Vegas Set to Up the Ante on Extravagance

Facing a threat from Indian casinos in California, developers are preparing to wager staggering sums--and try out some increasingly weird ideas--on the next generation of desert gambling palaces.

The reincarnated Aladdin resort, a $1.4-billion casino, hotel and shopping complex opening next week, will be the last major casino resort built on the Strip for at least three years.

But after that, it seems, just about anything could happen. Casino operators are convinced that to compete they must target niche markets or build over-the-top resorts that surpass the last generation of over-the-top resorts. Among projects being pursued:

* A new MGM Mirage casino for affluent, hip young adults who frequent places like the Garden of Eden, a hot Hollywood nightspot for way-cool beautiful people.

* A skyscraper hotel by casino mogul Steve Wynn, replacing the 50-year-old Desert Inn. The hotel would be the tallest on the Strip and more opulent than the $1.6-billion Bellagio.

* A hotel under study by British tycoon Richard Branson, built so close to McCarran International Airport that globe-trotters could step right off his Virgin Atlantic Airways 747s and into the lobby.

* An outsize reproduction of the Titanic that would include an iceberg casino and time-share condos in fake smokestacks.

* City by the Bay, a resort steeped in sourdough and shrimp cocktails, complete with a Vegas version of the Golden Gate Bridge.

The Strip is littered with the ghosts of wild ideas that failed for lack of financing, and analysts say that some of the latest notions may never materialize. But the lavish visions developers are peddling to potential investors show how far Las Vegas is prepared to go to remain America’s gambling capital.

“We have to compete in this kind of environment,” said real estate magnate Phil Ruffin, who is seeking financing to replace his New Frontier hotel-casino with the San Francisco-themed resort. “Everybody on the Strip is upgrading like crazy. You can’t put in a schlock deal today. The bar keeps being raised.”

The most recent wave of casino openings began in October 1998 when Steve Wynn opened Bellagio and its $400-million gallery of fine art. Following in 1999 was the aquatic-themed Mandalay Bay, the Venetian with its canals, and Paris Las Vegas, with its half-scale Eiffel Tower.

Last--for a while--is the Aladdin, built on the site of its fabled namesake, which was imploded in 1998.

The Aladdin’s design breaks the tradition of melding casino and hotel, separating the two to win the goodwill of guests who won’t have to lug baggage through a maze of slot machines.

The resort features a towering ground-floor hotel lobby that offers views of the casino action on the second, third and fourth floors.

In an effort to capture a niche market, and reflecting a major investment by casino operator London Clubs International, a European-themed gaming salon with low, dark-wood ceilings is included in the gambling mix to attract European tourists put off by the cacophony of American casinos.

Encircling the hotel and casino is an enclosed, mile-long retail-dining complex built by TrizecHahn Corp., developer of Hollywood & Highland, the giant retail-entertainment complex under construction in Hollywood.

Called Desert Passage, the $300-million Aladdin retail complex has the theme of a historic desert trade route through Africa, Morocco, Arabia and India, and comes complete with patches of fog and isolated thunderstorms.

The notion of “shoppertainment” in Las Vegas was launched by Caesars’ Forum Shops--the most financially successful retail center in the country, with mood lighting and talking statues of Roman gods. The Venetian followed suit with its Grand Canal Shoppes, perhaps the only place in the world where gondoliers are upstairs, on the second floor.

Jason Ader, an analyst with Bear Stearns & Co., wonders if themed retail projects like Desert Passage may be wearing thin in Las Vegas. “There’s only so much time in the day for consumers,” he said. “And we’re seeing evidence that the retailing of Las Vegas with each incremental addition is becoming less profitable.”

Seeking to Hold On to Californians

As Las Vegas prepares for the next wave of casino-hotels, unprecedented competitive threats are developing, experts say.

Key among them: the emerging gambling industry in California, where Indian casinos now feature Nevada-style slot machines and blackjack.

Most analysts believe the Strip’s must-see mega-resorts will continue to draw Californians, who account for nearly a third of Las Vegas’ visitors. But Strip operators will be shortsighted if they don’t factor California casinos into their growth plans, some warn.

“Las Vegas is not as concerned about California [Indian casinos] as it should be,” said Stuart Linde, a gaming industry analyst for Lehman Bros. “It won’t necessarily hurt [existing] business, but it may take some growth out of it.”

Bankers and other investors will pay particular attention to the fledgling California casino industry--as well as to the financial success of the Aladdin--before staking more Strip growth, analysts say.

Indeed, with the sticker price of a new casino-hotel today surpassing $1 billion, financing becomes more critical than ever. Best positioned to secure it is mammoth MGM Mirage, while newly independent Wynn, flush from his sale of the Mirage resorts to MGM, appears to be able to line up private equity investment to finance his Desert Inn redux.

However, Ruffin and veteran casino developer Bob Stupak, who is proposing the Titanic resort, still need financial backing. And while Branson may have capital, he does not have casino management expertise within his Virgin Group ranks, analysts say.

Despite the obstacles to expansion, the Las Vegas marketplace remains attractive, confounding observers who for years have said the Strip is dangerously saturated and cannot sustain its growth.

As long as Las Vegas remains fresh and amazing, analysts say, the number of people coming here to gamble, gawk, dine and shop will continue to grow.

