New Beau Rivage owner MGM MIRAGE salvages investment

Dave Palermo

Monday, Aug. 7, 2000 | 10:49 a.m.

BILOXI, Miss. -- Beau Rivage, the grand, $700 million experiment on Biloxi beach, is finally starting to pay off.

The upscale, 1,800-room hotel and casino generated a tidy $18 million profit for parent company MGM MIRAGE during the three months ending in June, quite a jump from the $11.5 million the posh place made during the same period last year.

But don't look for a casino company to build another resort on the coast anywhere near the magnitude of the Biloxi palace fashioned by former Mirage Resorts Chairman Steve Wynn and his one-time chief executive Barry Shier. Not anytime soon. Likely not ever.

"Nobody's going to invest that kind of money on the Mississippi Gulf Coast," said Jason Ader, an industry analyst with Bear Stearns & Co. Inc. of New York. "They'd be crazy to."

"I don't believe you'll ever see another Beau Rivage-quality gaming facility built in the state of Mississippi," said Bruce Nourse, the resort's director of public affairs. "Seven hundred million is just too much to be invested in this market. That's one thing the industry has learned."

Industry analysts contend the level of future investment on the coast will probably not exceed $400 million. However, President Casinos steadfastly maintains there is room in the market for its concept of a $2.1 billion cluster of casinos and 13,000 hotel rooms.

Wynn, a casino impresario with a reputation for being more concerned with quality than getting a return on his company's investment, missed the coast's market demographics by a mile. He spent a fortune on such extravagant details as a towering glass atrium with Live oak and magnolia trees, mosaic tile floors, an upscale spa and solarium, a yacht marina with 100-foot boat slips, and large guest rooms with limited-edition artworks.

"One person at one point in time could have come into this market and built Beau Rivage," Nourse said. "Steve Wynn did it."

And don't expect it to happen again.

Criticism from Wall Street and diminished returns from Beau Rivage drove the price of Mirage Resorts stock into the proverbial toilet and -- some say -- resulted in the company's eventual takeover by billionaire Kirk Kerkorian, majority shareholder in MGM Grand. The merged company, MGM MIRAGE, is more focused on the bottom line.

"Instead of buying the most expensive carpet," Nourse said, "we may buy the second most expensive carpet."

In a recent conference call from MGM MIRAGE's Las Vegas headquarters, co-CEO John Redmond said the company is looking at Beau Rivage with the goal of "working on the operating expenses (and) ways to cut costs."

MGM MIRAGE will replace the production show Alegria with celebrity entertainers and boxing matches. The buffet will be expanded to increase the number of daily meals from 3,500 to 6,500, and the 80,000-square-foot casino will be enlarged to accommodate another 250 slot machines.

"Those two components will improve operating results dramatically," said Bobby Baldwin, head of the company's Mirage subsidiary.

Plans for a golf course have been shelved, and Baldwin said he will soon turn his attention to generating a profit from the yacht marina.

With the drive-in market to the coast approaching saturation, Beau Rivage was designed to attract more lucrative visitors from metropolitan areas in Alabama, Florida and Georgia. The company entered into a deal with AirTran Airways to subsidize additional flights to Gulfport-Biloxi Regional Airport.

When the air service and marketing efforts failed to generate immediate returns, Beau Rivage lowered its expectations, competing with other coast resorts for local gamblers. The resort suffered from overstaffing, the lack of a trained and experienced work force and other operational inefficiencies not unusual when operating a new hotel, particularly one with nearly 1,800 rooms.

Mirage management compounded the situation with policies that alienated local residents, such as not allowing them to make reservations at hotel restaurants or use the front entrance valet parking. The rules have since been rescinded.

Meanwhile, the dramatic increase in hotel and casino capacity fueled what one industry analyst called a marketing "blood bath" that diminished profit margins and discouraged Wall Street investment.

"Mirage grew the market, and they legitimized the market by the nature of their huge investment," said Jay Osman of Osman Holding Co. Inc. in Biloxi. "Having one of the foremost gaming companies in the world on the coast is a very positive thing."

Nevertheless, he said, "the initial negative publicity -- generated by the resort's early poor performance -- coupled with the general weakness in the U.S. economy have shut the door to available, inexpensive financing."

"But things change," Osman said. "The Beau Rivage figures have improved."

Eventually, analysts believe the market will gradually absorb the flood of hotel and casino capacity generated by Beau Rivage and the opening six months later of Grand Casino Gulfport's 600-room Oasis Hotel and Spa.

They suspect industry giants MGM MIRAGE and Park Place Entertainment Corp., parent company of Grand Casinos, will remain dominant on the coast, eventually joined by the likes of Mandalay Resort Group and Harrah's Entertainment Inc.

But they do not believe the investments will approach that of Beau Rivage.

"That will never happen again," Nourse said. "That was Steve Wynn's gift to the coast."