Las Vegas Power Brokers
From the Print Edition:
Kevin Costner, Nov/Dec 00
(continued from page 3)
I'd asked him what the future of Las Vegas would look like and what his contribution to it would be, significant questions for a historical figure. But Wynn isn't giving away such information, not anymore. He's a poker player, and he's holding his cards close. He has lately lost the Mirage and the Bellagio, two of the most important hotel concepts built anywhere in the last quarter-century. As a developer, he's starting over with the relatively small property of the Desert Inn, which he'll likely try to destroy and rebuild. It won't be easy. There are those who wonder if his time at the center of Las Vegas development has passed.
Driving down Las Vegas Boulevard, the famous Strip, after hanging up with Wynn, I stared out at an urban landscape unique in the world. Block after block, it struck me how profoundly his influence has affected the city. In a sense, Wynn didn't need to say more. Those hotels stacked along either side of the street, the innovations and their imitations, they were eloquent enough.
Homages to his creativity beckoned everywhere. To my right was Paris Las Vegas, built in the spirit of Wynn's massive theme hotels, and the Aladdin, the newest--and perhaps the last--of the soaring cityscapes. Behind me was Caesars Palace, where a task force was busy compiling a wish list of 20 world-class chefs in an effort to compete with the restaurants at Wynn's Bellagio, and The Venetian, where gondoliers ferried guests through an indoor lagoon in an effort to capture the excitement that Wynn first generated at the Mirage in the early '90s.
A century from now, students of cultural history are apt to walk the Strip with notebooks in hand, tracing a timeline in the steel and glass. Well, maybe they won't. If Las Vegas history holds, all these hotels will be long gone, replaced by even more dazzling constructions. Unlike the other great cities of the world, which are vast and multifarious, Las Vegas can be shaped in a man's image. Wynn hasn't been the only man doing the sculpting.
Today's Strip is a product of the imaginations of a handful of visionary entrepreneurs--and when someone is called a visionary in Las Vegas, it's meant in the most literal sense. A developer envisions a building, and then he builds it. Sheldon Adelson made Las Vegas a true convention city. Arthur Goldberg collected land and created properties across the socioeconomic spectrum. Kirk Kerkorian's $3 billion bankroll makes him one of the world's richest men, and he now controls Wynn's empire. Bill Timmins recently rebuilt the Aladdin to massive scale.
The hotel boom is over. A decade of unprecedented upheaval for the city's skyline has ended, leaving the New York skyline, the Eiffel Tower, a pyramid, an Italian lake, and various minarets and towers in its wake. Today a handful of developers control most of the properties on the Strip, and most of the usable land, too. Evolution will be slower. What form will it take? That's what I wanted to know.
In the past decade, these visionary developers have remade Las Vegas as a tourist destination. They've broadened its appeal beyond the gambler and the nightclubber, created the most impressive street of restaurants anywhere, won substantial convention business. From the hard-edged, after-midnight world of the Rat Pack, with its dark sexuality, its Mafia overtones and its alcoholic haze, Las Vegas has repositioned itself as sweetness and light. It's a shopper's heaven, a sybarite's haven, an architecture buff's dream, a fantasyland for the epicurean spirit.
Wynn stands as the centerpiece because without him it wouldn't have happened. "Wynn was enlightened," says Dean Harrold, the president and chief operating officer of Caesars Palace, which is now owned by Goldberg's Park Place Entertainment. "His insight was that the gambling will happen no matter what, but give your guests other things to do and they'll spend money." Wynn didn't install the first celebrity chef or ritzy shopping area in a hotel; Caesars did, with Wolfgang Puck's Spago and the Forum Shops, back in 1992. Even in the majestic Bellagio, Wynn didn't provide a room product commensurate with the rest of the hotel experience, unlike Adelson's 750-square-foot standard suites in The Venetian. What he did do was build upscale destination hotels that transcended gaming. The rest followed.
A decade ago, if you weren't there to gamble or in a lather to see Julio Iglesias, Vegas offered nothing. Today, nongaming revenue from the Strip is approaching gaming revenue; this year's ratio is projected to be 53 percent to 47 percent. Even more astonishing, every significant property on the Strip has adapted to the paradigm shift. "This used to be a stopover destination," says Harrold. "It's now a resort destination. Gaming isn't the only experience." The most noticeable change has been the dining, which once meant mountains of scrambled eggs on a buffet table, and sweet-and-sour pork as a high-end meal. The list of top restaurateurs who either have a successful franchise or have relocated here has become too long to recite without omitting someone. Only Chicago's Charlie Trotter, who stubbornly insisted on three-hour dinners, came and closed.
