Genie is out of bottle

David Strow

Friday, Aug. 18, 2000 | 11:15 a.m.

The $1.4 billion Aladdin hotel-casino on the Las Vegas Strip opened at 11 a.m. today -- 16 hours late.

Executives said there was good reason for the delay as Clark County building inspectors required the resort to complete its fire safety testing. The testing was complete, and the resort received its certificate to open at 7:45 a.m. today.

"It's part of policies and procedures. These buildings will be here for 100 years. What's a minute or an hour or a day when you're talking about the importance of what needs to be accomplished?" Chairman Jack Sommer said.

Added Chief Financial Officer Thomas Lettero, "You just don't know until the last test passes. But you have to be ready and geared up in case it does pass. Physically, it has been ready."

By 10:30 a.m. today, a handful of people had made their way inside the resort and were playing slot machines. But they were told to leave as the resort had not officially opened. The casino officially opened at 11 a.m.

Officials blamed the delay on last-minute repairs to the casino surveillance system. They said the hotel itself opened at 10 a.m.

The Thursday night opening -- originally set for 7 p.m. -- was called off several minutes after midnight. This left thousands of Strip gawkers leaving in disappointment -- and opening night hotel guests wondering where they'd spend the night.

By contrast, the attached Desert Passage mall opened right on time, opening its doors at 7 p.m. to crowds that numbered in the tens of thousands.

Though the Aladdin had rescheduled its opening for this morning, that came far too late for hundreds of the Aladdin's opening night's guests. All guests on opening night were by invitation only, and included high-rollers, market analysts and reporters from across the nation and the world.

In contrast to their usual blue-ribbon treatment, many high-rollers waited out on the sidewalks in front of the Aladdin for hours, as much in the dark as anyone else on the Strip. Most were unable to even get to their luggage, since the hotel had been locked down for testing.

Though Aladdin employees did their best to arrange alternate accommodations for their guests, tempers still ran high.

Invited gambler Tony Dojcinovic of Los Angeles, waiting outside the Aladdin with his family until after midnight, fumed after hearing from security guards that the property wouldn't open until at least the next morning. Dojcinovic and his relatives had arrived at the property at 1 p.m., and had been waiting for hours to go to their room.

"I'm just upset, period," Dojcinovic said. "We're just going to spend our money somewhere else. This is very bad business ... it's just not right."

Caught in the same predicament was Louie Martinez, a farm owner from Maricopa, Calif., and regular Las Vegas visitor. Martinez, who said he'd been an invited guest at the grand openings of the Bellagio, MGM Grand and Paris Las Vegas, said he'd never seen anything like it. His Aladdin casino host finally set him up with a room at Paris Las Vegas, though their luggage remained at the Aladdin.

"They're trying really hard," Martinez said. "They're very courteous. I'm not that upset, but I'm a little disappointed. Some of my high-roller friends are a little pissed."

His mood, however, was tempered by fiancee Ellie Placencia's run at the nearby Paris Las Vegas.

"I'm not too upset, because my girlfriend hit 'em for $8,000," Martinez said with a grin.

Will the delay hurt the property in the long run? Analysts in attendance said it probably wouldn't.

"It ultimately won't make a difference the day after the casino opens," said Robin Farley, gaming analyst with PaineWebber. "There's clearly a lot of excitement, and from what we were able to see, the concept was well-executed."

Gregg Klein, a high-yield gaming analyst with BNP Paribas of New York, noted that the Venetian had thrived since its rocky opening days more than a year ago.

"It's certainly disappointing," Klein said. "The security staff could have been more communicative ... they kept giving different times (for the opening).

"But once it opens, it should do very well. The location of the Aladdin is fantastic, and the property looks great. It's just a shame it didn't open tonight."

Aladdin executives said the displaced guests were placed in nearby hotels, where the Aladdin had reserved rooms in case of a delay.

