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StumbleMGM Mirage, Las Vegas Sands earnings show Strip competition heating up
Thursday, Feb. 18, 2010 | 5:24 p.m.
Sun Coverage
The $1.9 billion Palazzo, at left, opened in December 2007, boasting 3,068 rooms. The resort is shown here in February 2008.
There's little to glean about the success of CityCenter from the first earnings results issued by the major casino companies since the opening of MGM Mirage's shiny new Strip addition.
The fourth-quarter reports issued by Las Vegas Sands Wednesday and MGM Mirage Thursday include results through Dec. 31 -- just two weeks' worth of revenue relating to Aria, which opened its doors Dec. 16, and just more than three from Vdara and Mandarin Oriental.
But one thing is certain from the remarks by company executives and gaming analysts' reads: Competition is alive and well and is likely to get even more intense on the Strip in the months ahead.
Revenue continues to be down for Las Vegas Sands, operators of the Venetian and the Palazzo, and MGM Mirage in Las Vegas. Low room rates, the bane of Strip casinos since the economy tanked and the delight of thrifty tourists looking for a deal are at the root of the blame for Las Vegas Sands' and MGM Mirage's local financial hits.
"The problem in Las Vegas continues to be room rates," Las Vegas Sands Chairman Sheldon Adelson said in his conference call.
But Sands salvaged its quarter with stellar results in Asia. Company spokesman Ron Reese said there's no doubt that Las Vegas Sands today is more of an Asian company that happens to have some assets in the United States than a U.S. company making its mark in Macau and Singapore.
Adelson continues to be proud of his convention model -- recruiting conventions, conferences and trade shows to his massive convention facilities so that they'll stay in Venetian beds, eat Venetian food and be entertained by Venetian shows and, presumably, gamble on Venetian slot machines.
"While the Las Vegas market may not shine as brightly, our conventions business remains compelling and will enable us" to achieve the company's financial goals, Adelson said.
"One of our competitors has been boasting about taking business from us," Adelson said in his conference call. "Actually, we have taken more business from them than they have from us."
After opening that door, Adelson got specific, calling out MGM Mirage as the convention raider. But Adelson said his company got the last laugh when a major corporate meeting -- he wouldn't say what it was -- defected to Aria, but returned to the Venetian on a three-year contract after being at Aria just this year.
He also hinted that one of the Venetian's upcoming new conferences involves a federal government organization, but he wouldn't say what it is.
MGM Mirage, meanwhile, is regaining its footing in the convention world and Aria's new convention center may be the most technologically advanced in the industry.
This year, the company has more than tripled the number of room nights from convention bookings it had in all of 2008. MGM Mirage CEO Jim Murren said about half of the convention bookings MGM Mirage has nailed down are new business to his company and about half of that is business new to Las Vegas. He acknowledged that the company has lost some business to Wynn Las Vegas and Las Vegas Sands, but it has won some too, and if you were to talk to meeting planners of corporate America, "you'll come to the conclusion we have that we're winning more business than we're losing."
But attracting business to Aria has come at a price with the company admitting that its deep discounts have not helped the bottom line. Las Vegas Sands said it is aggressively trying to keep room rates from sliding. That shows in simple consumer vacation packaging, which parallel convention room rates.
A recent search on the pricing of a three-night stay on the first weekend of March Madness, March 19-22, on SouthwestVacations.com, Southwest Airlines' tour-packaging partner, listed the three-night stay and a round trip to Las Vegas from Denver would cost $837.17 at Aria, $875.56 at Signature at MGM Grand and $800.02 at Wynn Las Vegas. A comparable trip using the Venetian or Palazzo costs $1,224.96 with the Four Seasons holding the high end at $1,234.47.
So which strategy is better, discounting to draw crowds and increasing volume or staying the course on room rates and hoping the market that can afford to pay will show up?
Anthony Curtis, who publishes the Las Vegas Advisor, a newsletter about casino deals and promotions, said the latter alternative could be deadly to casinos.
"It's not a strong move," Curtis said. "These operators have got to look reality in the face. They've got to say, 'I need to have more bodies in my place.'"
Curtis said it's not everyone's nature to buy high-class food and entertainment and that those who are discounting rates while cutting costs are holding their own.
And, he praised the Venetian and the Palazzo for having some of the best bundling in town -- a discount at a spa, restaurant or show as part of a room package.
