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Rod Smith

MGM Mirage Counts on 'Ka' to Boost Profit

16 September 2004

LAS VEGAS -- MGM Mirage's new $165 million Cirque du Soleil "Ka" show is expected to boost the company's profit margins and drive added visitor interest in Las Vegas, industry insiders said Wednesday.

MGM Grand President Gamal Aziz said his company's total investment, which is more than the $135 million invested in all the shows on Broadway last year, should quickly turn a profit for his hotel-casino, where the new show will begin previewing in November.

The $165 million includes the $30 million production cost of the show, with the rest representing the cost of a special theater being built at the Strip megaresort to house the show.

"We have proved with all the other three (Cirque du Soleil shows at MGM Mirage properties) that this can be quite profitable for us. It's not just the show, it's all the other activities they enjoy when they come to the property," he said.

Billy Vassiliadis, chief executive officer for R&R Partners, said the potential clearly exists for MGM Mirage to enhance its profit margin with the new show.

"I don't know which is the chicken and which is the egg, but one thing Las Vegas has proved over the years is that there is demand for high-level, continuing entertainment," he said.

Hal Rothman, history department chairman at the University of Nevada, Las Vegas said the new Cirque du Soleil production is part of a long-term trend.

"Clearly, this is the next step in the evolution of entertainment here in Las Vegas as the capital of entertainment consumption. That's an important concept. We consume entertainment here. We import gold. We don't develop the acts here," he said, noting that Cirque du Soleil's creative studio, for example, is in Montreal.

Rothman said the evolution started when Las Vegas developer Steve Wynn persuaded Siegfried and Roy to move from the Frontier to The Mirage in 1989.

The second step in the recent evolution of major entertainment was the opening of "The Blue Man Group" at Luxor, followed by the introduction of "O" at Bellagio, the first time a Las Vegas casino built a theater specifically for a show.

Vassiliadis said the market in Las Vegas has grown to the point where it can accommodate the year-old Celine Dion show in Caesars Entertainment's Colosseum at Caesars Palace, the production of "Phantom of the Opera" planned for the Rem Koolhaas-designed area of The Venetian and the planned new show at Wynn Las Vegas, despite a combined cost approaching $1 billion.

"As our position in the gambling world has changed to be the place to be entertained, the expectations (of visitors) is ever greater. That, in turns grows the demand for entertainment, and this trend is going to continue for a long, long time," he said.

Rothman said the profitability of major shows in Las Vegas is unique because the performances themselves drive more people to the destination.

In other destinations, profitability is measured by ticket sales, parking, concessions and merchandising, but in Las Vegas it is measured by increased spending in casinos, restaurants, bars and retail stores, he said.

"The casino companies don't invest in these shows lightly. They know what they are doing," Rothman said.

He said some observers, however, are skeptical of the likely profits involved, and believe the operators are just trying to keep up with the Joneses.

"Because MGM (Mirage) sees itself as the top entertainment company, it has to top Caesars-Harrah's, whether it makes money or not," he explained. "But even then, it's probably worth the investment as long as it maintains the cachet of being No. 1 and brings the people in."

University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies, said that's what makes the shows important for the destination -- they draw visitors to Las Vegas.

"It'll be a magnet, albeit a high-priced magnet. Maybe it's for high rollers. Maybe for baby boomers who have the bucks. Plus there are Asian gamblers we can expect to keep coming in increasing numbers, especially with Macau being developed by (Venetian owner Sheldon) Adelson, Wynn and maybe MGM (Mirage)," he said. "The point will be to get the Chinese over here. Barring international terrorism, we can be on a roll for 10 years with the richest people in the world coming here. It's a blatant effort to go after the richest people in the world, and it's working right now because the demographics are working (as baby boomers age)."

The only risk, he said, is that it could prove to be a fad, and the most affluent market segments could decide in three years they are not motivated by entertainment in picking their travel destinations.

But Las Vegas adapts, Thompson said, and for now it is adjusting to worldwide demand, and that is good for the growth of the destination.