MGM capitalizes on non-gaming assets

Jul 11, 2006 4:14 AM

The MGM Grand, the world’s largest resort hotel, was one of the first in the industry to record non-gaming revenues in excess of casino revenues.

That would have been unheard of 10 or 15 years ago. But, today, especially for the mammoth Strip megaresorts, non-gambling revenue has become crucial to the casino’s profitability.

The MGM Grand is an exciting destination resort, featuring luxurious accommodations, five pools, 30,000-square-foot spa, hot nightclubs, a sports arena, dozens of pubs and lounges and, of course, a 175,000-square-foot casino.

Over the past five years, since Gamal Aziz took over as president and COO, the MGM Grand has undergone a kind-of metamorphosis as hundreds of millions of dollars worth of assets, including over 30 restaurants, bars and shops and even entire hotel wings have been scrapped in favor of new amenities.

The new venues have boosted total sales by more than 25 percent since 2003, making the MGM one of only two casinos (along with Bellagio) to surpass $1 billion in revenue, while annual operating profit has jumped by nearly 45 percent.

"Gamal has done the near impossible," says Steve Wynn, a former mentor who owns the competing Wynn Las Vegas.

The "impossible" certainly wasn’t probable or even predictable. Aziz’s multi-year evolution includes replacing long-time favorites such as Gatsby’s restaurant in favor of Nobhill, which has tripled the profits of its predecessor.

Overall, there have been nine new restaurants added over the past four years, including award-winning eateries such as Michael Mina’s Nobhill and Seablue, Tom Colicchio’s Craftsteak, Stephen Hanson’s highly-successful Manhattan restaurant and Wolfgang Puck’s Bar & Grill.

Recent restaurant openings include upscale Shibuya, Diego for Mexican cuisine and a modernized New Orleans Fish House from celebrity chef Emeril Lagasse.

Aziz also imported exciting entertainment options such as the French revue, La Femme, direct from the Crazy Horse in Paris; the city’s first ultra-lounge, Tabu, as well as Teatro Euro Bar and 32o, a stylish frozen drink bar.

The piece de resistance of MGM Grand’s entertainment offerings is Cirque du Soleil’s KA, a production filled with acrobatic performances, martial arts, puppetry, multi-media and pyrotechnics to illustrate the nature of duality.

Aziz says he applies a cryptic business strategy of "working backward" to the hotel/casino operation. The strategy calculates the maximum revenue that each business or space could generate in a perfect world — that is, if every customer spent the most the market could bear and if traffic reached its physical limits.

Aziz then subtracts actual sales from that hypothetical figure and calls the difference a "loss," even if the venue is making money. His formula for closing the gap usually starts with a wrecking ball.

"We were a dormitory," Aziz says of the hotel when he took it over. "People were sleeping here and going somewhere else to party."

Aziz’s task was to turn the MGM’s venues into attractions, rather than just outlets. He started with Gatsby’s, a high-end restaurant with velvet couches, a grand piano and $2.1 million in annual sales.

The MGM’s board didn’t want Aziz to touch the signature restaurant, until he convinced them that the place was "losing" $3 million a year.

Aziz recruited Michael Mina, whom he had brought to Bellagio, to put in a new restaurant, Nobhill. With Mina’s celebrity attached, the new restaurant drew more customers who paid higher prices. Last year, the restaurant pulled in $6.5 million in sales, almost a third more than Aziz’s projections.

Another target of Aziz’s wrecking ball and keen insight was the hotel’s 29th floor penthouse suites, where most of the high rollers stayed for free.

But rather than ask high-stakes gamblers to pay full retail, Aziz decided to target conventioneers: When a company booked a block of rooms, its mid-level executives could stay in the penthouse suites.

Last year, Aziz converted the floor into a chic hotel-within-a-hotel called Skylofts, pushing the occupancy rate up from 50 percent to 74 percent.

Meanwhile, revenue on the 29th floor is up 90 percent.

That doesn’t sound like a very "backward" strategy.