This is part two 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.
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With Aria occupancy lower than forecast, I would be surprised to learn that any of the chef partners are all that thrilled with how things are going - many revenue share with CityCenter. Combine that with management closing some of the high-end restaurants multiple nights a week, things aren't all that rosy in this department either.
Could some of the eateries be shuttered altogether? CityCenter insiders tell me that MGM looked seriously at several options, including closing the semi-empty warehouse that is BARMASA. As of now, it remains open, albeit with reduced hours - most of the fine dining establishments are closed at least one day per week. We'll see what happens long term - MGM is likely limited by its contracts in how much cost cutting they are able to do.
At least one restaurant, Silk Road, is likely toast, to be replaced with the Mr. Chow that was originally slated for The Harmon.
Cirque du Soleil
Cirque du Soleil (CDS) has been one of the amazing success stories of the last fifteen years on The Strip. With shows in practically all of MGM's hotels, they've raked in a ton of money, even if not all shows are as beloved as others.
Viva Elvis opened to a mixed reaction but since BELiEVE is still open at Luxor after getting a pile of negative reviews, clearly CDS and MGM are willing to give things some time and let a show find it's sea legs. If VE is now slightly above break-even as sources say, the chances that MGM would scuttle the show are close to nil, especially since the contract they have with CDS would no doubt be very expensive to extricate themselves from.
Nights when VE is dark means less activity in the casino and restaurants. While VE might not be anywhere near the level of profitability that 'O' enjoys next door at Bellagio, it's in the black and that's what counts.
From the first time I walked it, I found The Crystals to be far too stark and hangar-esque for my tastes. Since then, many people, myself included, have complained about poor navigation, not to mention it being yet another set of high-end retailers that 'average people' can't afford. Even if you do like a suit from Prada, it's not all that great for window shopping.
According to a person with knowledge of the situation, The Crystals is actually in the black - making money in the otherwise sea of red that is CityCenter. That's without all the spaces operating so good for them. According to our source, the place is averaging over $1,000 in sales per square foot - if true, that rivals the top malls in town. Consider me shocked but that's the word I'm getting.
By the end of the year we should see most of the place filled with new stores from Donna Karen, Stella McCartney, Saks, TAG Heuer and others. I'm still hearing about Apple maybe coming someday but now also word of a possible Tesla electric car showroom as well as the long rumored grocery store, something essential to make it a real 'residential' flashpoint. We may even see a gallery type spot from former Mandalay Resort Group honcho Glenn Schaeffer.
Despite the good news, internal documents suggest that some of the retailers may be withholding rent payments to MGM - though this may have less to do with their ability to pay and may be more of a negotiating tactic, trying to use CityCenter's troubles as leverage.
Dubai World became a 50% partner in CityCenter in 2007 after putting up billions of dollars. Since then, the value of their investment has famously sunk by over 60%. Right off the bat, it's hard to imagine they're all that thrilled about how things are going, even if much of that isn't entirely MGM's fault. Let's not forget - the two companies were embroiled in a lawsuit over the project as recently as last year.
In December, the Dubai World execs attending the opening made speeches celebrating the achievement of completing such a complex project. Since then, CityCenter has posted significant losses. How many times have internal forecasts had to have been reduced as the numbers got worse? Are Dubai World managers assigned to the JV board losing faith in the project? We've recently seen reports that the company is looking to reduce its overall debt load by unloading assets. Could CityCenter be one of those assets? It's entirely possible.
CityCenter insiders mention several high profile customers winning huge sums (think $10MM+) at Aria, only to then lose back most of that money at Bellagio or MGM Grand. That may just be luck but if I was a DW exec, it would certainly make for an uncomfortable board meeting as Dubai's share of potential profits move to the casino next door where MGM doesn't have to split anything with their joint venture partner.
Even considering all of the above, the casino at Aria is showing accelerating promise. Despite a couple of months with bad hold numbers, it's getting a fair amount of play - within striking distance of Bellagio's drop for some time periods. They appear to be spending a lot of money to bring these customers in but once they get there, they are playing and if that keeps up, eventually they'll lose at least some of it back.
Do Dubai World execs have the stomach to ride this out? Hotel services must be tempting targets for cuts but go too far and you won't have any customers left to service. This is an area that I could imagine the potential for a real rift between seasoned hotel execs on MGM's side and folks without as much experience in high-end gaming across the table. Wynn-trained operators like Aria President Bill McBeath no doubt would likely argue that at some point, continuing to cut services will hurt more than help. How often do you think he's had to make that point? I'd bet more than once.
That's it for part two. Part three is coming tomorrow, Sept. 9th, 2010 with more info on these challenges and some wrap-up.
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