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Best of Liz Benston

Gaming Guru

Liz Benston

Beyond the Velvet Rope

3 January 2006

Dazzling the eye, deafening the ear and punishing the pocketbook, a new generation of nightclubs is seducing affluent partyers and winning over once-skeptical casino executives on the hunt for new profit centers.

The clubs, previously viewed as just late-night accessories to the Strip scene, have become such an important pillar for Las Vegas entertainment that even the most traditional resorts have gotten into the business.

One need look no further than the New Year's Eve lineup of celebrities and headlining DJs at the various clubs to appreciate the heightened competition among them to capture the new, young money flowing into Las Vegas.

Saturday night, revelers will drop upward of $200 just to get in the door, and then face steep bar minimums to stay in the place -- and to win bragging rights when the club is featured on such tabloid television shows as "Entertainment Tonight" and "Access Hollywood."

But it's the long-term action -- not just one night -- that is exciting casino owners.

"The (profit) margins in these clubs is enormous," said Anthony Curtis, Las Vegas Advisor president, who has watched Strip developments for years as a publisher of consumer and gaming advice. "A big drinker of good alcohol is as important (to the casino's profit line) as a big gambler."

And getting clubbers into a casino has positive residual effects, he noted. "There's the one-two punch: A big spender fires off a few grand in the club, is feeling sporty, and goes out and plays in the casino."

Las Vegas has tapped an insatiable appetite for clubbing; industry executives say the frenzy will continue for years.

And for good reason, Curtis said: More young and wealthy people are coming to Las Vegas than ever before, drawn by the marketing campaign of "What happens here, stays here."

"There's a huge, moneyed group of younger people who are coming to Vegas now, and casinos are reacting to it," he said. Just as casinos used to debate whether to have a sports book -- and decided they needed to if they were to be considered a full-service casino, today's resorts are realizing they need to provide a nightclub.

"You'd feel incomplete now if you don't have a hip nightclub," Curtis said.

Or two or three, as is the case with a handful of resorts.

Indeed, the proposed off-Strip W Hotel is planning several nightclubs when it opens in 2008, developer Adam Frank said. Nightclubs "have become obligatory," he said. "The big resorts have to have a club or an ultralounge."

Builders of high-rise condominiums along the Strip say they, too, plan to incorporate nightclubs in their mix.

Nightclubs are, in fact, the new headliners in a city defined by its decadent entertainment, and part of a shift toward adult fare.

In 2004, Caesars Palace closed its eight-year-old, family-friendly Magical Empire, a dinner theater featuring magic acts and toga-wearing hosts, in favor of a 36,000-square-foot, $14 million nightclub, Pure. It targets a decidedly different and more freewheeling audience.

And when the city's longest-running headliner act -- "Siegfried & Roy" -- ended its magical run at the Mirage after a tiger mauled Roy Horn, the resort turned not to another G-rated headliner but to free-spending young adults who like to dance until dawn. The hotel just opened Jet, a 15,000-square-foot nightclub.

High profit margin

Casino executives say nightclubs sustain a 40 percent profit margin, compared to the 30 percent to 40 percent overall margin at some of the Strip's more profitable resorts.

Little wonder. Club operators are selling bottles of premium liquor that cost them $15 wholesale for upward of $300 in the VIP booths. The price includes a private table, beautiful cocktail servers, ice, mixers and lots of looks.

Such spending isn't limited to celebrities. Customers also include average Joes who have saved weeks or months for their impressive night out.

Just as there are high rollers on the casino floor, the casinos are increasingly attracting clubbers for whom the cost of a good time doesn't seem to be a factor. At MGM Grand's Tabu, cognac in a designer bottle sells for $10,000; a magnum of champagne can cost $2,600.

Even for the traditional high-end casino customer who might otherwise enjoy a quiet, elegant dinner, nightclubs are the place to be seen.

"There are a lot of casino customers, VIPs, people who want to show their guests that they are having the greatest time and don't want to skimp on quality," said Candace Carrell, MGM Grand's director of nightclubs who oversees Tabu, Studio 54 and Teatro.

In the rush to build bigger and flashier nightclubs -- three have opened this week alone, to capitalize on the New Year's Eve business -- Las Vegas has created a buzz that by some measures is surpassing New York's meatpacking district and Miami's South Beach, the other two big nightclub centers in the country.

That Las Vegas has become the epicenter of new clubs is no surprise, industry executives say, because the city is uniquely positioned to capitalize on the trend.

Club goers are already predisposed to spend a lot of money when they arrive in Las Vegas, and because of the concentration of nightclubs within a few blocks, the clubs create an unsurpassed synergy of bustling, late-night entertainment at a time when the casino floor may be growing quiet.

Indeed, Las Vegas' 24-hour lifestyle allows clubs to remain open until 10 a.m. -- drawing into the casino pockets full of cash throughout the night. (Some casinos are exploiting the late-night foot traffic by positioning craps and other table games near the club entrances, capturing young gamblers who prefer the social dynamics of table games over slot machines.)

Building loyalty

The nightclubs are branded with their host casinos for good reason: Executives see the kind of money pouring through their doors and are hoping to build loyalty with this newest generation of well-healed visitors.

Evidence of the wealth is contained in 944, a Phoenix-based magazine targeted toward the nightclub crowd.

The magazine's glossy pages are filled with photos from the country's top-drawer nightclubs. And the companies buying advertising to reach this audience include Bentley and Lamborghini, Petrone and Tanqueray.

