All Bets On
Karyn Strauss -- Hotels, 5/1/2007
If you build it, will they come? Casino operators from Las Vegas to Macau are betting big that the answer is yes. And while those outside the gaming sector watch with skeptical wonder as yet another mammoth casinohotel project is announced in these two markets by the likes of Las Vegas Sands, MGM Mirage, Wynn Resorts, Stanley Ho’s Sociedad de Jogos de Macau and others, the gaming giants are content to let history be its guiding force. “I’ve been scared of the competition the last 40 years of my life—and in Vegas I have the disadvantage of competing against my own buildings. We measure our ability to compete by tracking our performance. I think history speaks more than anything,” offers Steve Wynn, whose company is in the midst of a US$2.1 billion expansion of its Las Vegas resort with Encore, a US$900 million expansion of its Wynn Macau and planning a second casino-resort on Macau’s burgeoning Cotai strip. “It’s like a train coming through your living room–competition in Vegas is good for everyone. It drives the whole menu of Vegas bigger, and the market will grow.”“Someone is always predicting the demise of Las Vegas,” adds Alan Feldman, senior vice president, public affairs, MGM Mirage, whose luxury-laden, 5,000-room Project CityCenter development—a miniature Manhattan in the heart of The Strip—will help steer a new course in Vegas’ product offerings. “The Las Vegas market is about to embark on a growth spurt that will add some 30,000 rooms over the next three to four years. There are always concerns, and there should be. It would be irresponsible to call it easy or a no-brainer. There shouldn’t be growth for growth’s sake, but I take a certain level of confidence in that there’s a lot of value being placed in the market.”
The stakes, however, have never been higher with land prices on The Strip priced anywhere from US$20 million to US$40 million an acre. “If you look at where the Riviera is, that 26 acres (11 ha) of land, they’ve had offers of US$300 million that have been turned down,” marvels Wade McKnight, managing partner, Deloitte, Las Vegas. “And that would be for a tear-down. So you’re talking US$300 to US$400 million tied up in the land even before having a blueprint.”
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Macau is the biggest story as development ramps up; first big test of Las Vegas-style appeal comes this summer when Las Vegas Sands Corp. opens its Venetian master plan development on the Cotai Strip; biggest challenge: Will the Chinese embrace non-gaming offerings? |
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Wynn likens the change happening in Macau—which until five years ago was still a sleepy former Portuguese enclave known for mostly seedy gambling halls and very little else—to the day back in 1989 when he opened the Mirage in Las Vegas—and subsequently introduced non-gaming attractions to the market on a grand scale. “When Mirage opened and did US$800 million in revenue in four months, US$400 million of that was non-casino revenue—a 50-50 split. That was a major change. All subsequent developments embraced non-casino offerings. And modern Las Vegas is the result,” Wynn explains. “Will the Chinese public embrace this vast amount of integrated, non-casino options with the same enthusiasm as Vegas?”
That truly is the billion-dollar question. “Chinese customers are much more serious gamblers; they don’t drink as much, and they spend more when they gamble,” says Shannon Okada, senior associate, HVS Gaming Services, San Francisco. “The big question will be if these other venues—F&B, retail—can be developed similar to Las Vegas, expecting a balance of revenue. I am curious about the success of theater and the types of shows—Vegas has so much to offer, will the Chinese customer be interested?”
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Wynn is betting they will. “This is not exactly a blind flight. We do have some data. Chinese have been coming to Las Vegas for years and have responded with as much if not more enthusiasm to all Vegas has to offer, ” he says. And that eagerness already has become evident in his Macau property. With its September debut, customers have gotten their first taste of luxury, with top-of-the-line retail in its lobby. In fact, the Louis Vuitton boutique at Wynn already is the highest grossing store for the brand in Asia.
But the first true test will come this summer when Las Vegas Sands debuts its goliath, US$1.8 billion Venetian Macau master plan development, which will include more than 1 million sq. ft. (92,000 sq. m) of retail and 20,000 hotel rooms, including those by Fairmont, Raffles, Four Seasons, Sheraton, St. Regis, Conrad, InterContinental, Holiday Inn, Shangri-La and Traders. It also will have 1.2 million sq. ft. (110,400 sq. m) of meeting space—marking the first serious introduction of the convention model into Macau; an auditorium with entertainment geared toward a Chinese audience, including a new Cirque du Soleil production; a sports arena; as well as 700 table games and 6,000 slots.
