Palms, Ranch find right blend of tourists, locals

Friday, Nov. 15, 2002 | 10:57 a.m.

The Palms Casino Resort in Las Vegas has hosted concerts for Pink and Jane's Addiction, the cast and crew of MTV's "Real World" reality TV show, Playboy playmates, parties for glossy magazines and waves of both major and minor celebrities.

It also hosts people like Rose Marie Martinez of Las Vegas, who treks to the Palms two afternoons a week to play bingo in a vast converted ballroom off the main casino floor.

Martinez, 72, says she likes the camaraderie of being among friends, not to mention the free cups of soda and the chance to win a jackpot.

"It's close for me and the staff makes you feel at home. I was here at the grand opening and I've been coming here ever since."

The Palms, an off-Strip casino that celebrates its one-year anniversary today, is a study in contrasts. During the day, the casino floor is a sea of mostly locals who are over 50 or retired. By late evening, the mix begins to shift as locals go home for the night and a young, chic crowd arrives from Las Vegas and beyond, seeking sensual pleasures in the Palms' lounge, bar, nightclub or concert venue. The property draws more tourists on weekends than during the week, though the casino floor often hosts a mix of both at any one time.

Green Valley Ranch Station casino in nearby Henderson, which turns a year old next month, is more geared toward locals but was also designed to appeal to visitors' discriminating tastes. It is the most opulent property in Station Casinos Inc.'s portfolio and has drawn a broader cross-section of customers than is typically seen in either local or Strip properties. They include gamblers, casual gamblers, young locals and corporate types eager to avoid the Strip and enjoy the view from Whiskey Beach, an eight-acre backyard with an auditorium, pool, vineyard and spa.

Station and its partner, the Greenspun family, each own 50 percent of Green Valley Ranch, while Station manages the property. Each also owns about 6 percent of the Palms. The Greenspun family owns the Las Vegas Sun.

Both casino hotels -- the only major properties to open in 2001 -- launched at a time when the local economy was reeling from the Sept. 11 terrorist attacks and amid doubts about whether the new concept would pay off.

One year later, both properties appear to have won over many of their skeptics.

They include Anthony Curtis, publisher of the Las Vegas Advisor newsletter and self-described consumer advocate.

"I think they effectively keep the two groups satisfied," Curtis said.

Both properties were built with enough amenities and style to appeal to the hip tourist crowd while still featuring local staples such as buffets and high-tech slot machines, he said.

The combination business concept is here to stay, Wall Street analysts say.

"I think they are extremely well positioned -- so much so that you will probably see more of them," said Daniel Davila, a gaming equities analyst with Hibernia Southcoast Capital.

Not everyone agrees.

Catering to locals and tourists at the same time is a "riskier business proposition" that is still fairly unproven, said Tony Marnell, chairman of Marnell Corrao Associates.

"There's not an appetite for capital to go into that market," he said.

Marnell, an architect who has designed some of Las Vegas' best known megaresorts, took over the day-to-day operation of the floundering Rio casino hotel less than a year after it was launched in 1990 and is credited with establishing the first major property in Las Vegas to successfully focus on two distinct customer segments.

A year isn't long enough to judge a resort's performance, particularly those facing the kind of challenges at the Rio, Marnell said.

"That was a three-year ordeal 15 years ago. And there's more competition now than there was then. The competition is pretty well established."

Both the Palms and Green Valley Ranch have helped Las Vegas rather than hurt the competition, however, observers say. They have helped drive more customers to the city, especially younger, occasional gamblers who prefer to explore the social scene.

The Hard Rock Hotel & Casino -- a de facto casino destination for young adults -- says it hasn't been hurt by newer competitors across town.

Increases in marketing expenses, in part to host and promote big name rockers such as The Who, have been offset by increases in casino and dining revenues, executives say.

For the third quarter, the Hard Rock reported a $2.6 million increase in earnings compared with the year-ago quarter. Cash flow -- a key indicator of casino performance -- increased by 31 percent, to $8 million. Earnings were up 61 percent in the second quarter, to $3.7 million.

"I think both of these (casinos) opened up and took direct aim at the Hard Rock," Hard Rock general manager Don Marrandino said. "They do a lot of the things the Hard Rock has done for seven years. But we have an extremely aggressive concert series this year and continue to be an innovator in the market."

The two casinos have created a challenge for Nevada regulators who compile regional data on gambling revenues. The state Gaming Control Board, which has received requests from analysts and others to group gambling revenues together for "locals" casinos, can't effectively do so because the properties also serve a significant number of tourists.