"Our first year, we did $200 million in food-and-beverage income at the Bellagio alone," Elizabeth Blau, MGM Mirage's vice president of restaurant development, says over a lunch of tomatoes and mozzarella at Osteria del Circo. "All of the restaurants here are beautiful sights, but they're also all extremely profitable. People lose sight of that." Driving that business was another Wynn insight: upscale gamblers would rather pay for a great meal than get a comped $12 steak or buffet ticket. More than half of the volume at the best hotel restaurants used to be given away to heavy players. At the Bellagio, the figure holds steady at a miserly 12 percent.
Even with that, the Bellagio's profits didn't meet shareholders' expectations. After Wynn lost their confidence by running an impetuous business too impetuously, he was forced to sell Mirage Resorts to MGM Grand majority owner Kirk Kerkorian early this year. The $6.4 billion deal includes the assumption of billions in debt. Don't miss the irony in that. While dot-com companies with no track records and hemorrhages of red ink were amassing market caps into the tens of billions on pure potential, institutional investors were unwilling to give Wynn time for the Bellagio to mature. But then, Wynn's unconventional ideas have always been dogged by skepticism. "I was in Monte Carlo when the Mirage opened," says Bill Timmins, president and chief operating officer of the new Aladdin. "People were saying, 'He's crazy. He's never going to make the money.' But he took the bar at three feet and raised it to five feet, so to speak. He's responsible for a very, very big move beyond gaming, to other revenues."
With no shareholders to report to, Wynn can keep his own counsel now, but gossip inevitably abounds as to the nature of his new project. Will it be a skyscraper hotel that will stand as the tallest on the Strip? Will it be a luxury property, on the order of the Four Seasons? What all agree is that it won't be yet another theme hotel. Wynn is too smart for that.
Strategically, Las Vegas stands at yet another crossroads. For much of the past decade, it has ranked as America's fastest-growing city, and the money generated by the Strip has helped fuel the boom. The economies of the city and the country have been sizzling, and the construction crane now serves as the city's proudest symbol. But that can't last forever. The huge theme hotels carried the city through the '90s, but the '90s are done. There's talk of someone building a hotel called City by the Bay, with a half-sized Golden Gate Bridge, and developer Bob Stupak is pushing his idea for a true-to-scale Titanic, replete with an iceberg for a casino and condos in its smokestacks. But among major players, such Disneyland renderings are yesterday's news.
What will replace them? Whose imagination will shape the Strip in the years to come? I began to look for the answers directly beneath some of the paintings that Wynn had amassed at the Bellagio for its $400 million Gallery of Fine Art. Terry Lanni, now Kerkorian's man in Las Vegas, has a Modigliani on one wall of his office, a Rembrandt on another, a Berthe Morisot on a third. He knows he'd better enjoy them now. "They're headed for auction at Christie's at the end of the year," he says. "We've sold most of the others already and raised millions of dollars." Kerkorian is a shrewd businessman who is convinced he can run a property better than anyone. He's almost always right. Dismantling the art collection is part of his strategy to make the Bellagio more profitable.
"Kirk Kerkorian has guts, he has balls, and he's also a gentleman," says Goldberg, the chairman of Park Place Entertainment, which owns properties up and down the Strip. "He's going to run that place right. Steve Wynn put up some impressive buildings, but with the Bellagio he made a major mistake. There's four words you should never forget, and he forgot them: Think like a customer. Steve built his beautiful buildings like he thought they should be built. But that wasn't necessarily what his customers wanted. And he paid the price."
The sale of the paintings will pare down the debt that Wynn had amassed. Such frugality is bound to impress the stockholders, who consider themselves in good hands. The 82-year-old Kerkorian has bought and sold MGM twice since 1969, making millions each time. But Lanni, who understands how fine art plays into the good-life mystique that drives the property, has a plan to replace the paintings. An agreement with Washington, D.C.'s Phillips Collection will provide a rotating exhibit of 20 to 30 masterpieces, most of which are currently unavailable for public viewing. That will keep even repeat customers interested--and at almost no investment cost.
