Q&A: Alex Yemenidjian

By Liz Benston

Friday, Oct. 29, 2010 | 3 a.m.

When Toronto-based Onex Corp. acquired the Tropicana Las Vegas out of bankruptcy last year and installed Alex Yemenidjian as CEO, the plan wasn’t to survive on bargain hunters amid dated surroundings.

Yemenidjian, a former MGM Grand executive who later served as CEO of the Metro-Goldwyn-Mayer movie empire in Los Angeles, saw bigger potential in the 53-year-old property. More than a year into the job and all of the Tropicana’s rooms, the convention center, casino floor, some restaurants and other public spaces have received a South Beach-inspired makeover.

An exhibit featuring mob-era memorabilia, a new high-limit salon, sports book and spa will open over the next several months. A highlight - an integrated nightclub, outdoor beach club and restaurant run by Miami’s Nikki Beach - opens in April. Amid a difficult economy, the Tropicana exited bankruptcy with negligible debt and money to pursue some $180 million in upgrades.

IBLV: In a town where elaborate nightclubs have become ubiquitous, how critical is the nightclub?

Yemenidjian: If a property wants to cater to Gen X and Gen Y that is the new entertainment. Clearly we want to cater to that market but not ignore the Baby Boomer, which is 70 percent of the Las Vegas market. Whatever a show is to a Baby Boomer, a nightclub and beach club is to Gen X and Gen Y. With Nikki Beach we’re going to be unique to other offerings in town. And it will widen our customer base significantly.

How did the Nikki Beach deal come about given that many casinos would no doubt want to partner with a known brand?

There were many companies in town that tried to get Nikki Beach to come here but for one reason or another weren’t able to come to an agreement. When we decided to do the entire transformation we had to choose what kind of tropical theme - Hawaiian, Mediterranean, Bahamas - we were going to have. The vibe of Miami’s South Beach is much more fun and exciting and it goes with the name. Our property has its roots in Latin America. It started with the Tropicana Club in Havana, Cuba. There are very few things that epitomize South Beach as well as Nikki Beach, which started there. We were originally thinking about putting the club in the front corner of the property. Then they walked into our four acre garden pool area and they just fell in love with it.

Will The Tropicana have a must-see attraction?

I see more than one must-see attraction here. Nikki Beach is going to be a must-see for more than just Gen X and Gen Y. It’s more than just a nightclub or beach club. It’s a lifestyle. And it has a very significant food component. It’s comprised of a nightclub, restaurant and beach club that all work together. The Mob Experience is also going to be a major attraction. It’s about 25,000 square feet and lasts about an hour and a quarter. It’s not a museum in that you don’t just walk around and look at inanimate objects. It’s an interactive experience, with a lot of holographic images and technology. You get to see their guns, cars and home videos. Finally, our production show will be a major attraction.

You’re also going to launch a major production show. What are you considering?

We don’t have anything to announce because we don’t have anything concrete yet but we’re working on what we see as our first choice for that venue. It’s a very ambitious project that will be something new and fresh for Las Vegas.

Who is the Tropicana’s target customer and is that changing?

Before we got here, our target market was anyone looking for a bargain. Our objective is to change that and transform the property to cater to the middle market, w hich is everybody who comes to Las Vegas except for the extremes. It’s also a very large in terms of age and range of income. We’re not interested in the very low end because there’s no margin in that business. And we’re not interested in the very high end because those customers have different expectations. Between the snob elite, as I call them, on on end, and the budget conscious custmer at the other end there’s a vast market. With all the different attractions here we can cater to a wide range in this market. The most successful properties in Las Vegas are both aspirational and accessible as opposed to those targeting a narrow market.

Do you see any models in Las Vegas with which to compare the revamped Tropicana?

Not quite. When I look at the middle market properties, we have larger and better convention space than they do. We have the most beautiful pool area in comparison. We’ll have a nightclub together with a beach club, which they won’t have. We have the newest rooms and suites. Forget the old competitive set - our room product is best in class in the new competitive set. I can’t think of anyone in the new competitive set that will have all the attractions and amenities that we’ll have by next April.

