Oliver Lovat: Exploring the challenges of Las Vegas’ 1990s megaresorts

Blackjack is not a game of chance. Our decisions are influenced by a series of variables – the cards we have, the cards the dealer has, cards the other players have and what cards have already passed. Understanding the environment and applying an appropriate strategy will lead to advantageous outcomes. Without both, the player is likely to lose. 

It is a perfect metaphor for assessing the problems facing today’s owners of Las Vegas’ 1990s megaresorts. 

Family-friendly Las Vegas

1990s Las Vegas was as synonymous with implosions as it was for new openings. When older properties reached the end of their natural life, the economics to blow up and build on the land with a larger casino, more rooms and greater amenities was evident. From The Mirage in November 1989 to Paris in September 1999, over a dozen casino megaresorts opened in the Las Vegas resort corridor, adding 30,000 guestrooms to the city. 

Some executives recoil when remembering “family-friendly” Las Vegas, but many miss the point of that period; it wasn’t about attracting families to Las Vegas, it was about chasing the established customer segment. Las Vegas’ key demographic had always been men and women aged late 30s to mid-50s. In an interview with Time Magazine in 1994, Steve Wynn set out his thinking. “It’s one thing for the place to be user-friendly to the whole family because the family travels together… it’s quite a different thing to sit down and dedicate creative design energy to build for children. I’m not, ain’t gonna, not interested. I’m after Mom and Dad.” Moreover, the tactic worked, with record visitation and customer spend throughout the 1990s. Local operators Steve and William Bennett led the way, opening The Mirage and Excalibur within months. They were followed in 1993 by sister properties, Treasure Island and Luxor, and Kirk Kerkorian’s $1.1bn MGM Grand, costing nearly double of the most expensive property to date. 

1996 saw Bob Stupak replace his existing casino with The Stratosphere. Wynn/Bennett’s Monte Carlo and Primadonna/MGM’s New York New York opened in 1997. The era’s masterpiece, Bellagio, opened on 15th October 1998, with Mandalay Bay, Venetian and Paris closing out the decade in 1999. Off the Strip, key openings included Marnell’s Rio in 1990, Peter Morton’s Hard Rock in 1995 and Michael Gaughan’s Coast Casinos’ Orleans in 1996.

Gamblers, conventions and something sexy

Although some operators themed their properties differently, the target customers remained similar, with resorts mainly competing for the baby boomer generation of Americans. However, by the end of the decade, many observers believed Las Vegas’ family friendly strategies were misplaced. Operators witnessed the rise in business tourism fueled by The Venetian, teenagers became 20-somethings and stopped travelling with their parents, instead vacationing with their peers. The newly opened luxury properties, like the Bellagio, did not want kids clogging the casino floors, explicitly banning them.

As Las Vegas entered the 2000s, ownership of the 1990s megaresorts consolidated, primarily with MGM Resorts assuming ownership of the Mandalay Bay, Luxor, Excalibur, New York New York, Monte Carlo, Treasure Island, Mirage, Bellagio and several other older properties. Moves were made to meet the needs of this new wave of visitors. In some resorts, the strategic decisions made were highly successful, in others, what seemed good short-term tactics have had inadvertent consequences.

Everyone chased the casino action, with increased loyalty offers and comps. The $108m Colosseum at Caesars competed with MGM Garden Arena as the top venue in town, breaking box-office records for superstar residencies. Others chased the convention action, with newer and bigger spaces. Convention visitation rose from 3.8 million in 1999 to 6.3 million in 2006. And some chased the cool LA kids’ action: the same kids had accompanied their parents to Vegas a decade before. Las Vegas became sexier, with Paris and Britney’s tabloid travails replacing Siegfried and Roy as the evening’s entertainment attraction.

Whereas The Griswolds hit Las Vegas in 1997’s Vegas Vacation, the following decade opened with Ocean’s 11 in 2001. Las Vegas’ marketing campaign “What Happens Here, Stays Here” was launched in 2003. The TV reality show Rehab: Party At The Hard Rock Hotel, and the movie What Happens in Vegas – both tales of misbehavior – were released in 2008. Alongside The Hangover in 2009, movies both shaped and reflected what Las Vegas had become. From family fun to elegant adventure to drunken debauchery in a decade.  

