Strip competitors joining Harrah’s in cross-marketing properties

David Strow

Friday, Sept. 22, 2000 | 10:57 a.m.

For the past several years, cross-property marketing has been a trademark of companies like Harrah's Entertainment Inc. and Station Casinos Inc.

Now, MGM MIRAGE, the new giant of the Las Vegas Strip, is trying to get in on that game.

In buying Mirage Resorts Inc. for $6.4 billion, MGM Grand Inc. transformed itself into the largest operator of resorts along the Strip, with six major Strip resorts in its portfolio. Cross-marketing these properties will allow MGM MIRAGE to get a bigger bang out of its capital investment bucks, says MGM MIRAGE President and Chief Financial Officer Jim Murren.

"We have an enormous amount of capital in the ground," Murren said. "The opportunity now is to leverage these buildings into revenue-generating ideas that don't require a lot of incremental capital investment."

In 1999, MGM Grand posted a cash flow margin of 30 percent. Had Mirage and MGM Grand been one in 1999, its cash flow margin would have been 26.8 percent. The goal, Murren said, is to push the margin back above 30 percent.

MGM MIRAGE has achieved about $47 million a year in cost-saving initiatives, primarily from closing redundant marketing operations, saving from combined purchasing and combined corporate functions. The goal is to achieve at least $95 million a year in savings.

On top of that, however, are opportunities to boost revenues. One of the most immediate efforts in that regard will be the introduction of a single player's card for all of the company's properties. Tentatively called the "One Card," players will be able to use the card across the MGM MIRAGE chain, from the Bellagio to Beau Rivage in Biloxi to MGM Grand in Detroit. Information about players' habits and demographics can then be used to build a Harrah's-like database of player information.

"With our properties, and our knowledge of our customers, we think that'll have a big impact on revenue," Murren said.

Murren said the card should be introduced in the third quarter of 2001.

Certainly, MGM MIRAGE isn't the only company looking at the benefits of a unified "slot card," as the large players try to make sure Strip visitors stick with their properties. Both Park Place Entertainment Corp. and Mandalay Resort Group are also working on similar projects.

"I think everyone is working on it (a single card)," said John Marz, vice president of marketing for Mandalay Resort Group. "We all want to tether our clients to us and develop programs where we can build loyalty."

Marz said Mandalay plans to introduce a single card for its five Strip resorts, but said a launch date hasn't been set. Park Place, meanwhile, will have the capability to allow customers to use a player's card from one of its four Las Vegas casinos as a player's card at another Park Place casino by year's end.

Initially, points from these cards can only be accumulated at the casino where the play occurred, though the eventual goal is to allow points to be accumulated across properties. Park Place also eventually plans to expand the unified players card to the rest of its properties across the United States.

Such cards could bring substantial rewards for operators competing on the super-competitive Strip, especially given Strip visitors' desire to visit many different properties, said Merrill Lynch gaming analyst David Anders.

"No one's had the critical mass of properties that MGM has," Anders said.

But Anders believes the card could be far more than just a way to track player comps from property to property. With such a card, Anders said, an MGM Grand guest could charge a dinner at the Bellagio to his or her room.

"The concept is that you can track not only gaming, but retail activity, food and beverage activity of a single patron and reward them accordingly," Anders said. "You can pursue that kind of strategy if you have numerous kinds of attractions.

"This makes it easier for your customers to do business with you. The key variable is making sure you know who your good customers are and rewarding them."

Once the MGM Grand and Mirage Resorts computer systems are linked together, other possibilities for cross-marketing become available. One possibility Murren said the company is considering is the consolidation of each hotel's reservation call center into a central location. Currently, cross-selling goes on between the MGM Grand and the New York-New York, and between the Mirage Resorts properties, but a bridge between the two entities hasn't been made yet.

With such a system, Murren said, a customer who couldn't get a room at a sold-out MGM Grand could be booked by the same attendant into an available room at Treasure Island, New York-New York, the Mirage or the Golden Nugget. But unlike the unified players' card, a consolidated call center isn't a certainty yet, as MGM MIRAGE wants to take care not to dilute its stable of brands.

"If we go down that road, and do it effectively without diminishing the individuality of the properties, then it clearly would have a revenue benefit to us," Murren said. "We've clearly not made that decision yet. We may decide it's far better to keep the identity and uniqueness of each property ... and cross-market from separate locations."

Still, such an effort is definitely worth strong consideration, said PaineWebber gaming analyst Robin Farley.

"If someone wants to stay at the Bellagio, they have to call a different number than someone staying at the Golden Nugget," Farley said. "As long as the brands are distinct to consumers, that's just consolidating. You're doing the customer a favor, because if they call a property that's full, you're providing them a service rather than making them make five different phone calls. You can capture spill at another property."

In the longer term, Murren said MGM MIRAGE remains interested in making more capital investments in Las Vegas -- but only after the company pays down some of its debt, which now stands at $6.3 billion.

Some of that debt repayment will come from the sale of company assets in the next 12 to 18 months. These assets will include more artwork from the Bellagio and, in the longer term, the sale of excess land in Atlantic City.

So far, the company has sold $154 million in assets, primarily artwork from the former Bellagio collection. Murren said asset sales could ultimately raise between $250 million and $350 million, with additional debt repayment coming from free cash flow.

"We'll be in a different financial position by the middle of next year than we are today," Murren said. "We're harvesting cash to reduce debt. We're not in a mode of leveraging this company."

Anders estimates the company should be able to reduce its debt by $300 million to $400 million within 12 months.

But once debt's been reduced, where will the company spend its cash? MGM MIRAGE has already committed $117 million in cash to the Borgata, a $1 billion megaresort in Atlantic City slated to open in 2003. The Borgata is being built in partnership with Boyd Gaming.

Beyond that, expansion in Las Vegas is definitely on the company's mind. One of the most likely locations for expansion, Anders said, may be the two-year-old MGM Grand Convention Center.

"The convention center has been a home run, and they are nearly at a point where they're capacity constrained," Anders said.

Murren notes that higher demand is the reason the company is doubling the size of the Mirage's convention center, and he has no doubts demand would easily fill an expanded MGM Grand Convention Center.

"We turn away a lot of business now, but the decision is never that easy," Mirren said. "You need to understand how that changes your mix in hotel customers."

Another possibility being considered at MGM Grand is a new use for the 19-acre theme park.

"The Aladdin is open now, so the corner of Harmon (Avenue) and Koval (Lane) is more appealing than ever before," Murren said. "That can only increase the value of the property."

A second future project could come at the Boardwalk site, located between the Bellagio and the Monte Carlo. MGM MIRAGE Chairman Terry Lanni has spoken in the past of building a new kind of casino at the site, one that would appeal to "Generation X" visitors.

"That site is so important that it deserves a blow-out type of project that takes Las Vegas to the next level," Murren said. "It doesn't have to be the most expensive project ever, but it certainly has to break new ground."

A third possibility Murren isn't ruling out is the $250 million, 1,300-room expansion of the Bellagio, put on hold shortly before Mirage Resorts was taken over by MGM Grand.

"The expansion to Bellagio was a project we put on hold not because we thought it was a bad project," Murren said. "We think it's a great project. Certainly the Bellagio, given room rates and its broad appeal, could support more space and more restaurants. But it wasn't the right time for this company.

"That project gets thrown into the hopper with a lot of other things. We make capital allocation decisions ... and prioritize based on what's most effective for the bottom line. There will come a day when there's more rooms here (at the Bellagio), I just don't know when that will be."

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