This is part one of a three part series about the problems that MGM Resorts International faces at CityCenter and how those problems may be impacting the important relationships they need to run their businesses.
Based on fascinating new insight into operations at the various CityCenter components, we dive deep into how the complex is doing and how bad things might get.
The other parts of the series will be posted later this week.
Please leave all comments about the series on this post. It's all after the jump.
We all have relationships - friends, family, co-workers, employees, vendors, customers and even strangers. In many ways, we are defined by these relationships, be they well-nurtured, in need of repair, recently salvaged or even permanently severed. This is true not just of individuals but also of corporations - especially a giant hospitality company that aims to serve its guests well, day in and day out. When important relationships go sour, the thunder of the resulting shockwave can be deafening, destroying much in its path. Today, in September 2010, I believe that several of MGM Resorts' key relationships have already or are in danger of being significantly damaged, perhaps permanently. To really understand how badly things have gone off track, we have to first look back.
Amazing how much has changed in a year. Twelve months ago, CityCenter was still mostly mystery. In September of 2009 we were being subjected to the banal 'remember to breathe' Aria advertising campaign. In November, I was invited to tour the construction site and my first impressions on property were mostly positive. There was a lot of interesting stuff to take in: Mandarin's 23rd floor lobby and bar, opulent suites at Aria, a lobby and check-in area flooded with light. Beyond just that, there was an enthusiasm in the air - CityCenter was beating the odds - despite setback after setback, the doors were going to open. Given everything that had happened up to that point, it seemed like quite an accomplishment.
Opening day, I sat with a bunch of other media types, listening to speeches from the major participants: MGM folk, Dubai World representatives, architects, builders, chefs, etc... Everyone involved seemed very proud of their latest creation and in that sense, rightfully so - the project was truly a massive accomplishment. There were some obvious black marks - my room at Vdara had non-functioning locks and windows so dirty that it literally looked like grime had been sprayed from a pressure hose. Ok, so maybe the young lass just had some opening jitters - I've never been to a flawless hotel opening so that wouldn't be anything new.
Just hours before the public would be invited in, construction crews were still roaming about, busting their asses in the final hours to get everything ready. The employees had worked incredibly hard all through the construction process and seemed excited to have finally reached the finish line. Little did they know that the next few months would mean fewer shift hours, workforce reductions and generally being asked to do more with less.
The complex opened to what I would charitably describe as 'mixed reviews' from guests. Tales of service woes, non-functional room technology and sometimes downright surly service weren't uncommon in the first months. I've stayed at Aria (twice), Vdara (twice), and Mandarin Oriental (unfortunately only once so far) and personally experienced the guest services roller-coaster that many others have also reported.
To be fair to MGM, I don't think there's much debate about the current operating environment in Las Vegas: tough as hell and not getting much better anytime soon. A lot of external forces are working against the company. While that may be true, I don't think that gives them a pass. It's well documented that as the economy declined throughout 2007-2009, management made little effort to alter the project's design, even as it became clear that people were going to be spending less and less money (and time) in Las Vegas.
What do you get when you combine the most expensive private commercial development of all time, a 50% ownership stake purchased by a sovereign investment behemoth that's since experienced it's own financial implosion all opening into a terrible economy? Sounds like fertile ground for conflict and also for a very interesting story. From what I'm hearing from people inside CityCenter, interesting barely scratches the surface.
According to my sources, the economic reality of CityCenter's first months have caused massive stresses on many of the key relationships that built MGM into the Las Vegas powerhouse that it is today. Will these relationships weather the storm? Could these issues spill over and impact the rest of MGM's wholly-owned resort business? How the hell was this even allowed to happen? To get this bad? Let's look at some of these relationships in detail and discuss some of the most difficult problems that CityCenter faces.
Employees and Unions
Of this entire list, it's hard to imagine a single group more impacted than the CityCenter employees themselves. When it comes to cutting costs, this is the first place management looks - freezing salaries, slashing benefits and cutting hours. The employees that have been able to keep their jobs are being asked to do more, sometimes for less money. It's a tough situation - finding another job in Vegas is next to impossible so you stay where you are, no matter how bad it gets.
Could more cuts be coming? Many of the employees at Aria and the rest of CityCenter came over from other MGM properties, maintaining their seniority and related benefits. It would be employee morale suicide to attempt to deviate from those established parameters and I can't imagine that the MGM folks on the joint venture (JV) board would allow it, despite how tempting it might seem. Some things do deep, long lasting harm and this would almost certainly be one of them.
About half of the workers in the complex are unionized, giving management less flexibility when it comes to adjusting their hours and wages. That said, negotiations with the union last year gave MGM the ability to reduce the split of full time/part time workers from the 75% / 25% standard to the 60% / 40% they're averaging now. Those reductions were designed to be temporary and are scheduled to expire in December. I'd bet my lunch money that CityCenter will ask for an extension. Will the union be asked to make more concessions to help the company get the property into the black? It's certainly possible, though not clear how they would react.
MGM has a bunch of other properties it has to worry about (ya know, how they actually made money last quarter) - maintaining good relations with its unions is critical and any action that the JV takes at CityCenter could have an impact down the line for other properties in the MGM portfolio.
With management reducing employees and hours to reduce costs, of course there is potential for customers to take it in the teeth. In Aria's case, a guest staying today vs. earlier this year will notice fewer restaurants open each night, a pool cafe that is closed during the week, hours at the bars and lounges reduced and fewer employees to help them on the floor. On the flip side, the hotel has been more aggressive with promotions in the form of lower room rates and resort credits for longer stays. There are deals to be had if you seek them out.
In December and January, there were multiple reports of guests asking to be relocated to Bellagio from Aria - a combination of service glitches and issues with the new in-room technology were often to blame. Those problems seem to have ebbed - based on my own data from Vegas Mate, I'm seeing better customer reviews for Aria in the past few months. That said, there's still a long way to go in this department and all the cuts make that more difficult to achieve.
Ownership in one of the several condo towers was meant to be a key part of CityCenter's financing and profit potential. With the collapse of the economy and the difficulty in obtaining a mortgage these days, many of the folks that originally put down deposits are now trying to re-negotiate, either for smaller spaces / fewer units or in some cases, just walking away from deposits altogether.
CityCenter needs to make ownership more appealing while also reducing their own costs to carry the unsold inventory. As with the rest of the property, my sources tell me that all options have been considered, including closing amenities that residents might consider vital, such as the spa at Vdara. Supposedly these drastic measures have been largely rejected with a new focus on a possible leasing program for the unsold inventory.
Didn't want to plunk down $5 million for digs at Mandarin? You might be able to lease a unit for less than $2/square foot if some of these concepts get off the drawing board.
In addition, MGM needs to step it up when it comes to benefits of ownership with exclusive access to lounges, restaurants, shows and other amenities: make living in CityCenter seem like access to a special private world, not like a mistake or a foolish decision that your friends make fun of. Word of a upmarket grocery store in The Crystals is back on some people's lips - that kind of thing would help but it's only a start.
That's it for part one. More impacted groups coming in the next installment. Part two is coming tomorrow, Sept. 8, 2010.