Friday, June 17, 2016

The Strip, with few exceptions, is no longer for gamblers.

MGM is at it again.

When they first announced their "profit growth plan" (PGP) the monetary target was $300 Million dollars. This was to be achieved by choking their popular MLife Rewards plan, increasing prices at restaurants (effectively devaluing comps), lowering their theoretical calculations (further devaluing comps), decreasing payouts on slot machines and offering worse odds on table games such as blackjack (6/5 payouts on blackjack is among the worst rule changes in a decade for players) and others.  They also, famously, decided to bring paid parking to the Las Vegas Strip.

Oh sure, there were whimpers of protest. "Free Parking on the Strip is a God Given Right!" some said. High-end gamblers (not Whales, don't confuse the two) swore to never darken the doors of MGM properties again and the savvy mid-to-low level gambler relocated their tacks to Freemont Street.

The thought behind these protests was that MGM would face such an exodus of high-value patrons that they would actually lose profit instead of grow it. The result would be a financial calamity so severe that the executives in charge would be forced to resign in disgrace and the ground from which their PGP idea sprang would be salted and viewed forevermore as a place to dump refuge.

So, how is it all working out?


MGM raises profit growth forecast by $100 Million. 

MGM Resorts International said today that its initiative to cut costs and grow revenue should generate an additional $100 million annually before certain costs. 
The company had previously anticipated that, by the end of 2017, its Profit Growth Plan would result in $300 million in annual adjusted earnings before interest, taxes, depreciation and amortization. That target has now been raised to $400 million.

What this means is that, for now, the know-nothing executives did a better job reading the new Vegas clientele than did the customers themselves. MGM understands that they are now a party destination that happens to offer recreational gambling for people who want free (now watered down) drinks while throwing money away at slots and table games with rules that make a positive return highly unlikely.

But they don't care.  Because gaming, on the Strip, has devolved into a short, albeit expensive, party that occurs before dinner and spending even more ridiculous amounts at clubs. The casino floor is just an excuse to get liquored up with your friends before going out and getting rejected by that hottie on the dance floor.

For the serious gambler then, the Las Vegas Strip is an increasing wasteland.

There are, however, a few beacons of hope.

The Cosmopolitan.  After initially opening with MGM's plan in mind, the Cosmopolitan was forced to reverse course after several years of failing to turn a profit.  Many observers pointed to the Cosmo's failure as proof MGM was destined to fail.  What they didn't take into consideration was the economy of scale advantage that the lion enjoyed. 

The Cosmopolitan is one resort/casino, MGM is many.  MGM has the flexibility to offer accommodations and amenities at a wider variety of price-points which caters to a wider variety of guest. Whereas the Cosmopolitan, as nice as it is, limited itself to the Millennial guest who found themselves with high-end options elsewhere, just as good and also connected to a wider variety of options.

On the Middle/South portions of the Strip the Cosmopolitan will be alone in mining their current niche. They're close enough to the Bellagio, MGM Grand and Caesar's that people can stay there and go to the other high-end restaurants and clubs, and they're upscale enough that the high-end gambler will feel sufficiently pampered.

In the early going, the strategy seems to be working. In the 2nd quarter of 2015 the Cosmo finally posted a profit and they've continued that trend in every subsequent quarter.  On my next trip to Vegas (in August) I plan on moving most of my gambling tack there.

The Venetian/Pallazo. These two casinos, owned by the Sands Group and Sheldon Adelson, have always done a pretty good job catering to the high-end gambler and, as a result, have many devotees who will not gamble anywhere else.

The Sands understand how to treat high-rollers and they have a wide variety of games available for the high-end player. They have good high-end lounges and their rewards/loyalty program appears to be fair. They also boast an amenities list that is second to none, and their properties are two of the most beautiful on the Strip.

The drawback to V/P, is two-fold.

First, Mr. Adelson himself. It is possible that he and Steve Wynn (more on him later) are two of the more odious people operating casinos on the Strip today.  Not only is Adelson seemingly a bad guy, but he also is displaying authoritarian tendencies with his online-gambling bill and purchase, and gutting, of the Las Vegas Review-Journal.

His politics aside however he at least appears to not have many of the individual shortcomings as his contemporary.

Second, location. I'll expound on this a little bit more further down. But it's very clear that, in the early battles, the North end of the Strip lost.

Wynn/Encore. Casino Magnate Steve Wynn has always been a trendsetter in Las Vegas.  This is the man who opened the Mirage however and revealed that Vegas could be more than just polyester-clad weekend tourists playing quarter slots. He ushered in and modernized high-end amenities and catering to the high-end gamer on the Strip. To his eternal credit he revitalized the Vegas brand at a time when it desperately need it.

His two casinos are, in a word, opulent. They're two copper-hued towers with a soft golden interior that are a joy to play in. They have amenities that are second to none and high-end gaming that caters exclusively to the biggest players in Las Vegas. He has also built a palace that attracts the true whales*, although you will never see them.

The problems with W/E are almost identical to those faced by V/P.

Steve Wynn is, by all accounts, an odious man with few redeeming values who would think it just fine if the great unwashed stayed away from his casinos and limited their Vegas experience to MGM and Caesar's properties. To many people, giving money to Steve Wynn is as odious as making a political campaign donation to the other party.

W/E shares the same location issues with V/P. They're both located at the North end of the Strip surrounded by partially completed buildings, downscale casinos and low-end strip centers.

All that said, there is hope.

Alon, Lucky Dragon and ResortsWorld International continue to promise that they will be opening, Trump Tower is reportedly in negotiations to open a casino, and there are continued rumors that the owner of Treasure Island, Phil Ruffin, is still interested in purchasing the Mirage if MGM will come to their senses and make the price right.

Should all of this happen then the North end of the Strip could find itself positioned as the independent option to the focus-group, corporate controlled, party zone that the South end of the Strip has become.

If you're a mid-to-low end gambler of course, none of this applies.  I'll expound on that further in a future post.

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