|By Arnold M. Knightly, Las Vegas
Review-JournalMcClatchy-Tribune Regional News
December 13, 2009 -- CityCenter has gotten lots of glowing press about its design and amenities since the $8.5 billion project began opening this month.
Predictions about how well the 5,800-room mixed-use project will attract new customers to Las Vegas are a bit more dour, though.
In a report looking at projections for 2010, CB Richard Ellis casino consultant Jacob Oberman, for instance, predicts that Strip gaming and nongaming revenues will increase 3 percent to 7 percent next year, but 70 percent to 90 percent of CityCenter's initial revenues will come at the expense of other Strip properties.
"It is difficult to make a case that CityCenter will not have at least some dilutive effect on the market," Oberman's report said.
He predicts that existing hotel-casinos on the Strip will see revenue declines between 3 percent and 6 percent next year as customers visit CityCenter instead.
Deutsche Bank gaming analyst Andrew Zarnett is even more pessimistic, predicting in a recent note to investors that existing hotel-casinos could see revenue declines as dramatic as 10 percent, with cash flows dropping 20 percent because of CityCenter's opening.
"While the first few months may benefit (Strip casinos) from the initial exuberance following a new property opening, we maintain our view that excess capacity will cannibalize the market given the backdrop of contracting demand," Zarnett wrote.
CityCenter developer MGM Mirage is taking the historical view, though, and is predicting that CityCenter won't draw a significant number of customers from its competitors or the company's other nine Strip hotel-casinos.
Alan Feldman, MGM Mirage senior vice president of public affairs, said the Las Vegas market has grown whenever new properties that "stimulated the imagination of the public" have opened.
"That has happened consistently throughout the history of Las Vegas," said Feldman, who joined The Mirage before its opening 20 years ago.
Feldman does hedge its statement some by noting that there have been new projects that opened -- usually an expansion have an existing resort -- that have failed to grow the local market much.
At least one of MGM Mirage's competitors shares some of Feldman's optimism.
Eric Trump, executive vice president of development and acquisitions for The Trump Organization, said CityCenter will put Las Vegas back in the public spotlight, which should be good for everyone in the market.
"There's no question that opening a new project, and the marketing dollars spent, gets people excited," said Trump, who is the son of developer and "The Apprentice" star Donald Trump.
Trump concedes CityCenter will inevitably cannibalize customers from other Strip resorts although he doubts it will draw a significant share of customers from his company's nongaming Trump International Hotel.
"Hotels will have to do a little more work to stay competitive," he said. "Hopefully, (any lost customers) will be offset by the gains of getting people excited about the new property."
Other competitors, including Las Vegas Sands Corp., Wynn Resorts Ltd. and Planet Hollywood Resort, wouldn't comment about what kind of impact they expect CityCenter to have on the local gaming market or their companies specifically, although, at least publicly, most casino executives are maintaining the "it's-good-for-everyone" stance.
Alex Yemenidjian, chairman and chief executive officer of Tropicana Las Vegas, also declined to comment on the project's impact although he described CityCenter as "beyond beautiful" and said the project "is great for MGM Mirage and great for Las Vegas."
Harrah's Entertainment, which owns 20,370 rooms within one mile of CityCenter, last month issued a statement calling CityCenter "a project of unprecedented scale and opulence" and saying the company hopes "it will draw attention around the world and stimulate new visitation to Las Vegas."
A week later, however, Harrah's Entertainment executive Jan Jones told a local cable television program that her company is waiting to see whether CityCenter does, in fact, bring new people to the Strip.
And she added that if CityCenter does cannibalize customers from existing properties, it will probably be MGM Mirage's own customers from places such as Bellagio that will be drawn away the most.
Michael Zaletel, owner of travel site i4vegas.com, agreed with Jones, saying any cannibalizing will come from nearby properties and from those belonging to MGM Mirage.
"I would guess MGM Mirage would utilize their entire marketing database to notify everyone that they are able to communicate with to let them know ... that the hotels at CityCenter are open now," Zaletel said. "Consequently, there's going to be more MGM Mirage high-end customers going to these hotels from a MGM Mirage property as opposed to coming from other properties in town."
Zarnett believes MGM Mirage's competitors will be buffered some, too, because of customers' brand loyalty to properties such as Harrah's Caesars Palace, Wynn Resorts' properties or Las Vegas Sands' Palazzo and The Venetian.
Any cannibalizing of MGM Mirage's other properties could cause some of its other resorts, which are already struggling because of the recession, to slip even further.
The 3,933-room Bellagio, for example, accounts for 22 percent of MGM Mirage's local revenues and 23 percent of its cash flow, has been able to maintain 95 percent occupancy the first nine months of the year. Available room revenue, however, is down from $255 per night to $193 this year.
Bellagio's revenue dropped 14.3 percent in the third quarter; Mandalay Bay, The Mirage and MGM Grand have also seen revenues and cash flows decline this year.
MGM Mirage isn't worrying about cannibalizing its properties and says it won't shy away from encouraging customers at its other properties to visit CityCenter -- because those customers aren't the key to CityCenter's long-term success, Feldman said.
"We don't need people to convert from wherever they are," Feldman said. "What we need, and what we think CityCenter will do, is bring new people here."
Nevertheless, MGM Mirage did roll out promotions for Bellagio ahead of CityCenter's opening.
The gaming company's players club members began receiving an offer in late November for three free nights at Bellagio, $100 in free play, free buffet for two and 2-for-1 tickets to a MGM Mirage show including "O," "Love" or "The Lion King." The offer runs through Feb. 18.
"All eyes will be on MGM's joint venture, CityCenter, on how well, in a difficult environment, the city can absorb new capacity," bond analyst Barbara Cappaert said. "Near-term, the market will be choppy with room promotions but after the first year we believe some stability will occur."
CityCenter could affect casinos beyond the Strip, too.
Analyst Zarnett noted in a Dec. 3 report that CityCenter's 10,000 workers are customers, too, which could benefit locals casinos like Boyd Gaming Corp., Cannery Casino Resorts and Station Casinos.
Feldman believes his predictions about CityCenter's success will be proved soon enough, though.
"You don't need to rely on our predictions much longer," Feldman said. "We are confident CityCenter will grow the market. When it does, it will give everyone the opportunity to do well. It's not a guarantee of success for everyone. But it is the catalyst we think is going to serve to drive recovery in Southern Nevada."
Contact reporter Arnold M. Knightly at email@example.com or 702-477-3893.
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