Vegas: the diamonds of Navada.
With two days to go until Thursday’s grand opening the finishing touches are being added to the Wynn Las Vegas, a $2.7bn development dominated by a curvilinear building of bronze-coloured glass panels. In a town famed for preposterous hyperbole, Ron Kramer, president of Wynn Resorts, can claim more justification than most when he boasts of his company’s latest venture: “This is a level of luxury that has never been reached.”
The 117-hectare casino resort includes a lush landscape complete with a man-made mountain and a 10m waterfall, 2,700 hotel rooms, an 18-hole golf course, a shopping mall, Ferrari and Maserati dealerships and 22 restaurants. In an attempt to create a Hollywoodesque buzz around the resort, only Vanity Fair has so far been allowed media access.
As Las Vegas celebrates its centenary – it came into being in 1905 when 110 acres of land were auctioned by a rail operator – the city is on a winning streak. Buoyed by rampant consumer spending, increasing acceptance of betting and a new-found public interest in poker and other games, the outlook for its casinos, hotels and leisure industries has never seemed stronger.
Steve Wynn, the chief executive of Wynn Resorts, is credited with ushering in Las Vegas’s renaissance when he opened two huge casinos – the Mirage in 1989 and the Bellagio in 1998. This latest project, and further grandiose developments planned by Mr Wynn and others, indicate the continued confidence in the city’s future.
Las Vegas is among the top three US tourist destinations, attracting 37.4m visitors last year who spent $33.7bn in the city and surrounding Clark County. Average hotel occupancy was 92 per cent last year compared with 61 per cent nationally, even though the city has 130,000 hotel rooms compared with 75,000 in New York City. The Las Vegas Convention and Visitors Authority aims for 43m annual visitors by 2009.
Gaming stocks reflect those high expectations. Since last April shares in Harrah’s, which last year agreed to buy Caesars, its rival in a $9.5bn deal to create the world’s biggest casino operator, have risen 21 per cent. Stock in MGM Mirage is up 55 per cent and Wynn Resorts 68 per cent. Las Vegas Sands, owner of the city’s Venetian Casino Resort, raised $700m in its initial public offering last December.
Suburbs of Las Vegas are among the fastest-growing areas in the US. Nevada’s unemployment rate was 3.9 per cent this February compared with a national average of well above 5 per cent. “Las Vegas is really the city of the 21st century for reasons that would have been hard to predict 25 years ago,” says Bill Eadington, an economist at the University of Reno. “It’s entering a new phase, which is going to make Las Vegas more like Miami.”
The driver of growth is not just gambling. Casino hotels and resorts are broadening the market by offering a wider range of amenities and attractions. Revenue from hotels, spas, shopping, restaurants and entertainment pulled in $25bn last year compared with $6.8bn in gaming revenue, the LVCVA says.
“I like this better than Paris,” says Bernard Wade, a 72-year-old former miner from Scotland, on holiday with more than 30 relatives whose ages range down to seven months. His stay has included a helicopter trip over the city, an excursion to the Grand Canyon, an Elton John concert, a magic show, shopping and “going to the pub at night”. How about gambling? “I don’t know how to gamble,” he says.
Elvis Presley impersonators, $12 all-you-can-eat buffets, quick weddings and other traditional elements of Vegas lore can still be found. But so too are acclaimed star chefs from New York and Los Angeles. The cheap T-shirt shops and tattoo parlours sit in the shadow of marble-floored shopping malls housing Prada and Armani boutiques. Schmaltzy lounge acts and magic shows can be found, but intricately staged shows from Cirque du Soleil and pop stars such as Elton John are the headliners.
For those who are nostalgic for old Vegas – dim, smoky rooms and seedy bars – the city is making over its down-at-heel centre with a retro-Vegas theme. But more than 60 golf courses within a two-hour drive are also a big draw – for tourists, those looking for a place to retire and the large and lucrative group of baby boomers who are snapping up second homes.
Beyond growing larger and louder, casinos have learnt to refresh their look and feel to market their products. MGM Mirage transformed the dowdy Wizard of Oz theme of its MGM Grand casino into a collection of restaurants and bars. Treasure Island, another fusty casino under MGM Mirage’s umbrella, now dubs itself TI and has added trendy bars overlooking the artificial lagoon where its landmark old pirate ship sits.