Tropicana’s image has suffered as one of the Strip’s oldest and most neglected properties. Is the public aware of the transformation or are you still struggling against that perception?

The public isn’t aware of the transformation. We’ve purposely chosen not to unveil our launch of the Tropicana until January, which will include an advertising and publicity campaign with radio, TV, print and billboards. The campaign will start in regional markets and then expand nationwide. We’ll start the marketing effort in January and have a second phase in April or May when we open Nikki Beach.

What are customers saying so far?

If you go on Tripadvisor today, you will see we are rated four out of five stars by guests. We have lots of stories about customers who tell us they’re blown away by the transformation and the rooms. I went to the pool last month during the day to look something up and I was coming back in a suit in 110 degrees and there was a lady next to me wearing a Bellagio visor who said, “I stay at Bellagio, I stay at Caesars Palace and nobody has the service you have here.” From a guest service point of view, there’s a huge difference and it’s evident in what customers tell us and what they say about us online.

What’s the property’s weak spot?

It’s perception. People still don’t know that we have the best rooms in the four corners and among our competitive set. That we’re not the oldest hotel in town but the newest hotel in town.

You raised room prices significantly after renovating rooms. How has the strategy worked at a time when consumers are hunting for bargains?

We increased our rates after August 1 when none of the old rooms at the Tropicana were available anymore. Customers have embraced those rates given the quality of our product. It’s a newer, fresher room that feels fun and residential. Even with a higher rate they view our product as a superior value proposition compared with the competition. Having said that, our entire industry has lost its pricing power. Our room revenue stream was the only thing that had any pricing power. Until the supply-demand imbalance that currently exists in the marketplace gets worked out, that pressure will continue.

CityCenter hasn’t grown the market like competitors hoped it would. How has this affected business?

We all hoped CityCenter would create more demand than it consumed, though hopefully that will change. The Cosmopolitan is opening in December. When you have that kind of supply-demand imbalance it doesn’t help anyone. We need the economy to improve to be able to absorb all that capacity. We are rooting for CityCenter because the more successful they are the better it is for everyone.

What are the relative benefits and drawbacks of bankruptcy?

We acquired the property out of bankruptcy. The advantage of the bankruptcy process is sometimes it affords you the opportunity to acquire properties at values that would not exist under normal circumstances. The disadvantage is that it’s a very arduous, expensive, long and frustrating process. You have to have the stomach for it. It’s very pleasant for lawyers but not for everyone else. It’s really a miserable process. But we were very keen on owning this property.

Morale was low when you took over the Tropicana. How did you set about repairing what layoffs and poor management under previous ownership had caused?

Employees here had been used to a certain way of doing things that was no longer acceptable. Everybody at the property went through a different kind of training. Before, if your peformance was mediocre you blended in and if you were extraordinary you stuck out like a sore thumb. Now it’s the other way around. Forty percent of employees who were here when we acquired the property are no longer here. We also discovered an amazing reservoir of goodwill. We have people who have worked here 10, 20, 30 years who love the Tropicana and the fact that we came along and implemented these transformations. They are thrilled to work at the new level that’s expected of them. We have an excellent balance between the superstars who wee here a long time but didn’t have an opportunity to shine before and the new superstars we hired when we took over.

How did you deal with undesirable employees?

We closed and reopened certain venues as part of the renovation process and rehired some of the same employees in addition to new people. We also terminated employees who didn’t live up to the new standards. It became clear that this was a meaningful and sustainable change. Service excellence is something we’ve set out to conquer by having the best service of any hotel on the Las Vegas Strip. We decided to measure our service by the same criteria that the Four Seasons in Santa Barbara measures service - they have the toughest service standards in the entire chain.

Hotels always say customer service is top priority. How is the Tropicana different?

We have a new service excellence team and their full-time job is to stay on top of it, to monitor conversations and do customer service recovery when something goes wrong. Monitoring, and making a big deal out of everything, is critical to getting results.