"You need variety," Lanni says. "And that's true for the business as a whole as well as the paintings. Everything is available to everyone these days. People don't want to go back to the same hotel in three years and see the same show and have the same experience that they had before. You have to keep changing, giving them something new."
Lanni is a casino lifer, for 14 years the president of Caesars Palace. He understands the gaming business, and he knows how to run a luxury hotel. Few executives are as admired on the Strip. Lanni is also, in his way, a visionary. It was on his watch that Caesars' Forum Shops were built, and he conceived of and built the Mansion at MGM Grand, the city's most exclusive hotel (see page 153). He doesn't sell the Mansion's suites, but gives them away to a select clientele. As a result, the MGM Grand's casino is now luring many of the top players in town.
Now he's targeting Generation X. The plan is a high-end, high-tech property, complete with a swank nightclub. "Those kids are already coming here, but they haven't been addressed," says Lanni, 57. "I'm talking about 25-, 30-year-olds, the children of my friends. They love Las Vegas, but they don't have a place to go. If you can build something for this affluent generation, it's a great area of opportunity."
It wouldn't have made sense even five years ago, but that's the past. In Lanni's mind, the future of Las Vegas looks like the future of Palm Springs or Miami Beach, but with world-class gaming, too. Priorities have shifted. "There was a time when everyone basically said, 'The casino is where the income is, everything else is a gift.' That has long gone," he says. "People are willing to pay for quality. Someone's going to do something with the Tropicana, we're going to do something very special with our 55-acre casino site where the Boardwalk is, and they're all going to be special, they're going to be very high quality."
When I questioned the market's capability to support more five-star restaurants and luxury boutiques, Lanni broke into an enigmatic smile worthy of the Rembrandt behind him. "They built the DC-3 aircraft and they said, 'That's it, nobody will go beyond that. Look where we are now. Never underestimate the creativity of people," he said, wagging a finger. "Especially here in Las Vegas."
Under the old calculus, Las Vegas accepted conventions grudgingly because conventioneers didn't spend enough time at the gaming tables. And the city offered the typical conventioneer little that he wanted. Traffic on the Strip was difficult to manage. The one or two restaurants worth eating at were always full, and how often could you have the osso buco at Piero's? The city's image was all about naughtiness, strip bars and cabarets, and mob deals. If you brought your family, there was nowhere to stow the kids while you gambled. Cable television fare was perfunctory. The hotel rooms didn't even have minibars.
Sheldon Adelson's epiphany was that Las Vegas could be the greatest convention city in the world. All it needed was a self-contained 3,000-room resort with a convention hall, and enough amenities to keep guests happy. Rooms would be spacious, with business facilities such as two-line phones, faxes, and plenty of outlets for laptop computers. Public areas would be extraordinary, the equal of any hotel in the world. He envisioned a replica built to scale of the world's most astonishing city, Venice. Then he built it, complete with gondoliers, soaring arches and marble everywhere.
He included shopping for spouses, better than they'd get in convention cities like New Orleans or Orlando. He installed a world-class spa, Canyon Ranch, right there in the building. You never had to go outside, so a visit in the searing heat of August wouldn't be any different from one at Christmas.
He gathered the restaurant business under one roof, a dozen venues from which to choose for those expense-account dinner parties, and more than enough seats: 4,000, as opposed to the 1,500-seat standard for a property of that size. New York's Lutece, Santa Monica's Valentino and San Francisco's Postrio all opened outposts in The Venetian, as did star chefs Stephan Pyles of Dallas, Emeril Lagasse of New Orleans and Joachim Spilchal of Los Angeles. He was right. How could the real world compete?
"This is a fantasy experience, coming to Vegas," says Michael French, The Venetian's senior vice president for operations. "We equate staying at The Venetian to being in a movie. It generates emotional responses." Adelson is a self-made magnate who invented the annual COMDEX electronics trade show and sold it to the Japanese for almost $1 billion. Mention that he followed in Wynn's footsteps and he'll bristle. Then he'll laugh, because The Venetian remains one of the most profitable hotels on the Strip. "Everybody ridiculed me because I wasn't swaddled on that green felt cloth," he says. "I tell my competitors that they're not just in the gaming business, they're in the hospitality and entertainment business. They're beginning to understand."
