Stakes Raised Ever Higher in Las Vegas Building Boom

Here’s the latest recipe for any casino developer hoping to join the big leagues on the Las Vegas Strip:

First, find yourself an old, tattered casino-hotel to blow up--literally; next, identify a strong theme for your new resort, such as a city that bespeaks style or romance (Caution: New York and Paris are taken); finally, assemble a construction fund of at least a half-billion dollars--$1 billion is even better.

Those may be high hurdles anywhere but here. But now, only three years after the last building boom added 10,000 rooms to the Las Vegas Strip, the gaming industry’s biggest companies are preparing to outdo themselves.

On New Year’s Eve, the Hacienda, an 1,100-room hotel that was once a lone outpost at the distant south end of the Strip, will be demolished by its new owner, Circus Circus Enterprises, to make room for a 4,000-room hotel complex in 1998.

Three days into 1997 comes the scheduled opening of New York-New York, a 2,000-room resort whose eye-catching design--consisting of scaled-down models of the Empire State and Chrysler buildings as well as Trump Tower, the Statue of Liberty and Grand Central Station--has already made it a must-see location on the Strip.

The next two years will bring a $900-million renovation and expansion of Caesars Palace; the completion of Bellagio, a $1.25-billion project by Steve Wynn’s Mirage Resorts; and Paris, a 3,000-room hotel planned by Hilton Hotels for a parcel next to its recently acquired Bally’s casino.

In all, an estimated $6.8 billion is slated to be spent on the construction, expansion, rehabilitation--and demolition--of 13 major properties on the five-mile Strip portion of Las Vegas Boulevard through the end of 1998 alone. Several other announced projects whose financings seem questionable could raise the total by as much as $2 billion if they get off the ground.

Counting on Tourism

This represents a massive bet that Vegas’ tourist growth will continue indefinitely. The latest building boom will add at least 30,000 rooms to the Las Vegas inventory, a record increase of more than 30%. Meanwhile, existing casinos such as the MGM Grand, Harrah’s and Circus Circus are getting multimillion-dollar face-lifts.

“The Big Three was a ripple compared to what’s going on today,” said Anthony Curtis, publisher of the Las Vegas Advisor, a newsletter for Vegas visitors.

Curtis’ reference is to the nearly simultaneous openings in 1993 of three mega-resorts: Circus Circus’ Luxor, Mirage Resorts’ Treasure Island and the MGM Grand. Their combined eclat landed Vegas a Time magazine cover as a hot resort and generated a 20% surge in visitor volume over the next year.

Their success established one-upmanship as the guiding doctrine of Las Vegas casino-building.

“This is a theme park business,” said Scott M. Renner, the gaming analyst for the New York investment firm Salomon Brothers. “As long as they bring on new attractions, this market will continue to recycle itself.”

And recycle it does. As with so much else, Las Vegas has found a way to turn building demolition into a spectator sport; the Hacienda will be the third Strip casino in three years to get the implosion treatment.

The Dunes (once owned by Howard Hughes) came down in 1993 to make room for Bellagio. And the Sands, once the haunt of the Sinatra rat pack, came down earlier this year. Its owner, Sheldon G. Adelson, said he is planning a $1.5-billion Venice-themed resort there.

Several other elements distinguish the current wave of construction from its predecessors. For one thing, it is costlier than that of any previous comparable period, even considering inflation.

Moreover, it is devoid of the battle-cry of the last construction boom: that of fashioning Las Vegas to appeal to families with children. Several of the new properties will be, if not family-hostile, then certainly family-neutral, with video arcades firmly segregated from playing floors, no provision for day care, and prohibitive room rates.

Even the MGM Grand, whose 33-acre Grand Adventures theme park helped launch the “family resort” concept in 1993, will be trimming the park to about 18 acres to make room for more convention and meeting space.

The chronically under-attended park has also added a high-tech thrill ride, the Skyscreamer, which is designed to drop riders 110 feet in free fall and then swing them through the air on a cable.

Priced at $15-$30 per ride (depending on how many riders go at once), the Skyscreamer is clearly not for children. Surveys show that such “white-knuckle” rides, including aggressive roller-coasters installed at New York-New York and other properties, appeal heavily to visitors in their 20s and 30s.

Developers Woo the Masses

Vegas will now increasingly focus part of its pitch on older, well-heeled travelers. Three properties--Bellagio, the renovated Sheraton Desert Inn and a 400-room Four Seasons hotel planned for the Circus Circus Hacienda site--will be seeking five-star designation from the Mobil Travel Guide, a certification of first-class resort-scale service that has never before been awarded to a Las Vegas resort.

But the main thrust of the competition among developers will be for the masses. Like Hollywood studios jostling for summer moviegoers with dueling blockbusters, the gaming industry’s biggest players are being forced to raise each others’ bets by hundreds of millions of dollars at a swipe in order to create the next can’t-miss attraction.

What’s at stake is a market whose growth rate has been closely tied to the launches of spectacular new properties. The periodic unveiling of new attractions has kept Vegas visitor counts steadily rising even as industry watchers have wondered whether or when the boom will end.

The conventional wisdom is that little can stem the growth of Vegas tourism short of a water crisis (always a specter in this desert oasis). The very fact that developers are ready to ante up billions to serve the future market gives many observers heart.

“These are not seat-of-the-pants operations anymore,” said Curtis. “They’re publicly traded corporations with huge credit lines and research and development departments. Who’s to say they’re making a mistake?”