Playing your cards right

Today, the reinstatement costs to implode and rebuild 1990s resorts are economically prohibitive, thus the path for sustained profitability has to be considered in the context of the properties that have been inherited. There are three decisions required for managing 1990s megaresorts – and they are the same as those in blackjack, each with their merits, depending on how one perceives the situation in front of them.

Stick?

To extend the metaphor, for MGM, ownership of both Circus Circus(1968) and Excalibur (1990) were the same hand at different sides of the table. Both were value properties aimed at the same demographic and both were highly profitable to operate. 

Circus Circus and Excalibur’s 8,000 rooms equate to over 5% of the entire market today and 11% in 1990. Both properties remain a valuable option for a defined customer segment that actively seeks price. Other than maintaining operations to meet customer expectations and improving existing amenities to present market tastes, marginal revenue increases may be obtained. However, the greatest upside is in systemic market moves; these properties were positioned to be the “price leaders” on the Strip and thus will continue to be so, even as the market holistically rises. MGM held both Excalibur and Circus Circus until 2019, selling the latter for $825m.

New York is also remarkably similar to when it first opened, with several of the restaurants and outlets nearing their 30th anniversary. The property has undertaken several renovations and made enhancements to meet the changes in pedestrian engagement and access. However, the primacy of aligning the property as a representation (or homage) to New York has proved resilient.  

Twist?

When owning Treasure Island, MGM attempted to re-orientate the property away from family market in a bid to capture the cooler, sexier, younger customer that started coming to the city. The name was changed from Treasure Island to just TI. As part of the reposition, the gloriously extravagant pirate show was replaced by the more sensual Sirens of TI, and immersive fantasy was forced to coexist with the pulsating bass of the ultra-lounges and contemporary retail. Phil Ruffin had other ideas when he acquired the property in 2009, removing many of the “sexy TI” programming, returning it to a value offering with great success.

Taking a family-friendly experiential property and going “contemporary” was evident at another new MGM acquisition. At The Luxor, 90% of the original build cost was spent on removing many of original elements at the highly themed property, adding bars, nightlife, guestrooms and convention facilities. There was little tangible upside, with customers being disappointed that the iconic exterior was not matched by the promise conveyed. In recent years, the property has seen modifications, returning more “fun,” engaging and non-gaming activities, seeking a return to the original premise.

The Stratosphere became The STRAT after Golden Entertainment’s 2017 acquisition. The exterior modifications and name change were an outward communication of the full internal modernization of the hotel, casino and amenities.This wasn’t a full reposition to change customers, but rather a modification to show new ownership and update throughout the property. The most dramatic twist was at the 1996’s loosely themed European- elegance-meets-classic-Americana resort, Monte Carlo. Operating with some of the lowest ADRs on The Strip, (The Monte Carlo was conceived as a value offering) over time it had benefited from the location at the heart of the MGM portfolio, with Aria to the north, NYNY to the south, and the newly built “Park” and T-Mobile arena were adjacent. 

Budgeted at $550m, the renovations cost considerably more than the 344m initial build cost. The Monte Carlo was renamed Park MGM, with a Nomad branded hotel within. The changes included a full refurbishment, the addition of new concert venue (with 5,200 capacity) a full reprogramming of F+B, including Italian rooted Eataly, the traditional Chicago steakhouse, Bavette’s, Primrose, a “French-ish” bistro, and a range of ethnic offerings, lifted from modern Los Angeles. Renovations completed in 2018. European-elegance-meets-classic-Americana resort, Monte Carlo. Operating with some of the lowest ADRs on The Strip, (The Monte Carlo was conceived as a value offering) over time it had benefited from the location at the heart of the MGM portfolio, with Aria to the north, NYNY to the south, and the newly built “Park” and T-Mobile arena were adjacent. 

Budgeted at $550m, the renovations cost considerably more than the 344m initial build cost. The Monte Carlo was renamed Park MGM, with a Nomad branded hotel within. The changes included a full refurbishment, the addition of new concert venue (with 5,200 capacity) a full reprogramming of F+B, including Italian rooted Eataly, the traditional Chicago steakhouse, Bavette’s, Primrose, a “French-ish” bistro, and a range of ethnic offerings, lifted from modern Los Angeles. Renovations completed in 2018. 

Double down?

