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Best of Liz Benston

Gaming Guru

Liz Benston
 

Makeover of Resort Reflects Complex Legacy

1 June 2004

LAS VEGAS -- When Los Angeles resident Scott Abramowitz comes to Las Vegas, he bypasses newer resorts such as Bellagio and Mandalay Bay to stay at Caesars Palace.

"You get a lot of bang for your buck," Abramowitz, 35, said. "I'm worried that will change as they discover they can get more money for rooms."

That's one of the goals of a major remodeling effort under way at Caesars Palace, arguably the best-known casino in the world but one that has lost significant ground to competitors over the years.

Once a sixth room tower is built and a slew of other upgrades are in place at a cost of about $376 million, Caesars Palace will be better positioned to take on stiffening competition, maintain its powerful brand and reap its healthiest profit in history, executives say.

It's not a simple proposition. At the latest groundbreaking ceremony last fall to announce the latest construction projects, Caesars Entertainment Inc. Chief Executive Wally Barr noted that the resort's makeover was the first of its kind ever attempted on the Strip.

"This is the first time Las Vegas has transformed a resort without resorting to dynamite or a wrecking ball," Barr joked.

That fate is both a boon and a frustration for a property that became an instant icon when it opened in 1966 as the Strip's first themed resort.

It opened with 680 rooms and now has 2,400 rooms. Over the years hundreds of rooms have been taken out of service. The latest addition will lift the room count to about 3,350 rooms.

A convoluted legacy is now reflected inside, where newer and older casino floors vie for attention and where customers have gambled a few feet away from construction walls hiding major renovation work. In spite of a well-preserved Roman look, much has changed over the years, including virtually all new restaurants and a brightened decor.

"There's something to be said for blowing it up and closing it for two years," Mark Juliano, president of Caesars Palace, said. "There's some inefficiencies with running (five hotel) towers. But we just didn't think that the cost versus the income long term and the danger of tampering with the brand was worth it."

Tearing down the property was never an option, Barr said.

"We probably could have taken a longer route," he said. "But it's an icon of gaming and it would have been a shame to blow it up and put 3,000 people out of work."

The Caesars name -- the most recognized gaming brand worldwide, according to company research -- is priceless, executives say.

The property has served as an opulent backdrop for high-profile cultural events, from boxing to movies:

Muhammad Ali and Larry Holmes fought there in 1980, Marvelous Marvin Hagler squared off against Sugar Ray Leonard in 1987 and Oscar De La Hoya beat Julio Cesar Chavez in 1996.

From 1981 to 1984, Caesars held auto races featuring Formula One and Indy cars on a vacant lot where the Forum Shops now stand. Daredevil Evel Knievel jumped the property's famed water fountains on New Year's Eve in 1967.

The casino served as the setting for several movies including "The Electric Horseman" (1979) with Robert Redford and "Rain Man" (1988) with Dustin Hoffman and Tom Cruise. "It's actually one of the top five brands in the world, period," Juliano said. "It's right up there with Coke and McDonald's."

Demolishing casinos has become a prudent business decision in a city where consumers are spending more money at the newest, most upscale hotels and regular casino maintenance can cost in the tens of millions of dollars a year. But Caesars Palace isn't like any other resort. Its iconic Roman architecture is familiar to millions of people worldwide -- even those who have never stepped foot on the Strip. And, for the most part, its corporate parents have spent lavishly to keep up its image over the years.

The complications of maintaining a 37-year-old resort is one of several factors that has sharply divided Wall Street analysts who follow Caesars Entertainment. Of about 19 stock analysts covering the company, about half have "buy" recommendations and the rest have "hold" recommendations. One analyst recommends a sell.

"We believe their main challenge at Caesars Palace Las Vegas is to seamlessly integrate multiple expansions of this older property. To date, such efforts have not proven to be a value-added use of capital, in our view," said John Mulkey, a bond analyst with Bear, Stearns & Co.

Construction is under way on the sixth hotel tower for $289 million, a $76 million convention and meeting area expansion and about $11 million for a new pool as well as a Roman-theme plaza with an outdoor amphitheater accommodating up to 6,500 people, a restaurant, bar and two wedding areas.

A 175,000-square-foot expansion of the property's Forum Shops mall, the third for the lucrative retail area, will be complete by this year. Space for the mall, which opened in 1992, is leased to mall owner Simon Property Group of Indianapolis.

Taken together, they add up to the most extensive remodeling work to occur around a major casino, analysts say.

Construction walls have lined the property from Flamingo Road to the front driveway for at least three years, hiding previous work on the sixth tower that was halted after the Sept. 11 attacks. Walls also obscure newer construction under way at the Forum Shops, which will face the Strip sidewalk at the property's northeast end.

High hopes

Executives see in their work a rising star rather than an aging celebrity undergoing plastic surgery.