Still, the town’s only double-digit tourism increases of the last decade were a 15.6% spurt in visitors in 1990, just after the opening of the much-anticipated Mirage and Excalibur, and in 1994, after the launches of the Big Three. The two years following each surge saw visitor growth taper off to less than 3% annually.

That’s not insignificant, as Las Vegas expects to top 30 million visitors this year for the first time.

But it illustrates the importance of keeping the Vegas experience fresh, especially since some 70% of all tourists are repeat visitors, according to figures provided by the Las Vegas Convention and Visitors Authority.

In fact, observers say several Strip casinos that have not spent enough to keep up with their neighbors could lose out as visitor interest shifts to the new and refurbished properties.

Also struggling to keep up are Vegas’ downtown casinos. They were forced to band together two years ago to turn their main drag, Fremont Street, into a high-tech illuminated pedestrian mall in order to compete with the dazzling show on the Strip. (So far, they’ve managed to keep downtown gaming revenues growing at about 5% a year.)

“In this business, it’s build or perish,” said J. Terrence Lanni, chairman and chief executive of MGM Grand Inc. “People really want to see something new, and because of the repeat business they don’t give us much of a chance to put up something new. Everybody’s level of expectation has risen.”

So have land and development costs. At $450 million, New York-New York will be the cheapest major casino to go up on the Strip for the rest of this decade (and with 2,000 rooms, also the smallest). Every other new property slated for completion in 1997 and 1998 will cost more than $500 million.

That in itself has produced two trends: the rise of the joint venture and a merger boomlet in the casino-hotel business. New York-New York is a joint venture of Primadonna Resorts, whose chairman, Gary Primm, came up with the metropolitan theme, and MGM Grand, which owned the 18-acre site across from its flagship property.

Their partnership allowed the project to be financed through MGM’s powerful credit line while giving Primadonna, the operator of three successful casinos on the Nevada-California state line, coveted entry to the Strip market.

“It’s really important for our company to be involved on the Strip,” Primm said in a recent interview with The Times. “It gives us more recognition. When you tell people on Wall Street that you’re at Stateline, a lot are not even aware of it.”

Companies Grow Through Purchases

Because building in Las Vegas increasingly demands the credibility of size, several gaming companies have chosen to grow by acquisition.

ITT Sheraton purchased Caesars World, the operator of Caesars Palace, in 1995, and promptly allocated $900 million to renovate and double the capacity of the trademark property by the end of 1997. Sheraton is renovating its Desert Inn for $160 million and planning to build a $600 million-$700 million Planet Hollywood resort casino on 35 acres of Strip land next door.

Similarly, Hilton bought Bally Entertainment this year for $3 billion and almost immediately jump-started Bally’s languishing plans for the Paris resort, which will be marked by a 50-story replica of the Eiffel Tower.

These new buildings are forcing the owners of properties scarcely a few years old to burnish their resorts simply to keep pace.

MGM Grand will spend $250 million over roughly the next two years to refurbish a facility built three years ago for $1 billion. Part of that sum, Lanni acknowledges, will go to correct some manifest infelicities of the original design. The MGM’s facade at the corner of Tropicana Avenue and the Strip, a poky-looking golden lion between whose towering paws were located the pedestrian entrance to the casino, will soon be history.

“Every time I’d come driving down Tropicana and I was truly convinced that was a temporary lion,” said Lanni, a top-level executive at Caesars World until that company’s acquisition by ITT Sheraton last year. “It looked like it was made out of papier-mache.”

In its place will go a spotlight-and-fountains arrangement, with the trademark lion to be represented by a statue mounted atop a pedestal.

MGM will also re-theme the entire building. Much of the property’s original movie-land theme was devoted to a single film, “The Wizard of Oz,” from its emerald green color scheme to a Dorothy-and-friends diorama that greeted guests at the entrance.

Now that MGM Grand’s principal stockholder, Kirk Kerkorian, has reacquired control of its eponymous movie studio, Lanni expects to be able to arrange licensing tie-ins to other MGM and United Artist films and characters that will give the resort a much more varied appeal.

Chances Good for Failure

For all that, more than age and obsolescence represent threats to casino builders. With costs so high, the margin of error is slim.

Stratosphere Corp. discovered that when it launched its $550-million casino-hotel and tower at the aging north end of the Strip earlier this year. Plagued by design flaws, a lack of retail tenants, unfinished hotel rooms and a poor location, the project is now facing bankruptcy.

Others are wary of the myriad lessons to be learned from imperfect casino launches of the past. One is that a project’s exterior style doesn’t guarantee its functionality, as Circus Circus learned from opening Luxor in 1993.

The black glass pyramid’s striking design masked problems within, including long treks between the lone elevator bank and the rooms for guests and room-service waiters alike. When the company expanded Luxor by 2,000 rooms this year, the additions went into a more conventionally-designed new wing.

Vegas observers are waiting to see whether New York-New York’s impressive exterior similarly harbors unexpected service nightmares, especially since its quirky architecture gives three quarters of its rooms irregular sizes and shapes.

New York-New York pushed its opening into the new year to be sure that its casino floor staff was fully trained and that all its amenities functioned properly. Executives from MGM Grand, its half-owner, still wince at the memory of their own launch in 1993, when a gala opening-night crowd heard Barbra Streisand grouse about the hotel’s lousy service from the stage of its vast showroom, where she was the debut act.

“There will be glitches,” said William Sherlock, New York-New York’s president, nervously. “But our goal is to be 98% ready.”