Columnist David Ehlers: Casino developers bet risks will pay off

David Ehlers

Friday, Jan. 17, 1997 | 11:59 a.m.

T HE DEVELOPMENT of a casino-based destination resort possesses many of the same business characteristics as a movie or a video super store. In all three cases, the developer makes a big bet but doesn't know how it will work out until after the customers cast their votes at the opening. Will it be a blockbuster movie, a so-so video store or a complete dud of a casino complex?

Note that the Stratosphere Tower Hotel and Casino and New York-New York cost about the same to develop. The former is headed for bankruptcy court while the latter, in my view, will become the most heralded facility since the Mirage. I have heard some numbers, unverified by New York-New York's management, for slot and table game win that are off the charts. I have no way, of course, of knowing whether these numbers are accurate, but I have walked through many casinos whose numbers were subsequently set forth in those companies SEC 10-Q filing. I am inclined, thus, to believe that the awesome crowds will translate to numbers which are the very highest in Las Vegas for casino revenue per square foot of useable space. This past week Bear, Stearns gaming analyst, Jason Ader, stated that New York-New York had the potential to generate revenue of $500 million. I believe he's had it about right and, accordingly, have set forth some of the factors which are believed to be responsible for New York-New York's success during this brief opening period.

* Visibility: NY-NY's visibility is, perhaps, superior to any of which we are aware. Certainly the Mirage has awesome attractions in the volcano, the white tigers and the pirate ships, but they do not possess a 55-story billboard that beckons visitors. My rating on NY-NY's visibility is a 10!

* Accessibility: NY-NY's case of entry is also in a class by itself. From motor vehicles on Tropicana, the parking garage is readily accessible from either direction. Once inside the garage, the bridge walk to the hotel and casino is only several minutes duration. For the pedestrian, the elevated walkways from the south and east corners of Tropicana and Las Vegas Blvd. South provide quick access from the 5,000 rooms at MGM Grand and the 8,500 rooms at the Excalibur and Luxor complex. Several thousand more guest rooms at the Tropicana are only an extra elevated crosswalk away. From the street level, NY-NY is readily accessible for guests residing at both Monte Carlo and the Boardwalk. Moreover, there are untold millions of Strip pedestrians between Flamingo and the Luxor. My rating on NY-NY's accessibility relative to all other large casinos is also a 10!

* Uniqueness of theme and broad customer interest: NY-NY has generated as much publicity to date as any similar venture has ever attracted. Its wall-to-wall crowds attest, in my opinion, to very strong customer acceptance which I am at somewhat of a loss to understand. I wonder continually (since the opening) what NY-NY possesses that makes so many people want to throw away so much money so quickly. This is not a criticism, by the way, since LVIA is in the business of picking winning gaming stocks for its clients and, accordingly, hope that NY-NY makes a bundle for its developer/owners, MGM Grand and Primadonna Resorts. I also wonder why, at least for its brief existence to date, so many will tolerate crowds and lines which people don't seem to tolerate in other casinos. In pondering these questions, one of our colleagues offered the thoughtful comment that "you know, when people go to New York (the real one) they frequently spend more money than they want -- maybe the same process works for LV's NY-NY." He also offered the thought that rudeness and lack of civility were hallmarks of the real New York, but that LV's NY-NY is staffed with people who believe they are lucky to be working there.

The foregoing, highly rated influences rest at a location so ideal as to be nearly beyond comprehension. Note that NY-NY is situated amidst some 22,000 rooms -- more than two times the total number of Atlantic City -- at LV's busiest corner. Note also, that the pedestrian traffic on the west side of the Strip (gaming's Miracle Mile) is nothing less than mind bending! Moreover, I estimate that about 80 percent of the pedestrian traffic is on the west side of the street -- the same side as NY-NY.

It is of particular interest that the owners of NY-NY, i.e., MGM Grand and Primadonna, have made no announcements concerning its opening numbers. Certainly these numbers, if they are in fact as I believe, are material. Moreover, the crowd counts as we have confirmed at NY-NY raise questions as to revenue dislocations of other casinos. At present, there is little growth in either gaming revenues or visitor counts in Clark County and the Strip. Thus, NY-NY initial revenues must be coming at the expense of others. The $64 question is ... who is being impacted by the new facility's success? I don't know the answer to this question but am inclined to be very skeptical of 1997 Q1 operating results for some of NY-NY's neighbors. Thoughtful investors should be guided accordingly!