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The company believes it has done its homework and is creating a venue that will appeal to the Chinese traveler. “First there is a higher propensity to gamble in China—to seek out gaming. Then add that they already go to [nearby] Hong Kong and shop like mad, so retail isn’t a concern,” says Michael Shindler, vice president development and asset management for Las Vegas Sands. “In terms of hotels, we have a popular brand and a luxury brand for each company we’re partnering with, so that creates a range of price points.” Plus, Shindler says, given the huge population base in China and surrounding areas, the percentage of visitors that need to convert from day to overnight guests is relatively small. “Yes, Macau is still a day-trip market, but when more people come and are coming from slightly longer distances, you really need small percentages of them to stay two to three days,” Shindler says. “Two million people staying 2.5 days is the key. At 2.7 we figure we should be golden. Is that more than currently? Yes, but not by that many.”
In 2006, international arrivals into Macau hit 22 million. According to the Pacific Asia Travel Association, Macau is forecast to welcome 23.5 million international visitors this year. Mainland Chinese represent more than 50% of those international visitors, with a record 12 million PRC residents visiting Macau in 2006, a 14.6% growth over the previous year.
So, are other operators waiting to see how the Venetian fares before moving ahead with their own projects? “Not one bit,” Feldman says. MGM Mirage wants a piece of Macau’s action too— although on a smaller scale and with fewer non-gaming options—and has partnered with casino tycoon Stanley Ho’s daughter Pansy Ho to develop the 600-room MGM Grand Macau, which will open later this year, as well as second project, the MGM Paradise, on the Cotai Strip. “Clearly it’s a market that if you put out a product that is fresh and exciting people will come,” Feldman says. “The only issues are accessibility. The airport is good but will need to be expanded; roads will need to be expanded. Service is efficient but will need to be expanded. The size of the market when you think of the population there is almost unfathomable. I don’t think anyone sees a slowing of growth in Macau in our lifetime.”
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Looking to ride the next wave of opportunity are several other notable projects, from the City of Dreams, a US$1 billion luxury development on the Cotai strip with 2,000 hotel rooms, retail, residential, gaming, convention and entertainment facilities by a Melco/PLB (led by Stanley Ho’s son Lawrence Ho) set to debut in 2008 to Galaxy Mega Resort on the Cotai Strip and the Oceanus Entertainment Complex, Stanley Ho’s US$790 million, 600-room hotel, casino, cinema and retail project to open in 2009.
“Macau is a really hot market. Every time I go back, I’m amazed by how much it’s grown,” says David Kong, CEO, Best Western International, which has two hotels there. “I think the momentum will sustain. The Chinese love to gamble, and it is illegal anywhere else. The Sands (which debuted in 2004) takes in as much money as Vegas, and it is maybe a 10th of the size. It is busy 24 hours.”
Singapore Moves Forward
Soon, however, Macau won’t be the only casino-resort destination in Asia as Singapore moves forward with its two integrated gaming projects—albeit on a much smaller scale than Macau. Last year the proposals were drawn, and the industry placed its bets on which companies the government would choose. The first project for Marina Bay was awarded to Las Vegas Sands Corp., which at this time last year was considered to be the underdog. What swayed the committee, Shindler believes, is the company’s strength in the meetings and conventions business. “The notion of the business meeting is our company’s specialty. That is what we brought to the table, and most people would say it is why we won. We have the expertise in attracting the MICE market.”
Upon its completion in 2009, The Marina Bay Sands will feature 2,500 5-star hotel rooms, 1.2 million sq. ft. (110,400 sq. m) of flexible MICE space, 1 million sq. ft. (92,000 sq. m) of retail and restaurants, three large entertainment venues and the company’s premium player venue the Paiza Club.
