price of a standard room at Luxor is the same as Treasure Island and Monte Carlo and will always be that price except on weekends or in the case of very busy events. Publish the prices for the next year around November or so, and just adjust the room prices once a year.

Basically, this is taking advantage of the near-monopoly to provide some sanity to room rates. People are much able to plan their vacations when there's some reliability as far as what they're going to pay. Rooms in Vegas fluctuate too much in price right now, as they raise or lower the price in the short term or boost the price for a convention or a concert or so on.

Bring some reliability to how much you're going to charge for a night, and bring an end to this crazy bargain hunt, email list, coupon code, room rate craziness. Either one of the Big Two has the leverage to do this, because they have enough properties under their belt.

I'm sorry if this post looks like the ranting and raving of a loon. I've been posting a stream-of-consciousness rant over a few sittings. It's been a busy day.

September 22, 2008 8:31 PM Posted by Joe

THANK YOU! Thanks Hunter for explaining the subject of the classic, three wing resort from those new city center type resorts. Thats one of the reasons I love Vegas, because of the traditional themed hotel casinos.

September 24, 2008 12:51 PM Posted by John

As far the impact of the economic crisis on Las Vegas is concerned, it's very early ( as in the first inning of the game ) to see what will shake out. I saw that Terri Lanni was on the PBS show "Nightly Business Report" answering questions about the impact on LV.

His answers were to minimize the impact saying business was down somewhat but foreign visitors are up and long term interest in ARIA was strong. The screen on the TV showed the Welcome to LV sign with Mandalay Bay behind Lanni. It would have been more interesting to show the vast construction site of Echelon in the background.

So far, the biggest impact I've seen is political. Some of the news netoworks are reporting that some of the ( previously ) high growth states in the US like Nevada and Florida, which were leaning McCain are now very much toss-ups with the US Election now looking very much like an Economy Election rather than a cultural or gender centered .

These states were already feeling the impact of foreclosures, cancelled projects, tight credit etc.

Other states that were already close like Michigan and Wisconsin
are still toss ups. Those states never experienced construction booms, high growth and inflated housing prices. In fact, houses are kind of a bargain there in you don't mind the heating bills, taxes and the winters and fairly poor job opportunities.

September 24, 2008 4:55 PM Posted by Brian Fey

I don't believe for a second, we're in the first inning of the game. With ever new wave of properties that has come to Vegas, so have the visitors to see these new fantastic places. USA has hit a major pot hole, no question. But in time, the economy will rebound, it always does, and when it does, people will stand in line to come to Vegas just like they always have, to see these new hotels. Besides Encore, most of the new places are still over a year from opening, and a lot can change in the economy in a year, if you don't believe me, just look back one year. And I haven't done the math, but we've lost a lot of hotels, including, Stardust, Frontier, so we've gained Palazzo, and Encore, but as far as number of rooms, it might be a wash up to the end of this year. Now, once CC and FB opens, we'll gain another 10k rooms roughly. But people talk is if Vegas is closing down for business. I am sorry, I just don't see it, this isn't the end of the world. I don't buy it! I predict in 2010, Vegas will be buzzing along just fine.

September 24, 2008 5:53 PM Posted by mike_ch

I see it, but I don't see it affecting the companies involved too much, because most of them have Macau or lots of tentacles elsewhere to fall back on.

Let's face it, gambling isn't anything particular to Nevada anymore, the odds that used to make Vegas more attractive than other casinos are tightening up all the time, and as far as non gambling revenue goes we'll never be able to top Dubai.

September 24, 2008 7:18 PM Posted by LeoNYC

In terms of new hotels being built, I predict Encore, City Center, Fontainebleau Las Vegas and the new hotel tower at Caesars Palace will be the last projects built on the Strip for the next 10 years. What you all think?

September 24, 2008 10:27 PM Posted by Drambuie_man

A few thoughts:

1. I think the tourist up-and-down is already expected, built into plans, and so I do not think will effect LV that much. What really makes me wonder is the availability of credit on the open market for gaming projects. What happens if say FB needs $300 million in mezzanie financing to finish the project. Can they get it? Likely, but at what cost. That cost in turn will put more pressure on the place to return profit, and ultimately may have the effect of the high land prices discussed in other places in the podcast (striving for richer players).

2. On that note, I am sure LV will sort itself out into what ever market their hotels fit. Its one of the great things about the invisible hand of the market. Today we talk about the Mirage as a mid-range strip property. Yet remember when it was the pinnacle of luxury on the strip? I am willing to wager that one of these properties will have to downgrade their profit/demographic expectations in a short amount of time.

3. Meanwhile you wonder where to go? Why not look at all the new construction on Strip adjacent Harmon? Just as close to the majors, but with middling quality for the middling market. Likewise we might find a mid-range Strip build-out of the corridors connecting the strip to properties like Palms/Rio, Hilton, or Hard Rock.

4. However if I take all my thoughts together, I wonder if the following will happen: 1. A credit crunch in the construction leads to a high-interest loan 2. The project is not embraced by the high-end market 3. They lower expectations, only to find with the expensive loans they have even more problems 4. The project goes bust.

5. Reminds me of an old worry. The casino's diversified their offerings to be less reliant on the gaming revenue. Yet they are not more dependent on non-gaming revenue (remember LV is not a gambling destination but a "resort" destination now). Now the whole mechanism is complicated and has many moving parts that could break and grind it to a halt. We may now, or soon, see that.

September 25, 2008 11:39 AM Posted by David McKee

Leo, funny you should mention that because Jim Murren said almost the exact same thing to Reuters. He was a little more generous, throwing Echelon into the mix (no mention of Viva, though) -- but would the president of MGM Mirage be floating this scenario if there weren't some pretty serious concerns about how long it's going to take LV to absorb all this new capacity? And it seems like just yesterday that MGM Mirage was laying out big plans for its North Strip acreage.

September 29, 2008 4:00 PM Posted by Jeff in OKC

I think every Company knows someone is going to have to go downmarket with their older properties, they just hope it's the other guy. The LVCVA tourism numbers don't lie. Isn't it something like 3 nights per stay, 2 times a year, and about $1000 per trip? I don't think any amount of building is going to get Mr/Mrs Average to spend more, especially if they don't have it.
Convertible weather in OKC has kept me from listening as much as I usually would, don't want to comment until I properly digest it. It was, as usual, another excellent installment from you Five Fine Fellows. All I can add is, with all sincerity, thank you for your efforts and please keep up the good work.