Cosmo: Blueprint for failure?

Geez, I’ve not been feeling pessimistic about the Dec. 15 debut of the Cosmopolitan … until somebody forwarded me a copy of a Bill Lerner analysis of the property. Now I’m worried.

After walking the place, Lerner found it to be “very nice, typical of new gaming development globally these days from a fit-out perspective. The narrow 8+-acre parcel results in a vertical build, compacting the resort with a different feel given shorter distances between points. The re-engineered plan that moved gaming square footage to street level and retail to mezzanine level is sensible and will be relatively helpful for not-overly-relevant walk-in business. The room product is quite nice with boutique feel and unique with functional balconies.”

However, the Cosmo’s pricing strategy — i.e., in the Wynncore range — seems totally counterintuitive, given both the glut of rooms already on the Strip and the sheer preponderance of the Cosmo itself. Aria tried that outprice-Bellagio stuff. Didn’t work. Strangely, Lerner thinks customers will spurn CityCenter (well, that kind of already happened) in favor of higher-priced Cosmo and that room rates will follow them upwards. (Personally, I think he’s overly dismissive of the importance of walk-in business, something which Aria seemed designed to discourage … and is probably regretting.)

That’s a little difficult to credit, especially when Lerner outlines a business plan in which owner “Deutsche [Bank] opted against a professional gaming brand management structure which may have been a distribution solution and is pursuing traditional hotel database affiliations, which in the case of Planet Hollywood (pre-Harrah’s ownership) wasn’t seemingly of material help.” Also, Cosmo will — it is reported — be shying away from volatile high-end play. Considering that the main element driving the limited recovery on Strip is strong play at baccarat and other high-end table favorites, Cosmo against seems to be spitting into the wind. Go figure.

Lerner also complains that the #1 problem affecting the Strip is “limited-rate [sic] leadership” (read: “collusion to raise prices”), adding,“if operators theoretically colluded and took rates higher we’re not sure demand would be negatively impacted of note.” Wanna bet? I saw two guys staying at Hooters last night (i.e., already pinching their pennies) toting in six 12-packs of soda into a property that has the nerve to charge $9 for a Joe Average cocktail. This is not an isolated instance, either. I’ve seen the same kind of thing everywhere from Imperial Palace to MGM Grand.

Moral: Customers have lost their tolerance for Strip price-gouging. They’re not the sheep Lerner imagines them to be. Artificially inflate room rates and the marginal visitation gains we’ve been seeing could easily be snuffed. Lerner concludes that he’s not concerned about the Cosmo’s impact on Vegas. I’m concerned about its impact on itself.

If you enjoy the cuisine of either Hardee’s or Carl’s Jr., you might want to eat ’em while you got ’em, so to speak. Apollo Management won a bidding war for parent CKE Restaurants. Companies purchased by Apollo have a tendency to crater, notably Realogy, Linens ‘n Things and our own Harrah’s Entertainment. Since Harrah’s CEO Gary Loveman runs that company in a manner better suited to burger joints, perhaps Apollo supremo Leon Black can find Loveman a soft landing there … should Wall Street ever rebel against Harrah’s delay-and-diminish strategy toward loan repayment.