Clubbers are not slummers.

Las Vegas has embraced nightclubs because it offers another dimension to a city that is otherwise at risk of losing its novelty, given the nationwide spread of gambling, said David Schwartz, director of UNLV's Center for Gaming Research.

"You need to give people something new," he said. "For people in their 20s or 30s, it's more about the nightlife, the nightclubs."

And for most tourists, the Las Vegas nightclub is something that can't be found back home, Schwartz said.

"I'm perplexed that people will go out and pay $300 for a bottle of vodka with table service, but there is a demand for it," he said.

Jason Strauss, who operates the $20 million Tao at the Venetian, said, "People come to Vegas to have that once-in-a-lifetime experience" -- one that includes a night or two of high-energy clubbing.

Slow start

As obvious as nightclubs now seem as part of the Las Vegas entertainment equation, the trend took a while to gain momentum, and it reflects the continuing evolution of Las Vegas as a money magnet.

The town grew up on slot machines and dinner clubs, and the headliners of the '50s, '60s and '70s were something of a loss-leader, designed mostly to bring gamblers into the casinos. Cheap buffets and cheap rooms were offered for the same reason because the name of the game was the casino drop.

The revenue mix began changing in the late 1980s and was turned on its head in the 1990s, when gambling accounted for half or less of a casino's revenue. With the wholesale spread of gambling across the country, Las Vegas knew it had to offer more than slot machines.

As a result, new attractions -- and profit centers -- appeared on the corporate radar screen: expensive production shows led by Cirque du Soleil, fine dining in elegant restaurants branded by celebrity chefs and chic designer boutiques that previously were only found in New York and Beverly Hills, Calif.

The new Las Vegas became as popular for Wolfgang Puck restaurants or Giorgio Armani boutiques as for its showrooms and slots.

And then came the nightclubs.

In the mid-1990s, the Rio introduced serious clubbing to Las Vegas with Club Rio, and it was followed in short order by Studio 54 at the MGM Grand, a knockoff of the hip New York joint that put disco on the map.

It didn't take long for the Vegas nightclub scene to start creating a buzz; in 2001 Playboy founder Hugh Hefner celebrated his 75th birthday at Studio 54, and the media had a field day.

Some resorts -- including the Hard Rock, Mandalay Bay and the Palms -- have specifically marketed to the wealthy 21-to-39 crowd, and exploited the presence of celebrities.

None was better at the marketing than George Maloof, whose Palms is frequently shown on TV and -- as a hotel casino -- was virtually a star celebrity on MTV's "Real World."

Other hotel executives watched the action, wondered if they should add to the nightclub mix -- but worried about the liability.

For starters, they questioned whether a nightclub would take up valuable floor space better dedicated to gambling. They worried, too, about whether overindulged and uninhibited nightclub customers would cause too many headaches on the casino floor at night's end, attracting the unwanted attention of gaming regulators.

When the Bellagio opened in 1998, it had no nightclub. In December 2001, it opened Light -- and became the first club in Las Vegas to offer bottle service at VIP tables.

With the widespread acceptance of nightclubs, there's a new rule of thumb in Las Vegas today: If you build a hotel, include a nightclub.

"There was a follow-the-leader mentality," Curtis of the Advisor said. "If you see what is happening somewhere else, you don't want to be missing out on it and have the higher-ups ask you, 'Why aren't we doing that?'

"Besides, once it's proven successful somewhere else, the casino executives know that it's a good idea that is mostly riskless."

Carrell, the MGM Grand nightclub boss, said the clubs are valued not just for bringing a lot of money onto a property but because they are a complement to slots and table games.

"It gives a reason for customers to stay at the hotel," she said.

If those customers are well-heeled, so much the better.

"We want to see an offering that attracts the sophisticated customers," said David Strow, a Harrah's Entertainment spokesman. He noted that the opening of Pure last year triggered a 10 percent increase in the number of table games at the company's Caesars Palace.

"The bottom line is about customer traffic, drawing a considerable amount of traffic and strengthening the cache of the Caesars brand," he said.

Pure Manager Robert Frey said there don't appear to be hard limits on the potential growth of the nightclub industry.

"As long as Las Vegas continues to be fun, as long as we continue to develop that as a city, that market segment is getting bigger," Frey said, noting that with expansions and new resorts planned, there will be more room for more clubs.

The wow factor

The success of the clubs has brought a new level of competition, with club bosses challenged to find the new thrills and distinctive elements that make their joint the must-see place.

They call it the "wow" factor.

Fireballs explode over the dance floor at Rain at the Palms. Burlesque dancers teasingly perform at Forty Deuce and Tangerine. Nearly naked women lounge in bathtubs filled with rose petals at Tao. A massive crystal chandelier hangs elegantly at Body English at the Hard Rock. And everywhere, light shows illuminate the ceilings, walls and floors.

The goal is the same no matter the club: use cutting-edge effects to push the senses to their limits.

If club goers are dazzled, so too are the casino executives who now embrace the nightclubs as must-have amenities.

Resort bosses "are completely blown away," said Michael Politz, editor of Las Vegas Food & Beverage magazine. "These guys are in shock" by the clubs' success.

Added Jim Bowen, chief financial officer at the Hard Rock Hotel, "It's hard to lose money in the nightclub business unless you let your product get old or grow stale."

And they're not likely to let that happen in Las Vegas.