Mandalay Bay’s main design: Building respect for Circus

Gary Thompson

Friday, Jan. 29, 1999 | 11:40 a.m.

Maybe Mandalay Bay can change the perceptions.

Like the Rodney Dangerfield of casino operators, Circus Circus Enterprises Inc. just can't seem to get any respect.

For years, Circus Circus has been a big cash-flow generator, but Wall Street values its stock below that of some big-cap competitors. Circus' stock price to cash flow multiple is just 5.5, compared with Mirage Resorts' 13.3 and MGM Grand's 15.4.

Circus also has one of the highest cash-flow margins among Las Vegas casino companies but has led the pack in another category as well -- steepest decline in stock price over the past two years among major Strip operators.

Maybe it's Circus' big debt load -- $2.52 billion outstanding as of Oct. 31. Maybe it's the belief that a company whose tradition has been to cater to the lower end of the market can't compete in the new "upscale" Las Vegas.

Or maybe it's the huge number of new hotel rooms -- 12,476 in total -- that are slated to open in 1999, swelling the Las Vegas inventory to 121,841 by year-end and threatening to unleash a rate war that could send room prices tumbling.

Whatever the reasons, Circus remains out of favor with Wall Street just a few weeks before the inaugural of Mandalay Bay, its most ambitious and costly new construction project to date. Only two of 22 gaming analysts who follow the company rate its stock a "strong buy"; 17 call Circus a "hold."

Yet despite all the dubious sentiments and flood of negative news -- the highly publicized problem with the settling foundation and the recent departure of Mandalay Bay's general manager are just two examples -- Circus executives are convinced that the opening of the new resort will mark the beginning of a resurgence in the company's fortunes.

Mandalay Bay represents more than a bid by Circus to enter the high end of the gaming and entertainment business. It's part of a long-term strategy that company executives insist will pay off, naysayers notwithstanding, by offering a wide variety of entertainment options for tourists in every price range.

The strategy starts with "critical mass," a term Circus executives use to describe the room count they believe will feed the company's casinos, restaurants, retail shops and entertainment venues.

Including its half of the Monte Carlo (a joint venture with Mirage Resorts), Circus owns 13,679 Strip hotel rooms now. When Mandalay Bay opens, the total will rise to 17,379. That's 29.4 percent of the 59,030 resort rooms (excluding the Rio and Las Vegas Hilton) that will be open on the Strip as of March 3.

The bulk of the Circus rooms will be centered in the "Masterplan Mile," a 230-acre stretch between Tropicana Avenue and Russell Road that includes the Excalibur, Luxor and Mandalay Bay -- and room for another resort, if needed.

That stretch, to be connected by a monorail to shuttle guests to and from the three resorts, is the centerpiece of the Circus growth strategy. It will offer different price points for customers, with Excalibur at the low end of the scale and Mandalay Bay at the high.

Excluding land costs, Circus is spending $850 million to build the Mandalay Bay hotel-casino, which will have 3,700 total rooms and a 135,000-square-foot casino with 122 table games and 2,400 slot machines.

It's spending another $100 million on a 125,000-square-foot convention facility and a 12,000-seat arena for staging sports and entertainment events and $75 million more on the monorail and a "Sea of Predators" exhibit scheduled to open in 2000.

The total almost equals Circus' $330 million investment in Excalibur and $825 million (including expansion) in Luxor, which have a combined 8,433 rooms and suites and 230,000 square feet of casino space.

Retail option open

Circus is also exploring the possibility of developing a 1 million-square-foot retail shopping center on the land between Mandalay Bay and Luxor that it would lease to a mall developer.

Some gaming analysts believe the results will benefit a company that is building its newest resort in an area others call "locationally challenged" -- too far from the Strip's epicenter a few blocks north.

"I believe the openings of four big casinos -- Mandalay Bay, Bellagio, the Venetian and Paris-Las Vegas -- within a year will drive significant increases in visitor volume," Andrew Zarnett, of Ladenburg Thalmann & Co., says.

"Because Circus has the most rooms in town, they should benefit from the volume increase. And I think people will be pleasantly surprised at the product, which is far superior to what they've previously associated with Circus.