The second winning bid for Sentosa was awarded to Genting International for its Infinity @The Bay Pte Ltd. Project (the original proposal was a joint venture between Genting and Star Cruises, which has since dissolved). Genting beat out Kerzner International and Eighth Wonder Pte Ltd. with its plan for a family-friendly resort complete with largescale leisure attractions, including a Universal Studios theme park, a “Journey to Madagascar” attraction by the Dreamworks Digital Animation Studios, and three amphitheaters featuring the Crane Ballet and Cirque du Soleil. There will be six hotels, including the first Hotel Michael by renowned designer Michael Graves.
Las Vegas’ Next Chapter
Back in the United States, the evolution of Las Vegas continues with the latest wave of development upping the ante of luxury even further. New generation product is adding another level of sophistication. “In Las Vegas over the past few years, the trend we’ve been seeing has been toward dropping the lower end of the market,” McKnight says. “There are a lot more luxury high-rise condos and condo-hotels with towers selling out at US$1,000 a square foot. It is a testament to the sophistication of the market, a less gimmicky approach to marketing. Now it is about quality.”
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Much of that sophistication comes by way of a further departure from gamingonly options and from the influx of luxury branded hotels entering the market, predominately via CityCenter and Boyd Gaming Corp.’s Echelon Place. CityCenter, a US$7 billion, 76-acre (31-ha) parcel will be densely packed with hotels and condos, including a 400-room Mandarin Oriental condo-hotel. A testament to the “if you built it, they will come” mantra, 90% of Mandarin’s 227 condo units sold out in just two weeks, with prices starting at US$1.5 million. The mega-resort is being conceived by some of the world’s top architects, who are looking to set a new standard in design for the Vegas skyline.
“There’s definitely a move to a more urbane sense of sophistication going on in the market,” Feldman says, not only in regards to CityCenter but the Las Vegas market in general. “The growth trend is toward a much more sophisticated view of what Las Vegas is all about, and this has been coming on for years. If you look back to when Mandalay Bay and Bellagio opened, you started to see a different crowd coming to Las Vegas. The age is the same, but the psychographics are changing. Today’s visitors are well traveled; it’s all about the experience. The future lies in delivering exceptional experiences on a very grand scale to meet the needs of the global traveler.”
Bob Boughner, CEO of Echelon Place, Boyd Gaming Corp.’s US$4 billion development consisting of casinos, four hotels—a Delano and Mondrian by Morgan’s Hotel Group, a Shangri-La and an Echelonbranded resort—a shopping mall, concert venues and 1 million sq. ft. (92,000 sq. m) of meeting space, concurs. “Vegas is becoming a much more discerning market, so, as a company, we decided we should diversify our product to capture more upscale travelers,” Boughner explains. “We spent the better part a year looking at what might fit in terms of the evolution in the marketplace and several trends emerged: the importance of meetings and conventions coupled with the upscaling of Las Vegas and the importance of attracting established hotel brands at a time when they are expanding globally. And there are very few hotels in the world, let alone Vegas, with that amount of meeting space—and the quality of that space—than Echelon is offering.” What Boughner believes sets Echelon apart is its user-friendly design, shortening distances between meeting venues and guestrooms, as well as its heavy emphasis on greenery. “We’re not designing this as an urban hotel. It’s a resort with an abundance of landscaping. Our design is very much in the escapist vein. Our guests come from cities and are telling us they want a resort setting.”
Meanwhile, much of The Strip is laden with construction equipment. Wynn is adding an all-suites hotel next to his resort, and the Venetian is adding Palazzo, a 3,000-room expansion that Shindler calls “an updated version.” Most other established operators are expanding and upgrading to stay competitive, while the industry is waiting to see what Harrah’s Entertainment’s next move will be post buyout and subsequent privatization. The company has amassed 350 acres (142 ha) on The Strip and is thought to be the next major contender to watch in this market.
U.S. Market Expands
While Las Vegas continues full-speed ahead, it is hardly the only gaming news in the United States. “It’s interesting to follow the spread of gaming with more jurisdictions legalizing gaming and the reactions to that,” says Peter Tyson, vice president, PKF Consulting, Philadelphia. Some 17 states are considering regulations to install or expand gambling, with much of that action concentrated around the U.S. East Coast. “Gaming is heating up again in New York—the Catskills area— slots are heating up in New York City and race tracks in Yonkers [New York], so that cuts into the market for Atlantic City and Connecticut,” Tyson adds.