The increase in tourism has surpassed even the eye-popping growth in accommodations: While the number of rooms has nearly quintupled since 1970 to more than 120,000, occupancy rates also have risen sharply in that time, from 68% to 88%.

Moreover, the cost of hotel rooms--once offered at a loss to attract gamblers--has escalated dramatically as the convention business continues to grow. Indeed, some operators today make more money on rooms, dining, entertainment and retail sales than they do from their casinos.

Analyst Linde cautions, however, that adding more hotel rooms in Las Vegas isn’t a sure-fire profit generator. Tourists feel compelled to visit Las Vegas for its attractions, not for the availability of rooms, and if the resorts don’t add more compelling attractions, the industry will be hard-pressed to sustain its growth.

The explosion in hotel rooms here was generated by the creation of themed mega-resorts that took the Strip from a collection of low-ceiling casino warehouses topped with boxy hotels, to architectural anomalies popular even with non-gamblers.

In a town that has evolved from kitsch to chic, from $2.99 buffets and souvenir T-shirt shops to five-star restaurants and Tiffany’s, the question is: What can they do next to raise an eyebrow?

High Rollers and High Art

One hot trend, after mammoth shopping complexes such as Desert Passage, is art.

It began with Bellagio, which proved that craps and culture can coexist in casino land with its classy gallery of fine art. Taking its cue from that success, the Venetian is planning to open a branch Guggenheim museum on its property. Wynn is expected to incorporate fine art in his new Desert Inn, as well.

Such forays into high culture reflect the Strip’s obsession with stretching its entertainment offerings.

Opulence also is key to what is likely to launch the next generation of Strip resorts: Wynn’s skyscraper hotel. He hopes to break ground within six months and open in May 2003.

Wynn, who earlier this year sold Mirage Resorts, bought the 50-year-old Desert Inn, and plans to replace it with a luxurious--and pricey--hotel overlooking a lake and garden. At 59 stories, it would loom over New York New York’s reproduction of the Empire State building, the Strip’s current tallest hotel, at 47 floors.

Terry Lanni, chairman and chief executive of MGM Mirage, is pursuing a different niche market as he envisions a casino for hip 25- to 40-year-olds. Lanni, who is 57, describes it as the kind of place where he wouldn’t personally feel comfortable.

Lanni is dispatching researchers to various nightclubs--including the Garden of Eden in Hollywood--to discern the tastes of the under-40 crowd, and says architects will not put pen to paper until the end of the year. The casino would be built at the site of the existing Boardwalk Casino, between the Monte Carlo and Bellagio.

Virgin Atlantic founder Branson, who already owns luxury boutique hotels around the world, became keenly interested in developing a casino when he flew here in June--wearing an Elvis jumpsuit--to inaugurate his airline’s nonstop service between London and Las Vegas.

While it is too early to discuss a theme, the notion of building a casino directly alongside the airport--on private property now used to park aircraft but zoned for a casino--is most intriguing, said his spokeswoman, Lori Levin. A decision may be made by fall, she said.

Stupak, an independent and maverick old-timer who built the 1,149-foot-tall Stratosphere Tower, has visions of the Titanic, only bigger. Its four towering smokestacks would feature time shares; the casino would flow into an adjoining iceberg.

Stupak previously tried to raise his Titanic on Las Vegas Boulevard, north of the Strip, but was rebuffed because it was too close to residential neighborhoods. Now, he says, he wants to build Titanic on an empty parcel across the street from, and owned by, the Sahara.

Sahara owner William Bennett is talking to Stupak and two other prospective buyers of the 26-acre, $65-million parcel, according to John McManus, Sahara’s executive vice president.

Pressure on Older Casinos

If the newest hotels on the Strip feel pressed to continually expand the envelope, imagine the pressures on the older hotel-casinos.

They are spending tens of millions of dollars to keep pace with the competition by rebuilding old showrooms, renovating tired hotel rooms and re-creating exterior treatments.

Caesars Palace, for instance, is spending $20 million to remove its exterior screen facade--which gave the hotel its distinctive green nightly glow--so it blends with its newer tower. Next month, it also will close its classic showroom, Circus Maximus, to make room for two new restaurants and two high-roller villas. A new showroom will be constructed.

The 42-year-old Sands recently spent $32 million freshening up its building and grounds; Treasure Island, only 7 years old, spent twice that much last year refurbishing its rooms.

The Sahara spent $100 million to renovate its rooms, build a new casino, add a NASCAR-themed restaurant and create a Strip-front roller coaster.

All this, said its executive vice president, just to remain competitive among the hotels that seek “value conscious” guests who fondly recall “the Vegas of 20 years ago.”

“Now it seems you need a celebrity chef and a 50,000-bottle wine cellar to go after the new Vegas customers,” said McManus of Sahara. “We’re content to go after the old market.”

But for others, the fun and challenge is to keep building a new Las Vegas--and hoping that the place doesn’t collapse on itself.

After every building boom of the past, “people have said that this is the end of the road for Las Vegas,” said Mark Greenberg, portfolio manager for the Invesco leisure fund.

“That is the irony of Las Vegas: When it keeps building big properties, people say there’s too much construction, too much competition.

“And then, when people aren’t building, they say there’s nothing new and exciting, and so there’s no reason to go to Vegas,” he said. “You’re damned if you do, damned if you don’t.”