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The New $375 million 928-room Tower at the Bellagio
 Expected to Cut the Resorts Overhead
Cost Per Room by 7.5%
By Rod Smith, Las Vegas Review-Journal
Knight Ridder/Tribune Business News

May 8, 2004 - While guests may have their eyes turned skyward today when the Bellagio tops off its new 928-room spa tower, company executives and industry analysts have their eyes firmly fixed on the resort's bottom line.

The $375 million Bellagio expansion should cut the Strip resort's overhead cost per room by 7.5 percent, increase the critical customer mass for its casino and increase operating efficiency when it opens in December.

The megaresort's hotel boss said business from independent and incentive travelers has been growing rapidly, and that the Bellagio has trouble keeping up with demand, even at room rates ranging from $299 to $599 a night.

"Those are rates you only see at top city destinations in the hotel business," said Randy Morton, vice president of hotel operations at Bellagio.

He said demand is sufficient for independent and incentive travelers to fill the added rooms when the new spa tower opens in December. This will let the resort hold the line on rates and rake in added spending in the casino and other amenities from the client mix because of its substantial discretionary disposable income, he added.

"The square footage of the (Bellagio) casino and the number of games and slots mean we have the capacity in the casino to accommodate the rooms without expanding the casino," Morton said.

Eric Hausler, gaming analyst for Susquehanna Financial Group, said there have been concerns on Wall Street about the market absorbing the added rooms, especially with Wynn Las Vegas set to open in April.

"But if you look at the new Mandalay tower, pricing has held up and casino volumes have been impressive," he said.

After the opening of the new 1,013-room Venezia at The Venetian and the 1,122-room The Hotel at Mandalay Bay, both properties managed to maintain room rates, increase hotel occupancy and boost casino volumes, despite the conventional wisdom the market could have trouble absorbing the capacity.

"It makes sense that if (MGM Mirage) sticks 900 rooms on the Bellagio with 1 1/2 people per room, you're unleashing 1,000 people on the casino floor and there is plenty of room for more players. Most expensive items such as slots are in place. So you increase revenues as much higher incremental (profit) margins," Hausler said.

Morton said the expansion was part of the original plan for the Bellagio when Las Vegas developer Steve Wynn opened it in 1998.

The Bellagio has 3,000 rooms and originally cost $1.6 billion, or $533,000 per room.

The new tower will add 928 rooms for $375 million, or $404,000 per room, cutting the average development cost per room to $493,000.

While adding 928 rooms, the Bellagio's management structure and its infrastructure of amenities remain basically unchanged, Morton said.

MGM Mirage, which owns the Bellagio, is also only adding one new restaurant, Sensi, with the new tower.

"We still will have one front desk, bell staff, room service, security, employee dining room. We have the parking spaces and the room reservation capacity," he said.

The new spa tower is going to make the property more efficient and bring the Bellagio to its full potential of productivity, Morton said.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson praised MGM Mirage for investing in Las Vegas rather than other gaming jurisdictions such as the United Kingdom or Macau.

However, he said the new towers being built or just opened in Las Vegas, including the new towers at Mandalay Bay, The Venetian and Caesars Palace as well as the Bellagio, will be filling existing demand rather than breeding a larger market for Las Vegas.

"It's great that our best property is expanding. It's a vote in our future. MGM's voting with its money. I'm glad they're doing it here instead of the U.K.," Thompson said.

"But the magic's already been installed at the Bellagio. Steve Wynn created the magic," he said. "This is just a way to expand the number of people who enjoy it. It's managed growth. It adds nothing to the magic of Las Vegas, but it's still very positive."

-----To see more of the Las Vegas Review-Journal, or to subscribe to the newspaper, go to

(c) 2004, Las Vegas Review-Journal. Distributed by Knight Ridder/Tribune Business News. MGG, MBG,

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