By David McKee ~ March 7th, 2013 @ 2:17 pm
S&G contributor JeffInOKC returns from a too-long absence with some thoughts on one of our favorite topics, the North Strip …
It is common for us to hear the term “Too Big to Fail,” but I think the true story of Fountainebleau is “Too Big to Succeed.” The original plan for the property was doomed. But the boomtown mentality of the time placed scales on many people’s eyes and rendered them blind to the realities of the situation. A resort that size and scale will take at least five years to find its footing and get to where it was no longer losing money. That assumes the owners would have real operational experience at something near that scale and a very large customer base at any level, but especially at the high end. Steve Wynn with Kirk Kerkorian’s bankroll would have had trouble making it work.
• In that regard, I see the Cosmopolitan as being very similar, with one major difference: Cosmo was NEVER intended to wind up as anything other than a part of CityCenter. I will go to my grave convinced that it was conceived with the intent of making it a part of CityCenter, that it can never make money as anything other than a part of CityCenter. I will be surprised if it will ever show a profit, even after any service on the cost of construction is removed. Cosmo’s explanation of it’s financial performance is “Just the right amount of wrong” and it will ultimately wind up being a part of CityCenter. As far as the current condition of the Fontainebleau physical plant goes, I have no fears about some kind of waterlogging or weather deterioration having made it unusable, or having any real effect for at least another eight-10 years. That dry Nevada air is very preservative.Unlike say, Detroit on the shores on the Great Lakes. It may become unsightly, but not unusable. But it must be considered that it may have become a stripped-out shell. It has been hinted that almost all of the wiring — and anything else of value — have been removed. This makes the cost of finishing it out for any occupancy A) expensive and B) difficult to determine.
• The biggest factor in the completion of Fontainebleau (and the thing that is overlooked the most) is the fact that it is so far along that whatever is put there has to look like that godawful, ugly building. The big advantage of the Echelon (right) purchase was the fact that it had a solid foundation that would be very flexible for different grand designs. I am 99% sure that Fountainebleau will never be finished, and ultimately will be dismantled and removed. As an unabashed Boyd Gaming lover, I think the best thing that can happen to the Riviera is for Boyd to buy it, for the following reasons: It an old but solid enough property. (It is much cleaner and nicer than Circus Circus across the street.) The biggest positive of the Riviera name is the same as the Stardust name and the same as what I see as the deepest Boyd customer base: The Post-War Generation. It would be nice for Boyd to have a presence on the Strip, but not necessary.
• And Boyd has a large, and growing, customer base located outside of Las Vegas. You can bet those grandmas in Dallas, Memphis and Chicago, etc., regard the Riviera as the ”Bee’s Knees” and would think nothing of dropping $5k to win a free trip there: a larger customer base than the Riviera has ever had, and probably the largest base that does not currently have a Strip “home.” I fear the Riv has the smallest customer list of any Strip property of its size, and that has hurt it in the last decade.
• Finally, a couple of words about Sahara/SLS: A couple of the biggest, most-skeptical questions I hear about the reopening are, first, sbe entertainment sold everything out of the inside (including the escalators!), so it will be super-expensive to refit. And Sam Nazarian sold the customer list to MGM Resorts International, so the won’t have any customers to draw from. In regards to the first point. most of what was inside was so old that it could easily be possible that replacing it would be so much cheaper, with regard to maintenance and operational cost, that it could be a net win in as little as two years. As for the second point, I would doubt that there are more than 100 people on the Sahara customer list that SLS sees as a customer they really want, so that sale isn’t something that would harm them.