The Cosmopolitan of Las Vegas has released its 2nd quarter results, giving us a glimpse into how the Strip's latest resort is faring. The answer? Not so poorly, though there's room for growth.
My focus here--and I'll be quick, I promise--is comparing the Cosmopolitan's revenue breakdown with the rest of the Strip. In some ways it isn't a true comparison, since I'm pulling the Strip average from the Average Big Las Vegas Strip Casino, 2010 report, which is a year behind the Cosmopolitan numbers. But I think that it still gives a good sense of what the average numbers are on the Strip.
More after the jump.
Here we have a little chart I threw together this morning showing the Cosmpolitan's average daily revenues for the second quarter of 2011, the first half of 2011, and the Strip "big casino" (annual gaming revenues of over $72 million) daily average for 2010.
As you can see, the bottom line isn't that bad. Overall the Cosmopolitan's pulling in more on the average day than its statistically-average competitors. And the second quarter is stronger than the first half, which means things are heading in the right direction.
The interesting thing, though, is that food and beverage blows every other department away; the Cosmo's nightclub, bars, and restaurants are more than twice as important to the overall revenue picture as their compatriots elsewhere on the Strip.
The casino, on the hand, continues to underperform relative to the Strip average. And the part the should cause the most concern is that, in both absolute and relative terms, the casino lost revenue in the second quarter; overall for the first half, it pulled in 21% of all revenue, but only 19% for the second quarter. That says that maybe efforts to grow the customer base haven't been successful, and that high end play is staying far away. As they admit in the 10- Q, "The table games hold percentage (before discounts) for the three months ended June 30, 2011 was 11.6% which is currently below our expected range of 12% to 15%." However, the Cosmos insist that volume's increased "steadily" (a claim not totally borne out by the lower daily average).
This bit came as news to me, but pretty much no one else:
"The Company's Board has approved plans to construct a further high limit gaming area of approximately 9,600 square feet. This additional area will comprise 15 table games and is expected to be completed by November 2011."
According to Trent Dang (via Twitter), this is replacing the erstwhile Identity Lounge on the second floor, which was a beautiful space, I thought. I can definitely see why it makes sense to put high-limit games in here, but you've got to wonder why no one figured out that a player's lounge was an underutilization of the space while it was still on the drawing board.
Pretty much these numbers confirm what's been said for a while: the Cosmo's casino is generating that much action, but the restaurants and Marquee are doing great.
Which leads me back to the Cosmopolitan's locals-oriented "Unlock Mondays" campaign. As I said last month, it focuses almost exclusively on F&B promotions. On one hand, you can say this was an example of a savvy company playing to their strengths: they know that their restaurants are a draw, and they are hoping to draw even more attention to their best asset.
On the other, you might wonder why the company isn't putting some muscle into trying to build a player database. Other Strip casinos have courted local play. I'm not sure that getting more locals to eat and drink at the Cosmo on Mondays is the best use of limited marketing resources. The restaurants are doing fine--it's the casino that needs some help.
Then again, maybe this is just a different business model. There's no reason to think that generating 38% of your revenues is intrinsically better for your company than 19%. The Cosmopolitan might actually be better off not putting too much effort into attracting high-end play, since as a standalone property it's going to be more susceptible to the volatility that high rollers bring with them. It's one thing when you can offset a lucky baccarat player's weekend against a portfolio of 10 properties with thousands of slot players; it's another when you can't.
For more than twenty years, the trend has been for non-gaming revenue on the Strip to take a progressively bigger piece of the revenue pie. Maybe the Cosmopolitan's just a few years ahead of the curve here. After all, Encore didn't spend $70 million a few months after it opened to add more slot machines.
I'd really like to have a candid talk with someone at the Cosmopolitan to learn a little more: whether its be design or necessity, are they trying to push this evolutionary trend to its logical conclusion? Or, if they can manage to get more casino action, are they going to have a revenue profile that looks like everyone else's? Either way, it's an interesting story.