"A lot of these companies are saying, 'The reason we're hurt so bad is that we took such a haircut on the room rates,'" Curtis said. "I'd rather have the bodies and make it up elsewhere."
Randall A. Fine, managing director of The Fine Point Group, a gaming consultant, said there simply are too many high-end rooms on the Strip, especially considering the shorter supply of seats flying into McCarran International Airport.
With air traffic down and drive-in traffic up, the look of the average Las Vegas tourist is changing, and that visitor is going to be more likely to return a second or third time if there's a discount rate.
The Venetian and the Palazzo can survive without discounting because Las Vegas Sands is so heavily invested in Macau and Singapore.
In its earnings call, Sands indicated it would be focused this and next quarter on Singapore, where it will open the region's second integrated resort. Adelson indicated an opening date would be unveiled next week. He also said the company's momentum in Macau would enable it to resume construction of a 13.3-million-square-foot development with 6,400 rooms under the Shangri-La, Traders, Sheraton, Sheraton Towers and St. Regis brands.
Room volume helps drive convention traffic and convention traffic will lead to more mass-market gaming in Macau, Adelson said.
Although MGM Mirage is discounting rooms now, Murren indicated that won't last long as Aria's convention calendar is ramping up. By April, he said, the company would be able to start bumping up room rates for conventions and, most likely, leisure consumer hotel rates as well. Murren indicated convention hotel room rates generally are about $60 more per night than leisure rates.
MGM Mirage executives are projecting that revenue per room night "will turn positive" -- that is, it will be ahead of what it was a year ago -- by April. Every month after that is projected to be higher than the same month a year earlier.
What that means for deal-seeking visitors is that if you want to stay at CityCenter at a bargain price, you probably need to book before April.
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MGM Mirage stock lost over 7 percent of its value today. So whatever.
city center mayor was hoping to be our gold mine. NOT. what i been told and been reading. there's no foot tracker going in there. look like a morgue. i read MGM lost 433 million last quarter. this might give them excuse to layoff employees. next thing u know u might get information on closing floors. it doesn't look good for them there has to be dramatic turnaround next April. this casino not made.
this casino not made for the OZZIE AND HARRIET family
'Low room rates the bane of the strip' Then I read your guest indicator and it states Friday and Saturday night would cost $360 for rooms at the strips most popular Hotels with out much going on. Add air fare add gambling and food and drinks. Is this a good deal? Even take away the airfare it still must be a $1000 weekend for two.Well given a grand I could think of a lot better entertainment than Vegas for two nights.
With Las Vegas being one of only a few gambling destinations, there would be a fair number of casinos for the demand. However, worldwide the number of casinos keeps growing constantly, and this means: more competition. 20 years ago, there was just Vegas and Atlantic City, and everybody was going to Vegas.
Today, Vegas has become MUCH BIGGER AND THE CASINOS GO MUCH BIGGER, but at the same time, there were so many other casinos built, worldwide, and nationwide. So, if the planet doesn't get bigger, how can the number of gamblers get bigger? and where does all the money come from?
What's happening now is a normal reaction to this all. 5 years or maybe 10 years ago, there was construction gonig on in Las Vegas, just like there is no tomorrow. Everytime I returned to Vegas after being away for 6 months or so, I noticed that more and more homes were being built. The valley looked like as if within a few years there were just homes and casinos everywhere. And now? There are a lot of empty homes, and empty casinos. Just like there's no tomorrow? Well, there is a tomorrow, but it looks like there's no TOMORROW for 2 million Las Vegas citizens. And no Tomorrow for 180,000 hotel rooms and 90 per cent occupancy rate. Perhaps a fair number of beds will be 80,000 to 120,000. And all that's over is wasted construction and could just as well be torn down again. And the people who don't have a job in Vegas at this time are probably better of moving away.
This sounds perhaps not very optimistic, but it's probably the reality. Casinos have already started closing entire towers or hotel sections in order to protect the current room rates. What was "vacancy" can today be considered as "no vacancy" on the weekends, as they do not service a certain number of rooms. And this will keep the room rates at the current level or higher. It's like Rolex that's limiting its output on Daytona watches although more people would like to have it. Insteady, they keep the output low and sell the watch for 10,000 dollars apiece......for a stainless steel watch that's slow 2 seconds per day and has no second hand and no date on it........!!! doh.
