Gambling, entertainment chiefs bullish on Las Vegas

David Strow

Monday, June 25, 2001 | 10:45 a.m.

With the building boom of the '90s over and the U.S. economy slowing down, what does the future hold for Las Vegas?

Few are more qualified to answer that question than Tom Gallagher, CEO of Park Place Entertainment Corp., Glenn Schaeffer, president of Mandalay Resort Group, and Bill Hornbuckle, president of the MGM Grand hotel-casino. On Friday the three men shared their thoughts on Las Vegas at a seminar at the International Hotel & Restaurant Show at the Las Vegas Convention Center.

All three agreed on one thing -- the outlook for Las Vegas remains strong, despite economic concerns.

"It is a quasi-recession-proof industry," Hornbuckle said. "When people seek out value destinations, they seek out a gaming destination."

But they also agreed Las Vegas needed to keep looking for ways to keep people coming back to the city, as the opening of new megaresort casinos won't serve as a magnet in the coming years.

"The trick is to keep it fresh," Hornbuckle said. "What's the new story in Las Vegas? We're all going to be challenged by that."

For that reason, Hornbuckle cautioned against heavy cost-cutting in areas like advertising as a measure to combat a recession.

"We're not going to save our way to prosperity, period," Hornbuckle said. "We have a $900 million economic engine in this property (the annual revenues of the MGM Grand). Would we say, 'Let's cut $5 million out of our advertising budget?' Never."

Hornbuckle noted that average daily room rates were still up more than $10 at the MGM MIRAGE-owned property, and that convention business and group bookings -- "kind of a barometer for the economy" -- remained strong.

The MGM Grand is dependent on the high-end business, more so than many properties in town. Thirty percent of its casino revenues come from baccarat, the game of choice for the "whales" -- and Hornbuckle said that means, on many days, the property's revenue stream is dependent on the play of just five or six big players. That sometimes leads to the question, "If Mr. X isn't around, what will we do?"

"The great news is, both domestically and internationally, they always seem to be there," Hornbuckle said. "When the Hong Kong real estate market goes to hell, mainland China seems to be doing great."

Though the company derives 51 percent of its revenues from gambling, "that's not why people come here," Hornbuckle said.

"It's about all the (amenities of Las Vegas), put into a package you can't get anywhere else," Hornbuckle said.

Schaeffer agreed, noting that Las Vegas's annual visitor count has nearly doubled since 1990.

"Everybody who was a gambler had been a visitor to Las Vegas by 1990, before we doubled our visitor count," Schaeffer said. "And everybody coming to Las Vegas (today) is driving by or flying over a box with gaming (a casino). So it's something else."

Schaeffer argued Mandalay had been the catalyst for that change in the 1980s. He noted that Mandalay, once heavily dependent on slot revenues, has become the purest "resort" company in Las Vegas, deriving just 40 percent of its revenues from the casino floor.

"This isn't the gaming industry, it's the entertainment industry," Schaeffer said. "We're giving the customer an entertainment experience they can't get anywhere else. That's turned Las Vegas into what it is today."

There won't be new hotels rising in the next few years, "so it's not going to be about new exteriors ... it's going to be about our interior programming," or getting the most out of what Mandalay has built over the past 10 years, Schaeffer said.

Convention business remains strong, summer room bookings are up slightly from last year, and tribal gaming is having only an "ancillary" impact on Mandalay properties in cities bordering California, Schaeffer said. Of all the economic indicators commonly used to predict future business, Schaeffer said the only one that seems to impact the Las Vegas Strip is the availability (not price) of fuel.

"There's a 4.5 percent unemployment rate in America," Schaeffer said. "People in this room are working, and if you're working, you take a vacation."

And as far as conventions go, "they'll cut out (conventions) in places like Atlanta and Dallas, but not Las Vegas," Schaeffer said. "We think we'll get through this in pretty good shape. We hope this doesn't last another year or two years, because at some point, we'd feel some pressure."

Some still remember the economic slowdown of 1991 in the wake of the Gulf War, but Schaeffer argued that was more a function of people avoiding airports because of terrorism concerns, rather than economic issues.

"Everyone wants to watch a war in real-time ... we can do that today with our slot machines," Schaeffer said, drawing chuckles from the audience.

For Gallagher, the economics are somewhat different than they are for Mandalay or MGM MIRAGE. Gallagher noted only 40 percent of Park Place revenues come from this market. And even these properties have different economic focuses -- Park Place's Caesars Palace and Paris Las Vegas, for example, have a far different focus than the company's convention-oriented Las Vegas Hilton, Gallagher said.

"In Las Vegas, you're seeing a bit of fall-off in (drive-in) traffic from California, but it hasn't had a dramatic impact on our results here," Gallagher said.

Even if the slowdown is prolonged, Park Place has the advantage of being a young company, formed within the last two years by the merger of four separate public companies, Gallagher said.

"We still have a lot of opportunities to capture some synergies," Gallagher said. "It's different than if you have the same stable of properties year after year."

New properties and new developments in the cities where Park Place operates help the company, even if Park Place isn't the company building those projects, Gallagher said. That's why Park Place is supportive of Boyd Gaming Corp. and MGM MIRAGE in their efforts to open the $1 billion Borgata in Atlantic City in 2003, Gallagher said.

"The more reasons you give people to come to a destination, the better off you'll be," Gallagher said. "That's the lesson of Las Vegas."

It's a philosophy similar to Gallagher's management style. When asked about what kind of people he liked to hire, Gallagher said he was looking for those people who cared about the success of their fellow employees, perhaps even more than their own. When that philosophy is promoted, everyone in the company succeeds, Gallagher said.

"That is the single most important lesson in management," Gallagher said. "The person willing to assist another person to success, that's the kind of thing that gets recognized and rewarded."