Wedding in Vegas?
PERHAPS not since the days of the “Rat Pack” in the 1960s, when Frank Sinatra, Sammy Davis junior and Dean Martin made the city an oasis of cool, has Las Vegas’s luck been running so high. Hit hard by the drop in air travel and tourism after September 11th 2001, the casino business has bounced back. That helps to explain a $7.7 billion bid by MGM Mirage, America’s third-largest casino firm, for fourth-ranked Mandalay Resort Group.
The bid by MGM Mirage, part-owned by Kirk Kerkorian, a much-feared octogenarian corporate raider, is the biggest yet in the gambling business. It demonstrates the transformation of a former Mafia stronghold into an industry dominated by clean corporations with global ambitions.
The two potential partners occupy different niches in the market for punters. MGM Mirage is the more upscale, with high-rolling casinos such as the Bellagio, MGM Grand, the Mirage, and New York-New York, which features the Manhattan skyline. Mandalay is mostly lower-end, with its Egyptian-themed Luxor and its mass-market Circus Circus casinos.
Together the two firms control around half of the hotel rooms on Las Vegas’s famed Strip, the global high street of gambling. Indeed, both firms are unusually reliant on the gambling there: each makes more than three-quarters of its revenue from hotels and gambling tables in the city. The two leading casino operators, Harrah’s and Caesar’s Entertainment, have spread their blackjack tables and fruit machines more evenly across those American states that allow gambling.
Today, betting big on Las Vegas seems wise. In many ways the city’s current growth is a product of the recent downturn, according to Joseph Greff, an analyst at Fulcrum Partners, an independent research company. Since September 2001, Las Vegas has worked harder at stealing convention business from other American cities. It has also benefited from the growing popularity of low-cost airlines, which have increased their flights to the city. Cheaper rooms than can be found in Florida or California, and the continuing reluctance of Americans to venture overseas, have also helped. Behind the scenes, in the past two years casino companies have been busily applying airline-style “yield management” techniques to extract the maximum dosh from each customer.
And then there are the whims of fashion. Films such as “Ocean’s Eleven” (a sequel, “Ocean’s Twelve”, is coming) and TV shows such as “CSI” (Crime Scene Investigation), have presented images of the Strip to millions of viewers around the world. The city’s recent advertising campaign depicts mild-mannered punters letting their hair down in Sin City, before turning back into their more mundane selves for the flight home. The tagline, “What happens in Vegas stays in Vegas”, has been a big hit.
But Lady Luck could again turn her back on the city in the Nevada desert. Antitrust approval for the merger is far from certain, given the market shares of the two firms. There are few obvious efficiencies to be gained from joining two already tightly-run operations, beyond trimming some overheads and combining frequent-visitor schemes. Meanwhile, rivals are adding ever more hotel rooms. Wynn Resorts, founded by Steven Wynn using the money he made by selling Mirage to Mr Kerkorian’s MGM in 2000, is building a casino with 2,700 hotel rooms that will open next year. Despite rosy forecasts, that may yet create a supply glut. Nor is running a casino necessarily the money-machine often depicted: Donald Trump, owner of three big casinos in the state of New Jersey, has been negotiating with his creditors to stave off bankruptcy. If even The Donald can lose money in the casino business, surely no one is immune from trouble.
For its part, MGM Mirage has already said that the American market is “somewhat mature”. So why double the stakes on Vegas? The idea is to create a firm big enough to support forays into Britain, where gambling will be liberalised next year, and Asia, where punters are already getting a taste of American-style gaming. In a city that has hosted many a hasty marriage, most recently the quickly annulled tie-up between Britney Spears and a long-time friend, investors will hope that this corporate union does not prove to be a distraction when the real action lies beyond America’s shores.