Adelson knew that conventioneers tend to pay full price for hotel rooms, not the discounted rate offered for weekend junkets. It's no accident that The Venetian's $185 average daily room rate is among the highest in the city. "In Vegas, everybody's challenge is to fill midweek, so they rely on the tour business," he says. "You were guaranteed a room at Circus Circus for $29 a day. The hotels figured they'd get it back in gambling. Conventions pay $200 and up for hotel rooms around the world, and they pay it here, too. And most conventions are during the week, which is my slow time."
What conventioneers get in their mini-suite at The Venetian is a product commensurate with luxury hotels everywhere. It may not be the equal of the Ritz-Carlton and Four Seasons, as Adelson claims, but it's a level above anything Wynn has developed. "I was the first guy to put in safes, minibars, faxes, a 130-square-foot bathroom, two sinks, a frameless glass shower," Adelson says. "When the Mandalay Bay was built, their architects and designers came over with cameras. They copied my bathroom. I guarantee you, you'll see a lot of Sheldon Adelson's innovations in Steve Wynn's new property, whatever it turns out to be. Anyone who builds a high-end property from now on will use The Venetian as the standard to live up to."
Adelson employs nonunion labor, and he rents his restaurant spaces for a percentage of the revenues. He has rankled the Vegas old guard, but money makes up for missing out on parties. "We have conventions that have been there twice already since we opened, once in '99 and once in 2000," he brags. "Everybody makes their restaurant reservations months in advance--one night at Lutece, one night at Valentino or Postrio--for their parties. I'm putting up another 1,000 to 1,800 rooms because I'm running at 98 percent occupancy. And in two and a half years, another 3,000 rooms. And 15 more restaurants."
The insiders remain unconvinced. Adelson has thrived during an economic boom, but will the numbers work in a recession? "Right now, while business is good, people will pay that $176 room rate, or whatever it is," says Goldberg, whose Bally's and Paris Las Vegas properties do 40 percent convention business. "But bad times will come eventually. When they do, people will pay $105 for a room somewhere else. And they'll take a taxicab to the convention."
Adelson has concentrated his business at one end of the economic spectrum. "I would open a low-end property, too, but I wouldn't get convention business there," he says. Arthur Goldberg's strategy with Park Place is the opposite. He owns a range of properties, low to high, taking pains not to compete with himself. In his mind, Wynn doomed the Mirage to obscurity the day he opened the Bellagio.
Goldberg's genius was recognizing the value of Las Vegas itself. It wasn't so long ago that smart money said the city was finished. America's gamblers would be flocking to riverboats and Indian casinos, playing Lotto in coffee shops and Powerball. Who needed gridlock and 110-degree weather? Goldberg just kept nodding and buying property. He bought land and built Paris Las Vegas. He bought Caesars Palace, perhaps the finest equity in the hotel business: a name that ranks with Pebble Beach and the Waldorf-Astoria as a shorthand for elegant luxury. He has the Las Vegas Hilton and Bally's. Together, they worked like a winning poker hand. "No matter how many riverboats open, walking down the Strip is unlike anything else," he says. "Vegas--that's where the action is."
He's keenly aware of the Strip's geography. Caesars, the Bellagio and Paris Las Vegas, all virtually on the same corner, are the epicenter. The farther you go from there, the more risk you take. "People don't want to walk that far," he says. Mandalay Bay, set close to the airport in what used to be Siberia, is an impressive hotel, but Goldberg seems to all but dismiss it--despite rumors that he's actually negotiating to buy it. "Even Mandalay Bay is having trouble," he says. "You want to be near the money, and the money is up where Caesars is."
Rejuvenating Caesars Palace is at the centerpiece of Goldberg's plan. Previous owners ITT Sheraton, later folded into Starwood, couldn't maximize the equity. They were hoteliers, not casino people. "There's a little bit of glitter off the name Caesars Palace," says Harrold. "But Arthur Goldberg didn't pay $3 billion to keep it tarnished. He's going to take us right to the edge: in entertainment, in service, in dining facilities. A lot of people have a lot of money these days, and you have to get them to spend that money in your hotel. Mr. Goldberg is on a mission to do that."
Mandalay Bay was another daring innovation, and not merely in geographic terms. When it opened 20 months ago, it became the first hotel on the Strip with elevators that empty directly into the lobby, not the casino. "That's a departure from traditional casino architecture, which believed you had to march customers back and forth past slot machines to catch their interest," says Glenn Schaeffer, who along with Bill Richardson and Mike Ensign of the Mandalay Resort Group created Mandalay Bay. "These days, maintaining a resort ambience for our guests is as important as the casino alone."
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