“My nine-year-old is unhappy about the pirate show going away,” says Jim Murren, chief financial officer of MGM Mirage. “But the reality is, my nine-year-old isn’t spending money.”
Las Vegas, with its vast hotel supply, enormous convention centres and a well-served airport close to the biggest tourist attractions, has also become a hub for industry conventions. It offers more attractions to keep delegates entertained – and each delegate spends on average twice as much as a tourist. Las Vegas hosted more than 22,000 conventions last year, generating $6.9bn in non-gaming revenue. The LVCVA is wooing trade groups in South America and China to capture more international business.
Big US hotel operators are hungry for a share of the pie. Marriott, the world’s largest hotel operator, is considering a hotel with a leased casino and already has a high-rise devoted to timeshares. Starwood, owner of the Sheraton and Westin hotel brands, sold the Caesars casino group in 1999 but is re-entering the Vegas market with contracts to manage several hotels.
Wynn Las Vegas already plans another $1.4bn project adjacent to its latest resort. Following a wave of consolidation in the gaming industry last year, competitors are also preparing for more development. MGM Mirage, which last year agreed to acquire Mandalay Resort Group for nearly $8bn, has plans for a $4bn “city-within-a-city” that will have a 4,000-room resort, three boutique hotels with 400 rooms each, a 1,650-unit condominium complex and shopping. Las Vegas Sands is working on an expansion to its 6,000-suite Venetian. Harrah’s, whose purchase of Caesars was in large part to secure a greater stake in Las Vegas, will also be a force to contend with. an there possibly be enough demand to fill the 150,000 hotel rooms that Las Vegas plans to have by 2010? Despite the lofty targets, most industry observers say yes. The penetration of gaming-related tourism in the US is still relatively low: trips including gambling account for 8 per cent of all US travel.
Ken Schwer, head of the Center for Business and Economic Research at the University of Nevada Las Vegas, points out that growth in annual gross gaming revenue in Clark County slowed from 13.6 per cent in 1999 to 6.4 per cent in 2000. Revenue declined after 2001 and saw positive growth again only in 2003, with a 2.6 per cent increase. “The 2001 recession was longer here than in other leisure industries but, on the other hand, business in 2004 was so strong that we made up for that,” says Prof Schwer. “Growth for the first months of this year is not double-digit but still very strong . . . That looks to continue well into 2005.”
One danger is that the newer casinos will simply cannibalise older ones, create overcapacity and squeeze margins. Analysts at UBS expect the Wynn Las Vegas to generate $140m annually from baccarat but believe that those earnings will hurt MGM Mirage, which currently has two-thirds of the Vegas baccarat market.
Casino operators insist such fears are overdone. Wynn Las Vegas, they say, will create more buzz and draw more visitors. With Mr Wynn’s reputation as a visionary, even rivals are excited that he is raising the stakes.
The LVCVA points out that Las Vegas has added 9 per cent more hotel rooms in the last five years while also increasing visitor numbers by 9 per cent. David Schwartz, head of the Gaming Research Center at UNLV, observes that sceptics had warned – incorrectly – that both the Mirage and the Bellagio would fail to draw enough people. “People said the city was overbuilt in 1955, when there were eight casinos,” Prof Schwartz points out.
Nevertheless analysts keep a careful eye on US states adding slot machines and other forms of gambling, as well as on the proliferation of casinos on Native American reservations. Casinos on those lands raked in nearly $18.5bn in gaming revenue last year, according to the National Indian Gaming Association. Congress in 1988 enacted the Indian Gaming Regulatory Act, which allowed tribal authorities to use Indian gaming to promote economic development. Since then, more than 400 gambling facilities have been built in 28 states to help weak tribal economies.
Operators say the spread of gaming across the US only whets consumer appetite for a trip to its mecca. However, second-tier casinos in cities such as Reno, Nevada, have had business siphoned off by tribal casinos in California. nline gaming is another potential threat as both consumer and investor interest in internet betting grows. Casinos, however, say their customers prefer the experience that they offer to sitting in front of a computer. Online gaming is unlikely to emerge as a true competitor to casinos while US authorities still consider internet betting illegal and, if it does eventually become legalised, some casino operators are themselves keen to cash in with their own online gaming operations.