The Venetian and Bellagio have followed similar paths, maintaining their thematic elements and relevance thanks to constant improvements aligned to their original demographics. Both properties have added hotel towers since their original inception, and both have announced significant capital improvements to their resorts.Paris was conceived as a rival to Bellagio. However, after a period of financial constraints at Caesars, which (when Harrah’s) acquired Park Place, has invested in renovations, elevating the offering to closer resemble Caesars Palace than Paris of the 2010s. The new renovated Versailles Tower, built in 1981 as part of the original MGM Grand, was recently completed. The premium on these rooms is being reported as $65 per day. When averaging this out on the 756 rooms (at 92% occupancy) sees over $16.5m in additional revenues projected.

At The Mirage and Mandalay Bay another strategy was taken – follow the Venetian model with conventions during the week, maintaining the original brand promise for weekend leisure customers and gamers.Both expanded their restaurant offering, both had added nightlife, and both had modernized and expanded their convention facilities during the 2000s and 2010s. Both properties slowly renovated to remove theming to a more sedate convention-friendly palate. By the time of closure there were virtually none of the original bright south-seas evocature present at The Mirage’s interior and very little southeast Asian references remain at Mandalay Bay. Other than the physical differences, these properties had morphed into similar entities, and within a portfolio strategy, there could be space only for one. 

The MGM Grand was built for scale, an Emerald City-inspired entertainment palace. The Wizard of Oz theme and associated theme park have long gone, replaced early on by the desire to evoke glamor and excitement.For decades it had The Garden Arena, the Strip’s largest entertainment venue and home of many notable boxing fights.

Studio 54, the largest nightclub for many years, was replaced by Hakkasan in 2013. The property features budget rooms enhanced “Stay Well” rooms, skylofts and The Mansion’s ultra-VIP suites with private casino, Wet Republic Dayclub and competitive convention facilities. It was the first resort to have a portfolio of celebrity chefs, which have evolved and changed over 30 years to suit changing tastes, and many production shows and performers have appeared on their marquee. For a while this “something for everyone” approach proved successful; in 2011 it was the most popular resort with 38% of all Las Visitors staying there in the previous 5 years, however by 2021that had fallen to 24%, the largest decline in the market.

Now into its 30s, arguably the biggest challenge on the Strip is what is next for the largest and, in its time, the most expensive megaresort. In today’s highly segmented market, the market leader’s flagship brand is at a disadvantage with its inclusive strategy and legacy position. Yet with over 5,000 rooms (as well as many more in associated towers) it is remarkably well placed in size and scale. A similar uplift in room pricing, as seen at Paris, would increase revenues by over $100m per annum.

Will this property see a modest reinvestment as before, or will MGM be  bold and aim for a full repositioning of the entertainment champion in the entertainment capital? Will the temptation of drawing that extra card be a winner, returning The MGM Grand into a market leader, or will it be one card too many? 

Good/bad strategy revealed

With new variations of blackjack appearing regularly at various casinos, are executives playing the traditional strategy in a new game? Las Vegas in 2024 is very different from that of 1994. The arrival of sports, increased live events and return of convention customers has seen guestrooms as a percentage of total revenues, surge. On the Strip, the pre-pandemic record for gaming revenue was 2007’s $6.49bn, but 2022 and 2023 generated $7.8bn and $8.2bn. In 2023, room revenues generated $6.9bn, higher than the gaming revenues generated every year before 2022.

Moreover, with the closure of The Mirage and Tropicana, it would be expected to see systemic ADR increases across the city, further emphasizing the importance of the guest room experience, an aspect that which was underrepresented at time of megaresort construction, but one that will grow revenues across the market.In my 2021 research in customer decision-making priorities, amenities, location, loyalty program and guestrooms all factored higher than price. In a recent discussion, a senior casino executive observed that doing nothing had sometimes been the best strategy. This was a wise observation.

Throughout the 2010s, the consensus was that theming properties was a bad idea; however, when taking a more holistic and longer-term view of the competitive market, those properties that merely modified, rather that de-themed, have fared better. Across all customer segments, the themed 1990s megaresorts that did not significantly reorientate – Bellagio, Venetian, Paris, Excalibur, Mandalay Bay, New York New York,Excalibur, Stratosphere and Orleans – have all maintained a clear customer focus and operate consistently and profitably, proving solid ROI where made. When those megaresorts from the period have de-themed – Luxor, MGM Grand, Treasure Island, Monte Carlo, Rio, Mirage – they have arguably underperformed in relation to their reinvestment costs.Playing the game to a strategy has never been more important.

David Thompson

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