Just a few years ago, there was no limit to the size or cost of casino projects being proposed throughout the world. It was very clear that bigger was definitely better. It wasn’t just a case of big for the sake of big; economic conditions essentially mandated it. Real estate prices were spiraling upwards and the only way to make good financial use of the land was to pack it with thousands of rooms and thousands of square feet of meeting, convention and retail space.
Out of that specific economic condition arose projects that are still moving forward like CityCenter and Echelon in Las Vegas, Marina Bay Sands in Singapore, and the City of Dreams and the Cotai Strip in Macau. There were also a number of other proposals that now seem to be in limbo, like CityCenter North, El Ad’s proposed $5 billion Plaza on the Strip, and Station Casinos’ proposed mega-resort Viva! just off the Strip.
The number of projects that have been completely abandoned is simply too long to list.
Some projects never had a chance, and that became painfully obvious when even gaming giants like Las Vegas Sands Corp., MGM Mirage and Boyd Gaming struggled in their efforts. Only MGM Mirage has been able to continue construction on CityCenter. Work on the Cotai Strip was stopped for a time due to financial pressures, and Echelon has sat in the early stage of construction since August 2008.
There are lessons to be learned from the difficulties these companies encountered, but just what those lessons are may take some time to discern. For the most part, the problem was not that any of the operators were aiming too high; it was that their lofty ambitions crashed to reality as the global economy went into the tank. The glory days of month-after-month revenue increases, a seemingly endless line of people willing to pay increasingly higher prices for everything from rooms to shows to meals to drinks, and easy access to credit are largely gone.
It hasn’t been a complete meltdown. In Nevada, for example, despite the continual stories about the death of the industry as double-digit revenue drops were reported month after month, 2008 was not a particularly bad year (2009 has been much worse). The demand remained, and even as people spent less or cut vacations shorter, the gaming industry realized its second-best year in terms of revenue.
On the financial side, credit all but disappeared. Companies struggled to obtain financing to finish projects. There were a few shaky weeks where it looked like CityCenter might join Echelon and Cotai on the list of stalled, but not canceled, projects. (It should be noted that Boyd wasn’t forced to suspend work on Echelon, but elected to do so in the face of rising costs for materials and labor.) It took some strategic maneuvering to lock down the money needed to finish CityCenter, some design changes were necessary, and it won’t open in one big bang as originally planned, but it will still be completed and open by the end of 2009.
Watching these companies struggle has prompted some to question whether this idea of the mega-resort was actually sound, and whether this is something that the industry will ever see again. The answer is quite simple: It depends.
Drawing Conclusions
Until projects like CityCenter and Cotai are completed, it will be difficult to assess whether the mega-resort idea is dead, according to Dick Rizzo, vice chairman of Perini Building Company, which is building CityCenter.
“It’s a big experiment,” he says. “It’s hard to make a judgement call until it actually opens.”
Rizzo and others say similar projects could be built in the future, provided the circumstances are right. If there is enough traffic and enough demand, a project similar in scope to CityCenter is by no means out of the question.
Terry Dougall of the interior design firm Dougall Design Associates agrees that until the industry has had a chance to see how well the mega-resort works, it might be a while before someone dares to attempt a similar project.
“I think everyone will look to see what happens at CityCenter over the next two or three years,” he says. “I think people will sit back-well, they might not have a choice-and they’ll watch CityCenter and see what happens before I think anybody gets too crazy about emulating what they’ve done there.”
He noted, like others, that probably the single biggest obstacle to projects of this scope in the future will be the difficulty in obtaining funding. It is that difficulty itself-the problem of financing-that plagued these projects; it was never the case that the projects suffered from some sort of conceptual flaw.
“If the economy hadn’t taken the pause that it has taken, I don’t think anyone would be asking questions like this,” says Brad Friedmutter of the Friedmutter Group. “The concepts were sound, the approach was sound and had we not faced what we did, they would have just opened and things would be moving on.”
Bergman Walls vice president George Bergman agrees. He feels that ultimately the projects that have already started will be completed. Operators really have no other choice.
“I think all these things will get completed. I think Las Vegas will adapt. These owners are very intelligent people and they’ll find ways to make their assets work,” Bergman says.
Short-Term Outlooks
Everyone expects that Las Vegas and the other jurisdictions will ultimately enjoy success with the mega-resorts that will be introduced soon. The financial troubles that plagued builders also hit consumers, and many were forced to cut back on their spending. As the economy recovers and people resume spending, these resorts will see the traffic they expect.
“There is a huge amount of pent-up demand for entertainment facilities,” says Lee Cagley of the interior design firm Cagley & Tanner. “People have gone without for a couple of years, and anybody who is poised with a beautiful new facility like CityCenter will probably do very well. On a similar note, some of the older properties on the Strip, if they aren’t appropriately spruced up, won’t be doing so well.”