"The major concern," Zarnett says, "is that Mandalay Bay suffers from a poor location on the Strip. The problem is that it's very difficult to drive across traffic."

Circus executives, though, believe the location is more a benefit than a bane, as the three-hotel complex will have more than 12,000 rooms and its own entrance and exit ramps from Interstate 15. The latter will also enhance the company's ability to market the Masterplan Mile's attractions to locals eager to sample Strip-quality attractions without the hassle of Strip-clogged traffic, they say.

With its newest resort, Circus is targeting the premium end of the tourist market. Included in Mandalay Bay is a Four Seasons resort whose 424 rooms and suites will occupy the 35th through 39th floors of the 43-story hotel tower. The Four Seasons at Mandalay Bay will have its own entrance, restaurants, pool, spa and meeting spaces.

Mandalay Bay's 40th through 42nd floors will contain suites for the high-end customers Circus will target in direct competition with the Bellagio, Mirage, MGM Grand, Rio, Las Vegas Hilton and Caesars Palace.

The resort's 43rd floor will consist of a House of Blues Foundation Room as an adjunct to two other House of Blues-themed attractions -- a 500-seat House of Blues entertainment venue that will feature a steady stream of big-name performers and niche acts designed to compete with The Joint at the Hard Rock, and a floor of themed rooms at the 35-story level of the hotel tower.

International network

To fill Mandalay Bay's rooms, Circus has established a marketing network that includes offices in Hong Kong, Taipei, Singapore, Bangkok and Kuala Lumpur in Asia; Sao Paolo, Buenos Aires and Mexico City in Latin America; and five U.S. cities.

Circus is also spending $10 million on a nationwide advertising campaign. It's the first such effort for a company that in its halcyon days grew accustomed to filling rooms just by building them. Now, however, Circus has embarked on a promotional campaign designed to create an awareness of what awaits Mandalay Bay's customers -- a fun, high-energy, entertainment-oriented experience.

Among Mandalay Bay's offerings will be six live entertainment venues, including three lounges and the events center that will host concerts, boxing matches and other events. The center's inaugural event will be an April 10 concert by legendary tenor Luciano Pavarotti. Other special events will feature fighters such as Oscar De La Hoya and entertainers such as Rod Stewart.

'Chicago' as opener

Mandalay Bay's main 1,700-seat theater will open with a production of the six-time Tony Award-winning musical "Chicago," while the House of Blues attractions will include a live-music venue accommodating 2,000 people and a 600-seat restaurant.

The resort will feature 15 restaurants including Aureole by James Beard award winner Charlie Palmer, a Wolfgang Puck Italian restaurant, two China Grill offerings, a "rumjungle," a Red Square, a Border Grill, cafes and separate Four Seasons and House of Blues dining rooms.

The tropically themed 11-acre water park will include a sand beach, a "lazy river" ride, a jogging track and wave-generating equipment that will enable the resort to host a surfing school and professional competitions. The entire water area has been designed to create the illusion of a beach rather than the typical resort pool environment.

Circus executives expect that, excluding the Four Seasons rooms, Mandalay Bay will command an average daily room rate (ADR) of $110. And they point to some recent encouraging signs on the economic front for their optimism.

While visitor volume, convention attendance and occupancy rates decreased in 1998's third quarter, the opening of Bellagio last October resulted in an upturn in fourth-quarter numbers.

In addition, Circus executives point out that the Masterplan Mile offers the first big resort developments along the southern part of I-15 in Las Vegas, and that auto traffic was up sharply last year.

Also, taxable gaming revenue rose last year even during the declines in visitor volume, an indication that tourists were spending more. Those factors could bode well for the newer resorts' efforts to command higher room, food, beverage and entertainment prices.

Emphasis on service

The challenge in a city filled with great physical resort facilities is to provide great service, and Circus executives believe they're assembling a team able to do just that. Mandalay Bay has developed performance-oriented programs that executives believe will demonstrate to the resort's 5,500 employees its commitment to their career growth and will encourage improved customer service.