They have especially high hopes for The Plaza, an outdoor amphitheater, retail and entertainment area that is expected to open this summer at the corner of Las Vegas Boulevard and Flamingo Road. The outdoor platform so close to the Strip is a first for a resort that was built when casinos were set back from Las Vegas Boulevard and tourists drove rather than walked the Strip.

Starting this summer, pedestrians will have more direct access to the resort from footbridges above Flamingo Road from the Bellagio or from the Barbary Coast across the Strip. A wedding chapel will overlook the Strip, attracting visitors and feeding them directly into the resort. The amphitheater also will be visible from the Strip and is expected to host sporting events as well as events filmed for television shows.

The Forum Shops expansion is expected to open by the end of the year and will give the property another Strip entrance at the opposite end of Las Vegas Boulevard.

In October, Caesars Palace expects to open a showroom in the Forum Shops featuring exotic cars by makers including Ferrari, Lamborghini and Bentley. The dealership will have a private entrance and VIP lounge as well as a retail area with auto merchandise and opportunities for visitors to have their photo taken in an exotic car.

Inside the casino, construction walls around the middle of the casino came down last fall, revealing a wide pedestrian walkway through the center of the property and a crucial link between two outdoor entrances that has dramatically improved traffic flow through the labyrinthine property, executives say. The walkway also links the older casino near the entrance with the newer casino to the rear, funnelling customers directly to the Colosseum and past casino and retail areas.

The 4,100-seat Colosseum theater opened in March 2003 to house a Celine Dion performance with 60 dancers and singers called "A New Day..." at a cost of $95 million. The company doesn't own the show or receive ticket sales but has benefited from increased traffic in the casino, according to recent quarterly financial statements.

Construction walls went up along Flamingo Road after the resort demolished a showroom on the far left side of the property in 2000 and devised plans for the sixth tower. The property also removed a peoplemover that shuttled tourists from the sidewalk into the lobby, making it more difficult for tourists to enter from the front.

"There's limited curb appeal" for the hordes of tourists who walk and drive by Caesars daily, said Jeffrey Compton, vice president of casino marketing company Compton Dancer Consulting in Las Vegas.

"When (tourists) hear the name Caesars they expect tremendous things," he said. "I think those people walking by might be aggravated by those construction walls. But I think there's a tremendous feeling of anticipation."

Customers have complained about the ongoing construction at Caesars Palace "but it seems to me they keep coming back," said Bill Mandel, publisher of the Viva Las Vegas newsletter. "It still has a cachet. These are people who swear by Caesars Palace. They are fairly high-rollers. The casino host knows them and they return year after year."

In spite of analysts' contentions that construction has hurt revenue at the resort, executives insist that the disruption is mainly over and that the remaining work is occurring in contained areas that aren't otherwise used by customers.

The sixth hotel tower will be going up in a previously vacant area along Flamingo Road. Remodeling is under way to modernize the property's decades-old porte cochere, while construction will begin on the main lobby in July. A temporary lobby will be set up a few feet to the left while the existing lobby is redone so that it connects with the Plaza.

Hail to Caesars

The strength of the resort's brand will depend on how much the company is willing to change with the times, said Ray Cheesman, a bond analyst with Jefferies & Co.

"I think they're catching up," he said. "Caesars is a great name. Ford was a great name and now the foreign makers are gaining on them. Sitting still can often mean it's over."

Caesars officials say their brand has staying power -- something that hasn't helped other older hotels in Las Vegas.

"There's always going to be a bigger dog down the road, whether it's Bellagio or The Venetian," Barr said. "But there will never be another Caesars. We have to take advantage of the assets and name we have."

Anthony Curtis, publisher of the Las Vegas Advisor gambler newsletter, said Caesars is still "the strongest name in gambling."

"I think they needed something to push it again and they took a big swing of the hammer," Curtis said. "I don't think that Caesars Palace has been left behind at all. The luster was always there to some degree and this keeps them close enough to the top that they're a viable competitor."

That luster is what drew Abramowitz, the Los Angeles customer, amid the glitz and upscale glamour of the Strip.

"They have this image as a larger than life casino that, as a teenager, I was almost intimidated to walk into," he said.

The resort has welcomed Abramowitz, a self-described "low-roller," with open arms.

"The theming is great -- it's kitschy but entertaining and it's not tacky," he said. "They have great rooms and they put such an effort into the quality of the work."

Keith Watt, of Phoenix, has rediscovered Caesars Palace more recently.

"There's just enough of that Roman kitchiness coupled with understated elegance that says, 'This is Vegas, baby,' " Watt, 49, said.

"For quite a few trips I didn't even go to the place. I thought it was strictly for high-roller people. Then we looked at the shopping, we walked through the casino and we said, 'Let's play here.' "