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The biggest threat to the status quo currently is Pennsylvania, which in addition to its expanded casino plans, also will see a destination casino-hotel by Las Vegas Sands. In December the company received approval to build a casino-hotel complex in Bethlehem, Pennsylvania, a market just an hour from New York City. “We’re taking an old steel plant and refurbishing it. It’s really a refurbishment of the downtown and enables us to create an integrated resort,” Shindler says. “It’s a bigger reason for being other than gaming.” Rather in the first phase, the 126-acre parcel will feature a 300-room hotel, 200,000 sq. ft. (18,580 sq. m) of retail, and a variety of dining and entertainment options along with its gaming. The property also will be home to an industrial history museum and arts and cultural center.
This just adds fuel to the fire in established markets. In Connecticut, where Foxwoods Resort Casino and Mohegan Sun dominate, both properties are in the midst of major expansion plans—upping the ante on their destination resort status. “We know the competitive environment in the area is changing. So we wanted to expand capital investment to insulate ourselves as a destination [experience],” explains Mitchell Etess, president and CEO, Mohegan Sun, which is investing US$740 million in its Project Horizon expansion. The new, 1.4 million-sq. ft. (128,800-sq. m) project includes a 1,000 room hotel, including a 300-room themed House of Blues hotel on the top floors, a House of Blues concert hall, and expanded retail, restaurant and gaming facilities. MGM Grand, meanwhile, is coming to Foxwoods as part of that resort’s expansion, which in addition to rooms will quadruple its meeting space.
Not to be outdone, in nearby Atlantic City, operators continue to expand their offerings against the growing day-trip competition. “I think Atlantic City will continue to do well. The Pennsylvania creep is just starting to open, but gaming taxes are a lot higher in Pennsylvania than in New Jersey. And the size of the venues in Pennsylvania are a lot smaller,” McKnight says. “The Borgata came into the market five years ago and has been far and away a huge success. Harrah’s has been very successful. Atlantic City’s got a great locale and a huge population base to draw from. If it can continue to upgrade product, it should do well.”
Recent development news includes Pinnacle Entertainment’s US$250 million acquisition of old The Sands and Traymore sites, where it is planning a new mega casino-resort. Trump is updating its Taj Mahal Casino Resort and developing a master plan for the Trump Marina Hotel Casino. MGM Mirage—which co-owns the Borgata with Boyd—is building a new casino-hotel next door.
Gaming in the Mississippi Gulf region also has been focused on renovation and expansion post Hurricane Katrina. MGM Mirage’s Beau Rivage, Biloxi, which was completely destroyed in the hurricane, underwent a US$550 million renovation now boasting 1,740 guestrooms; a redesigned casino; 15 restaurants and lounges, including celebrity Chef Todd English’s OLiVES; expanded retail and convention space; a spa; and a theater complex.
Harrah’s Entertainment’s Grand Biloxi Casino Hotel and Spa reopened in August—marking the company’s first phase of a master plan for Mississippi Gulf Coast development. A month later, the Harrah’s New Orleans hotel debuted adjacent to the company’s casino venue there. The 450-room resort features a new jazz club and is part of the city’s overall revitalization plans.
| UK Gaming Update |
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The gaming debate continues in the UK and at press time had reached an impasse in Parliament. First the fight was whether or not to expand the gaming sector and allow for Las Vegas-style casinos—what they are calling “super casinos”—to enter the marketplace. Once the green light was given to building the first one, and the Gambling Act passed, next came the question of where to build it (along with 16 other smaller venues without hotels)? Proposals were submitted with Blackpool, a seaside town in the north, thought to be the main contender. London also threw its hat into the ring with its Millennium Dome plans, thus whetting the appetite of international gaming companies looking for new expansion opportunities. However, by the fall, after a 16-month deliberation, the Casino Advisory Panel had selected a third locale, Manchester, to be the home of the super casino. Mired in controversy, in late March, the Manchester plan—part of the system’s secondary legislation procedure that in effect puts prior plans into action—passed in the House of Commons but then was voted down in the House of Lords. Expecting the legislation to pass, with no plan “B” in mind, Culture Secretary Tessa Jowell was quoted in the BBC News saying she would now have to “reflect” on what the next step would be. |
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