From Switzerland
Well just to let you guys know that its been busy at Aria for the past two weeks. Instead of being so negative why try to be positive. The more you stay negative you dont help anyone at all especially people in Vegas. Not everyone gambles some like to check out the city and have a good time.
Went to aria after class on a Tuesday night around 9:30 pm and it was packed. I was shocked. The krystals mall was empty however. I never noticed how small that mall is.
Earnings? What earnings? There are nothing but losses.
The present Las Vegas resort corridor is going to tumble like the fall of the Roman Empire. What is left will be fragmented, independently owned and operated downsized hotel/casinos, lean and mean..
it is time to restructure, resize. Get more private investors back into the game. The big players on the Strip have simply become too big, got all the power to make more and too much new debt and now the shid hits the fan. With the heads barely above water, Harrah's dares to buy more properties, which, in my eyes, is totally insane and shouldn't be allowed. Instead of paying back their debt, they're simply adding debt. And once it's obvious that they can't pay the maturities, they will simply call the bondholders for a meeting and then re-structure and "re-organize" their debt. And this is fully legal????? Legal thieft, probably the tightest slot machine on the gaming felt right now.....
The small casinos will survive, the ones with little or no debt, and the big ones will pay the price now. Casinos like the Montelago Lake Las Vegas resort, if they will be no new owners, will be a fingerpointing reminder for the greedy future investors. Building properties like they're no tomorrow, until the entire bubble was to burst. And what's next?
From Switzerland
"With Las Vegas being one of only a few gambling destinations..."
Boris, there are casinos in 47 States, all within a 2 hr drive of where anyone lives; Vegas is NOT just one of a "few" gambling destinations, unless of course if you mean it has the whole package: High airfare, overpriced rooms, overpriced food, lousy gambling etc.
It is not the only place people can gamble in this country.
Welcome to the Bernie Economy. MGM is dead man walking with 13 billion in debt. They only have a couple of options, restructure or chapter out. The mall at City Center really sucks. You can see that they ran out of money just before they got to the interior finishes. Aria is a very cold place to play with long corridors. It is really the warehouse of gaming experience. The layout of the place is terrible. And all its done is cannibalize business from other properties. It hasn't expanded the market at all, like it was originally intened to do.
More casinos does not necessarily mean more players. Especially not since there are so many other properties in operation nowadays.
Vegas was known as a place with great food and hotel specials and very good gaming. All the great funbooks have gone, the great videopoker machines are a thing of the past, and black jack is now being paid 6:5. I mean, hey, what's this all about? The room rates have bottomed out to a level under which it makes no operational sense to offer them at even lower rates. The other strategy, that is closing down sections of the hote, may help stabilize the market, but will definetely not pull in more players to the casinos. It seems like these big casinos have understood that the cake is smaller than the mouths of the corportation. Therefore, the mounths must become a bit smaller to get enough to eat.
I actually heard many good things about the ARIA casino. And it's a great addition to the Strip, but like we all know....it's to expensive. MGM Mirage with its head barely above water can only hope that MGM Mirage Macau will help them out and get the cash register ringing. Vegas has too many and most of all, TOO MANY BIG casinos today. It was the killer for places like Riviera, Circus-Circus and The Frontier. These giants are simply soaking up too much of the business but because they simply cost too much it's too hard for them to make a profit, still. Not with the limited number of gamblers travelling to Las Vegas these days. Locals don't gamble, as you hear so often. Which of course is not true, as it's hard to imagine that all the locals casinos are filled with tourists. Anyway, most money is supposed to come from tourists. If the conditions aren't good enough, the tourists simply go elsewhere. It's that simply. Somebody must have missed the class on effective marketing strategies.
From Switzerland
The foot traffic at Aria is better than others casinos on the strip in comparable size. Pricing is higher, which brings in a high caliber of customer. Aria is doing just fine and winning over "new" customers, which in turn expands the customer market.
"The mall at City Center really sucks. You can see that they ran out of money just before they got to the interior finishes. Aria is a very cold place to play with long corridors. It is really the warehouse of gaming experience."
apeall2 sounds a little grumpy. The Mall isn't fully occupied yet so it feels a bit bare but the architecture is quite refined. Aria is incredibly warm and rich in color and texture and is anything but a "warehouse of gaming experience," what ever that broken English is supposed to mean. Lighten up Francis, you'll get your Taxi customers back soon.