These are different times from the old days of opening or relaunching a casino, when operators would project how big earnings would be in the first quarter and a year from then. Nowadays operators probably don’t count on making money for some time. What were your earnings projections when you took over?

Usually you have your preopening operation until you have a big grand opening or you have an ongoing operation. We have both. We’re opening a brand new property while the property is operating, which is almost like riding your bicycle and fixing it at the same time. It’s a unique situation. A lot our losses, which are narrowing, are costs that we incur to create things to prepare ourselves for a different world. We didn’t have a set of projections because you have to first understand how the property will be transformed. Now that we have a clear picture of what the property will look like, the market segments it will cater to and the marketing campaign we will launch, it’s much easier to project numbers going forward. We will be hitting our stride by the second half of next year, and by that I mean generating earnings.

Are you looking to expand beyond the Tropicana?

Neither my partners nor I acquired this property with the intention of just owning the Tropicana in Las Vegas. Our objective is to use the Tropicana as a basis for some kind of gaming platform going forward. My partners and I have looked at about 30 opportunities so far - both distressed and non-distressed properties - and we’ve made multiple offers. We’ve made offers on properties in Las Vegas and on properties and entire companies elsewhere. We may acquire something that’s already branded or we may build something from scratch that’s not branded. We were the highest bidders for the 10th gaming license in Illinois. The lowest bidder won - go figure - but had we built that property, it would have been an opportunity for us to either brand it as the Tropicana or as something else.

Tropicana is one of a handful of casino companies that have changed hands in the recession, though more were predicted. Banks seem reluctant to take ownership of casinos in spite of financial difficulties among casinos. Why is that?

We don’t just run a hotel or a casino or a restaurant. It’s an entire integrated entertainment complex and they’re very complex operations to run. It might be easier for a bank to reposess a 250-room Sheraton. To run something like this requires licensing and there’s a lot of moving parts. I think the banks were very smart to do what they did - except for Deutsche Bank, which ended up owning the Cosmopolitan. Right now we live in an environment where the only people selling an asset are those that have to sell, not those that want to sell. That creates an interesting dynamic. But there’s very little available right now because of what I just said.

Compare your new role at Tropicana with your previous line of work running the MGM movie studio.

Both positions give one the opportunity to exercise the left and right sides of the brain. There’s a great creative process that takes places both in the hotel-casino environment and the motion picture production-distribution environment, as well as dealing with the financial sanity of each business. That’s what makes both businesses a lot of fun. You could be dealing with budgets one minute and be designing a room or casting a movie the next. I’ve been lucky enough to do both.

Some casino operators say they’re in the entertainment industry, not the gambling business. Are they really that similar?

They’re extremely similar. For someone sitting at a slot machine, we’re renting that person three feet by three feet of entertainment space much like someone watching a movie. We’re not in the goods and services economy. We’re in the experience economy. If you think you’re in the casino or hotel business you’re going to be totally commoditized in Las Vegas. If you own a 300-room Marriott in Minnesota youre in the hotel business. If you own a slot parlor at a racetrack youre in the casino business. In Las Vegas, we’re strictly in the entertainment business. We’re all competing for people’s discretionary entertainment time, whether they go to a movie, a restaurant or a casino.

What attracted you to the gaming industry?

The economic model of the motion picture production-distribution business is much more challenging than the gaming business although the gaming business has become more challenging of late. I always loved the hotel casino entertainment business. I have a lot of friends here. And I always had my eye on this property.

What’s been your biggest challenge as CEO?

It’s probably the same challenge everyone else is having in Las Vegas - the perfect storm between this supply-demand imbalance and having most of our customers lose their purchasing power. The significant dimunition of the Baby Boomer’s purchasing power, together with unemployment, has had a very meaningful impact on consumer spending. That, and we have too much of everything in this town.

What will you be doing a decade from now?

Hopefully, working. There’s one thing I’m not interested in and that’s retirement. Maybe I’ll be working a little bit less and having a little more time to spend with my grandchildren.