The delayed opening was a sharp contrast to the successful opening of Desert Passage at 7 p.m. With her trademark blink, "I Dream of Jeannie" star Barbara Eden helped open the doors of the mammoth themed mall on time. Tens of thousands of visitors, unable to go into the casino, poured into the mall instead.

Doubts over the property's future won't subside with the property's opening. Two years of rocky relations between the property's owners, difficulties financing cost overruns and a debt-heavy capital structure have some on Wall Street yet to be convinced the property will be a long-term success.

"All we know is that these guys couldn't finance it efficiently, and they couldn't construct it efficiently," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "The question is, can they operate it efficiently? We don't know that yet.

"It's capable of having $100 million a year in cash flow. If it was (Park Place Entertainment Corp.'s) project, it could do that. I think they can do it, but there needs to be some proof they can capture those revenue dollars and bring them to the bottom line."

Like many Las Vegas projects of recent history, the Aladdin came in far over budget. What started as an $826 million hotel-casino project now has a total cost topping $1 billion, not including the property's mammoth Desert Passage mall.

The Sommer Trust, owner of the Aladdin since 1994, first brought in partner London Clubs International in 1998. In exchange for its $50 million initial investment, LCI received a 25 percent equity ownership in the project. At the time, the partners anticipated any future costs would come from the partners in the same 75-25 ratio.

But as additional costs piled up over the next two years, LCI ended up paying most of the bill, as the Sommer Trust had difficulty liquidating assets to meet the Aladdin's capital calls. Of the $148.2 million in cost overruns so far, LCI has paid $143.9 million -- 97 percent of the total, pushing its total investment to just under $200 million.

Though LCI is now entitled to a far larger portion of the profits -- including the first $30 million in profits each year -- the financing issue caused stormy relations between the partners.

Even with heavy investments by LCI, just $375 million of the property's $1 billion investment came in the form of equity. The rest of the property's capital costs -- more than $625 million -- comes in the form of debt, mostly junk bond debt and bearing an average interest rate of 11 percent per year. The ultimate price of all that debt will be about $85 million in the first year.

Despite the challenge presented by the heavy debt load, the property should benefit from its Strip location. Located directly between Paris Las Vegas and MGM Grand, and across the street from the Bellagio, the Aladdin should benefit from the tens of thousands of tourists who will walk by its doors daily, analysts say. That effect will be magnified by the current boom in visitor traffic Las Vegas is now enjoying.

"Great locations enable properties to capture walk-by traffic," Zarnett said. "That is your best customer, because they require no additional expense, and what they put in your slot machines, less taxes, is all cash flow."

That should be assisted by Desert Passage, Zarnett said.

"From what I saw, I think they have created a must-see attraction with the mall, which will create a lot of incremental traffic to their property," Zarnett said. "It's a wonderful amenity for people spending three days in town, to spend a few hours in the mall."

That belief certainly seemed justified during the opening hours of Desert Passage, as shoulder-to-shoulder crowds wandered through the huge mall. Desert Passage Director of Marketing Paul Beirnes admitted there might be a bit of a silver lining to the hotel-casino's delays for the mall, particularly as would-be casino customers decided to kill time in the mall.

"We'll give them somewhere else to spend their money," Beirnes said.

Another nagging concern Zarnett and other analysts shared about the opening was a lack of a blow-out national advertising campaign. Beyond a national insert in USA Today, out-of-town analysts say they've seen little to promote the new property -- and say that could hurt the Aladdin's attempts to create a "must-see" attraction that will draw visitor traffic.

"Compelling new resorts purchase a hell of a lot of publicity," said Steve Altman, gaming analyst with Duff & Phelps in Chicago. "I just saw my very first print ad in the Chicago Tribune on Sunday, and it was fairly non-descript. It's not like they have a big budget to take out television ads and radio.

"When you read about it, it has the flavor of a me-too property. I'm not sure what the property offers that you can't find elsewhere in the city."

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