Davila calls Green Valley Ranch the "most impressive suburban casino in America" with rooms that are the "best available off the Strip."

"The product on the casino floor is good for the local, yet has enough of what I call 'tourist games,"' Davila said. "The nightlife in the place suggests that it could be either a great locals hangout or an alternative to the Strip."

Andrew Zarnett, a bond analyst for Deutsche Bank Securities, is equally bullish.

"Station built a great higher-end locals casino and it got widespread acceptance with a built-in clientele," he said. "Their future is relatively simple. They'll build another hotel tower, leveraging the terrific room occupancy they've experienced there. As Las Vegas continues to grow, they will grow."

The casino took some business away from Station Casinos' nearby Sunset Station. But the effect was less than expected, a sign that the Green Valley market is solid, he said.

Lorenzo Fertitta, Station Casinos' president, says Green Valley Ranch has exceeded expectations by returning a higher cash flow -- now in the low $40 million range so far this year -- than any other company casino in its first year of operation.

The property hosts about 80 percent to 85 percent locals -- a more stable customer base than the Strip, he said. Yet its small, 201-room hotel and 10,000-square-foot conference room spaces are in high demand by business groups that host parties and conferences, he added.

Station expects to add a hotel tower and conference space at Green Valley Ranch, though it hasn't yet set a date. The company also is planning a 10th major casino in Summerlin -- an affluent suburb similar to Green Valley that Station projects could grow by more than 6 percent a year. That casino would draw a similarly broad base of customers, while basing the majority of its business on its well-tried locals formula. "There are very few locations left in the Las Vegas Valley that are as good as what we have here (in Green Valley). The next project at Charleston and I-15 (in Summerlin) is another." The Palms got off to a rockier start, though it has built customer loyalty over time by giving both tourists and locals what they want, industry watchers say.

Palms owner George Maloof won't reveal financial data for the privately held resort, the only casino holding of a family-run conglomerate that includes the Sacramento Kings professional basketball team.

The Palms has performed better than initially expected, he said.

"You budget to make money, not to lose money. And when you say you're doing better than expected, you're making money," he said.

The Palms has experienced some growing pains, Curtis said.

Maloof developed fiercely loyal customers at the Fiesta, a locals casino he eventually sold to Station Casinos in 2000, by promoting higher slot payouts than competitors. But the Palms didn't appear to live up to the hype among those who followed Maloof to his new venture, he said.

"A lot of Vegas came in and was not overly enthused."

The Palms responded with a blitz of casino promotions, coupons, mailers and other initiatives that have successfully drawn locals, Curtis said.

Maloof contends that resort has always offered high slot payouts to attract locals. The challenge was how to get people already comfortable gambling at other properties to try out the Palms.

It only took about 90 days to build up an initial database of slot players -- essential to developing loyal customers -- to replace the Fiesta customer list sold to Station, Maloof said.

"There's always that nurturing period," he said, "but our slot revenue grew from there."

Tourists have gravitated toward its 450 or so rooms, which are sold out nearly every week of the year, and funky restaurants like Little Buddha, Maloof said. Celebrities prefer its club scene and the "Real World" suite -- a custom-designed penthouse the size of eight big rooms that rents for upwards of $7,500 a night on weekends.

Maloof said he has learned much from the Rio, located a few blocks closer to the Strip from the Palms on East Flamingo Road. The property struggled to create an identity but was later expanded to pull in tourists who stayed at its expanded hotel and locals who took in restaurants and other amenities. Harrah's Entertainment Inc. bought the property in 1999 and failed at attempts to draw high-roller tourists. "We had employees that understood the different requirements between a local market and a tourist market," Marnell said of his efforts.

More recently, the former Regent resort in Summerlin became an example of a property that failed to build a dual following.

Experts say the new J.W. Marriott Las Vegas resort has turned a corner by drawing on frequent Marriott travelers who don't mind the distance from the Strip and installing experienced casino marketers at the helm of the Rampart Boulevard casino.

Both casino owners say their properties are ultimately supported by a growing population of surrounding residents who can provide a steadier revenue stream than Strip-gawking tourists.

"Our cash flow grows over time as we build up our customer base," Fertitta said, while Strip casinos generally must spend more to stimulate additional cash flow.

"We have the right formula and we know what works," he said.

The process of attracting a broader customer base is slower than for resorts that have a single type of consumer in mind, Marnell said.

"It's a long climb and there's no guaranteed results. I would say 'Be patient. ' "