The consensus among the designers and architects is that between the difficulty in obtaining financing and the increased pressure from the few new casinos that are set to open over the next year or so, there will be a larger focus on renovation work, which can be financed through cash flow alone.
“I think there will be a slowdown for sure,” says Bergman. “In the next three to five years, there won’t be a building boom, but I think there will be a lot of renovation work. I think Las Vegas will adapt. People are still coming here. Everyone still wants to come to Las Vegas.”
“I think a lot of regional work will start to pick up, too.”
Friedmutter adds that new ownership of casinos will lead to additional remodeling work as the new regime looks to put its brand on a property.
And Cagley points out an additional benefit of remodeling, suggesting that it might be the new trend in the industry. Rather than requiring a large amount of energy to produce materials and erect a building, renovation and remodeling work takes an existing resource and improves upon it. It is a more sustainable approach, he says.
“There are so many existing resources in terms of casinos and gaming facilities,” he says. “You’ve already paid for the floor and the walls and the ceiling. All you’ve got to do is make the inside box appealing and you’ve got all the basics already handled.
“All I need is a better mousetrap. I don’t need a better house to put it in.”
The Long Haul
It is extremely difficult for even the brightest of the gaming and hospitality industry to say with any certainty just what will happen in the long run. And there is a good amount of divergence of opinion. While some think that big is here to stay, others predict dramatic changes in energy sources could bring about major changes in how operators approach casino design.
Cagley agrees, in a sense, with the sentiments mentioned earlier by Bergman: Regional casino work will start to take on greater importance. He bases this on the prediction that as the world’s oil supply dwindles, transportation will become increasingly difficult, and similarly, increased governmental regulations will make it difficult to build this kind of project in the future.
“People are not going to be traveling as far, and if they do travel a long distance, the result had better be spectacular,” Cagley says. “That’s why I believe there will always be a Las Vegas.
“The existing casinos will be remodeled and perfected, but increasingly, in the long run, a mega-resort doesn’t make much sense. As more and more regulations are in place for energy conservation and energy-efficient building, it becomes less and less feasible to build a new one. It’s not impossible, but it’s really hard.”
Tom Hoskens of Cunningham Group doesn’t completely agree. He thinks that bigger will remain a drawing point on its own, although he cautions that building big for the simple sake of building big will never work.
“The reality of entertainment and entertainment resorts is that one is continually looking for what is the next big attraction, what is the thing that will draw guests to you,” he says. “Mega-resorts have been continuing to grow and create that ‘wow’ attraction. I don’t think that will ever go out of style. I think the bigger, better attractions will always draw people.”
Planning to Succeed
One thing that will likely change is that operators will generally be forced to look at better planning models for their properties, even if they don’t have the desire to build a mega-resort.
“Certainly, I think past experience has shown that if you’ve got a lot of acreage, even if you’re not planning a huge development, you’ll lay out the property in a way that will allow it to grow,” Dougall says.
Additionally, operators might look at a more protracted method of introducing new product to market by phasing in new additions. In essence, that is the more traditional approach. As Hoskens points out, a property like Caesars Palace in Las Vegas has grown in an almost organic way into a mega-resort, with thousands of rooms and the entertainment options and the retail component. But that issue ultimately comes down to a decision by the developer, as each approach has its advantage.
“There are pros and cons to the one big bang,” Friedmutter explains. “That gets a big wow. There are challenges in how you get tens of thousands of employees trained, get the bugs worked out; it’s mind-boggling how complicated that is, but the industry certainly has the people with the expertise to do it.
“On the other hand, there is a benefit, for example, to having a master-planned project built in phases so you get multiple wows and the multiple bang of openings every six months or every year.”
And the uncertainty of future demand looms, too. No one can really say whether demand for Las Vegas will continue to increase, but there is some belief that the major emerging market of Asia poses the best location and the best possibility to see future mega-resort development.
“Asian gaming is growing by 15 percent a year, and I think you’ll see mega-resorts in Asia grow quicker than other areas,” Hoskens says. “I think in Vegas they’ll come back by the phasing approach. You’ll get Echelon and those to come back, but they’ll be phased.
“I think Asia will continue to develop big resorts, but remember, you can’t just do mega-resorts for mega-resorts’ sake. You can’t just make it big; you really have to have content and planning. Our future, I think, involves a much more sophisticated planning and more sophisticated phasing, and a much more sophisticated experience for the guest. Once we pull those three things together, that will give more legs to the mega-resorts.”
While the future may remain uncertain, if there is one lesson that remains constant in the gaming and hospitality industry, it is the one espoused by Dougall when asked whether mega-resorts will continue to be a viable design trend in the future.
“It depends on what your neighbor is going to do,” Dougall says. “If your neighbor is going to try to do something, then you’ve got to keep up with them. You simply have to.”
