Aladdin off to rough start — employment slashed

David Strow

Wednesday, Nov. 15, 2000 | 11:06 a.m.

The Aladdin resort on the Las Vegas Strip has slashed employment costs since its Aug. 18 opening, reducing employment through attrition and layoffs while cutting workers' hours.

In its quarterly report, filed Tuesday with the Securities and Exchange Commission, Aladdin Gaming Holding said it had about 3,500 "full-time equivalent employees" as of Nov. 5, down from 4,500 when the Aladdin opened.

This doesn't reflect the layoff of 1,000 employees, however, but it does reflect a significant decrease in hours worked. Richard Goeglein, chief executive of the Aladdin, said about 6 percent of the 4,000 employees working at the Aladdin when it opened have left the company voluntarily. Another 6 percent were released "because we didn't believe they were aligned to our core values," Goeglein said.

"We're able to run our business with fewer people, fewer hours," Goeglein said. "I think we have our arms around the operational aspects of our business very well, much better than I expected we would (by this time)."

Goeglein said he didn't know how many people the Aladdin currently employs.

The struggles of the resort in its first 45 days of operation are apparent in the report. The Aladdin parent company lost $40.2 million in the quarter ending Sept. 30, recording gross revenues of $40.6 million. About $20.2 million of this loss was caused by interest expenses on the company's $608 million in long-term debt, and pre-opening expenses of $19.2 million. The property had negative cash flow of $3.2 million.

The Aladdin was originally scheduled to open on the evening of Aug. 17, but delays in testing the resort's fire and life safety systems delayed the opening by 16 hours.

"We have discovered our expectations were stronger than what actually occurred," Goeglein said. "I wouldn't say there were surprises, but maybe we were overly optimistic, considering the time of year we opened."

Despite these struggles, the Aladdin reported that both casino and hotel operations began improving in October.

"Clearly, they were going to have some opening month jitters," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "But when you look at the results from the first 44 days they were open, versus what the company says they're doing in October, major improvements are under way."

As of Sept. 30, the Aladdin had $30.4 million in cash. By Nov. 9, unrestricted cash had fallen to $10.3 million -- and the Aladdin faces annual interest payments of $55 million. As a result, the Aladdin report stated the resort may not be able to make debt payments and capital improvements.

To rectify the situation, the Aladdin said it is seeking additional financing, possibly from London Clubs International and the Sommer Trust, the owners of the $1.2 billion resort. Rising costs during the Aladdin's construction forced London Clubs to pump a total of $200 million into the resort, up from the $50 million the company originally anticipated. London Clubs now owns 40 percent of the Aladdin's stock.

Casino revenues were $19.4 million -- $11 million from slots, at an average daily win of $90 per slot, and $8.2 million from table games. In an attempt to push these revenues higher, the Aladdin said it is reconfiguring its slot layout, and has removed 400 slots, giving it 2,400 machines.

"Slot play is very disappointing compared to initial assumptions," Zarnett said. "For a Strip casino to be successful, you have to get slot play to work for you. You have to take measures to get that much closer to the Strip average ($125 per machine per day)."

The one exception to the resort's difficulties appears to be the London Club at Aladdin, the 35,000-square-foot, high-end European gaming salon operated by London-based London Clubs International. The club posted $4 million in casino revenues in the quarter, more than 20 percent of the Aladdin's casino revenue total. In October, the club's table game revenues were $10.9 million, more than double the revenues produced by table games in the Aladdin's main casino.

Table game play also improved in October for the remainder of the Aladdin, as average daily win per table rose from $1,568 during the Sept. 30 quarter to $5,200 in October.

Hotel revenues were $11.3 million, while average occupancy for the quarter was just 77 percent. Only about one-third of the Aladdin's hotel rooms were made available when the resort opened Aug. 18. The Aladdin also blamed "the lack of free and independent traveler demand and the lack of booking convention room occupancy."

In October this situation also improved, as occupancy rose to 94 percent, and the hotel's average daily room rate increased from $130 to $135.

The company's attempts to boost efforts could be improved by the opening of a 32,000-square-foot spa and fitness center around year's end. In October, Steiner Leisure Ltd. of the Bahamas, the leading operator of spas aboard cruise ships, signed a 15-year lease to build, equip and operate the Aladdin's spa.

Goeglein said the road ahead could prove difficult, at least through December. But he's optimistic about the resort's longer term future, saying that business bookings in the first quarter are looking strong.

"For the most part, November and December are not very great months for anybody (in Las Vegas)," Goeglein said. "But I look forward to the first quarter of next year."