King of Vegas
The ageless Kirk Kerkorian leads a wave of private money into the latest transformation of the desert playground
From the Print Edition:
Richard Branson, Sept/Oct 2007
MGM Mirage president and chief financial officer Jim Murren, widely considered to be one of the most astute casino executives in Las Vegas, remembers his first encounter with Vegas legend Kirk Kerkorian. In 1998, Murren, fresh from Wall Street, had signed with what was then known as MGM Grand Inc. Attending his first MGM board meeting, Murren sat on a squeaky chair in a notoriously bare-bones boardroom on the ground floor of the cinematically themed MGM Grand Hotel & Casino—itself a shadow version of the luxe joint it would soon become.
Recognizing Murren as the new kid in the company, a casual Kerkorian introduced himself and wondered if he had ever told his newest employee the hungry alligator story. Murren knew Kerkorian hadn't, as the duo had never before spoken. To Kerkorian, however, Murren simply answered in the negative and listened to him tell his tale: a simple story of an alligator that rests at the bank of a river, watching all sorts of delectable goodies—ducks, birds, fish and the like—pass in front of his lethal mouth. Although he can eat anything he wants, he doesn't waste his time munching on the mundane. It is only when something truly juicy passes by that he bothers to snap at it.
Kerkorian asked Murren if he recognized the message in this allegory. In truth, Murren had no idea. But he gave the correct answer: "Yes, sir. I know exactly what you mean."
I ask Murren if he was supposed to be the hungry alligator. Or was the point of the story that the alligator is Kerkorian? "I don't think he was talking about himself or about me," says Murren, sitting in his well-appointed office at the Bellagio. "I think he was talking about an investment philosophy that is opportunistic. He was talking about a company that gets into as strong a financial position as possible in order to be opportunistic and to act at an appropriate time when its competition is less financially viable."
That model was put into motion two years later when Kerkorian and MGM snatched Mirage Resorts, the publicly traded paradigm-shifting company that had been helmed by Steve Wynn. It proved to be a satisfying meal that transformed Kerkorian into the King of Vegas. Now, the hungry alligator is striking again. In May, Kerkorian made overtures to buy the Bellagio and City Center—the latter a $7.4 billion condo and hotel project that sprawls across 76 acres, approximating a city within the city of Las Vegas—from MGM Mirage, the very company of which the 90-year-old Kerkorian has a 56 percent stake. Then, MGM purchased 44 acres just north of Circus Circus (yet another property owned by the company).
These two gambits represent the latest bold maneuvers in a series of moves that are intended to physically transform Las Vegas and its casino industry. Over the last couple of years, private money (like Kerkorian's) and private equity have been swooping in and buying up gambling properties with previously unseen intensity.
Sometimes, as is the case with Colony Capital, the deals revolve around a partnership with management. Colony teamed up with Frank and Lorenzo Fertitta, sibling forces behind the hugely successful locals-oriented Station Casinos chain (they're taking the once publicly traded company, started by the Fertittas' father, private). In other instances the moves involve buying up behemoth corporations that used to seem impenetrable. Such is the case with Apollo Management and Texas Pacific Group, which collaborated to spend $27.8 billion on the purchase of Harrah's Entertainment (it owns Vegas properties such as Caesars Palace and the Rio, as well as 30 non-Vegas casinos across the country).
Considering that the new buyers are ponying up far more than Wall Street investors think the casinos are worth, valuations are rising in kind. And the überwealthy are grabbing properties as if they're scarves on sale at Filene's Basement. Sam Nazarian, the Los Angeles nightlife kingpin and real estate scion, recently purchased the rundown Sahara. Rumor has it that he's going to oversee a many-million-dollar renovation and theme the place around spin-offs of the greatest nightclubs from around the world. A Vegas version of Miami's famed Fontainebleau is going up at the northern end of the Strip, on a spot that previously served as the home of the Wet and Wild water park. Boyd Gaming demolished its Stardust property and will create a 65-acre complex, budgeted at $4.8 billion, called Echelon Place—complete with five luxury hotel/casinos, a convention center and a retail promenade.
Potential owners are scrambling for the Riviera; George Maloof is building a condo tower (it'll house a Vegas outpost of Sunset Tan, which is the subject of a show on E! Entertainment Television) adjacent to his trendy Palms Resort and Casino; the Hard Rock was recently purchased by the Morgan Group and will shed its goofy memorabilia for something much more sophisticated, dashing and in line with the company that owns Ian Schrager's old places. For a hint of what's to come, New Yorker Amy Sacco, of celeb-infested Bungalow 8 fame, has been brought in to consult on the nightclubs.
With so much action, it's no surprise that land prices are soaring. This past May, Elad Group, an Israeli company that made a billion dollars through its condo-ing of the Plaza Hotel in New York City, announced the purchase of the land on which the New Frontier Hotel now stands. Elad will demolish the building and, in conjunction with IDB Development Corp., another Israeli company, build a hotel/casino, apartment and shopping complex called the Plaza. The private-ownership group paid nearly $35 million per acre and has the entire project budgeted at $6 billion to $8 billion. As Murren puts it, "Are they crazy to pay $1.2 billion for that land? Or are they smart?"
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