Las Vegas’s booming service industry – the leisure and hospitality sectors account for 30 per cent of jobs in southern Nevada – has certainly been helped by the area’s affordability. But a rapidly rising cost of living is putting a strain on the local labour market. Median home prices in Las Vegas rose 52 per cent last year – the largest annual increase ever in any US metropolitan area, according to the National Association of Realtors. That means a lack of affordable housing for employees.
While the city’s unionised cooks, servers and housekeepers are among the highest-paid in the country, the rising cost of living also means the cost of labour could rise.
“We were all caught by surprise with the dramatic increase in housing prices. The cost of living has certainly gone up,” admits Mr Murren of MGM Mirage. “It’s a big issue going forward.”
But the biggest risk for the leisure industry as a whole could be security. With thousands of customers pouring in and out of casinos each day, they fear that they – like Disneyworld and other popular and iconic holiday destinations – may be “soft targets” for terrorist attack. Gaming executives are quietly beefing up security measures.
Such concerns – like the worries of anti-gambling advocates, who denounce casinos as a gateway to addiction and a host of social ills – seem far from the thoughts of most visitors. Andrea Foley-Stapleford, a 59-year-old from Florida who was simultaneously playing two slot machines at the Venetian casino one evening last month, says: “I could play for three days without sleeping.”
The casino, she says, makes her “feel like a queen”.
Las Vegas is booming and showing no sign of losing its appeal to US punters or the growing number of international visitors keen to sample Nevada’s glitz and glamour.
However, new development opportunities are limited in Las Vegas and expansion in other US gambling markets is tricky. States that have opted to regulate gambling tend to see the industry as a cash cow and implement stinging gaming taxes, hindering the future plans of operators and reducing the potential for profits.
Add the relatively new competitive threat of casinos on Native American lands, which are not subject to the same taxes as their US-owned counterparts, and it is no surprise that operators such as Harrah’s Entertainment and MGM Mirage are looking to take their expansion plans further afield.
“The pace of gaming expansion in the US has slowed to a crawl,” says Marc Falcone, leisure analyst with Deutsche Bank. “There are fewer growth opportunities in the US while the opportunities that do exist come with a very high tax structure.”
A round of consolidation has increased the need for operators to look for larger projects, he adds. MGM Mirage is buying rival Mandalay Bay, while Harrah’s Entertainment is buying Caesars Entertainment.
Until last year, the UK was the preferred destination for these operators, with the proposed deregulation of gambling laws raising hopes of a new gaming market ripe for casino investment.
Operators ranging from MGM Mirage to Kerzner International struck a flurry of casino deals ranging from the London’s Millennium Dome to a property next to Newcastle United’s football stadium, hopeful that reforms mooted by the UK government would eventually become law.
But a series of policy changes has all but killed those hopes. After originally saying that the number of new casinos would depend only on market demand, the UK government cut the number of licences for Las Vegas-style casinos to one. With casino groups from the UK also vying for the solitary licence, US operators have admitted they have turned their attention elsewhere.
“The UK was a disappointing outcome but Asia remains one of the most exciting markets in the world,” says Mr Falcone. Macao, the former Portuguese enclave and China’s only legalised gambling market, is leading the way. It ended its gambling monopoly three years ago and has attracted considerable international investment.
Las Vegas Sands has plans for a $12bn-$15bn casino-and-hotel project while Melco International Development, the incumbent Macao operator, and Kerry Packer, the Australian tycoon, are committed to spending more than $1bn on a new Las Vegas-style casino.
“I had a dream one night,” says Sheldon Adelson, the US tycoon who controls Las Vegas Sands, owner of the Venetian casino on the Las Vegas strip. “All of a sudden it came to me. There’s room there [in Macao] and demand to create Asia’s Las Vegas.”
Mr Adelson has been a driving force behind the Macao “strip”, which will resemble the gaming thoroughfare in Las Vegas, and has struck deals with hotel groups Hilton International, Marriott International and Four Seasons to build properties on the island.
Mr Adelson said recently there would be 60,000 hotel rooms in seven casino hotels. This compares with 130,000 hotel rooms in Las Vegas.
Interest in Singapore can be gauged by the number of operators looking to develop casinos there, with 19 leading gaming groups submitting bids to develop the properties, including MGM Mirage, Las Vegas Sands, Harrah’s Entertainment and Wynn Resorts.
There are hopes that other countries could follow. “We believe Japan and Thailand will follow Singapore [in embracing gambling],” says Mr Falcone.
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