Las Vegas Sun

May 21, 2019

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Monster MGM plan detailed

For months, Terry Lanni's been predicting an entertainment company would soon buy into the gaming business.

Apparently he grew tired of waiting.

Lanni, MGM Grand Inc.'s chairman, on Monday unveiled plans for a $250 million facelift for Kirk Kerkorian's billion-dollar baby -- the MGM Grand that opened less than 2 1/2 years ago.

How big is the project? The price tag on the new Monte Carlo hotel-casino being built across the street is $344 million.

The renovation project is far more than just a cosmetic change. It signals Lanni's determination to transform MGM into an entertainment company that offers gaming as just one of its amenities from a more-traditional gaming company sporting an entertainment theme.

That's an important distinction, for it emphasizes the MGM management team's ability to react quickly to required changes in destination-resort marketing, as well as to competition from nearby properties, said Bear Sterns & Co. analyst Jason Ader.

"MGM was the first company to attempt to integrate the entertainment industry into a casino environment," he said. "But that proved to be a very difficult undertaking. If anyone can make it work, this new management team can."

Lanni says he wants MGM customers to "feel like guests coming to a premiere of one of the world's greatest movies." To that end, the renovations will change areas of the complex into replicas of Hollywood sound stages, restaurants and other landmarks.

"When we're completed, every aspect of this property will bespeak entertainment," he said.

With new resorts opening nearby, MGM "has to spend the money or risk losing a substantial market share to the upcoming properties," said Ader. "They're protecting their franchise and enhancing their ability to compete."

One "competitor" is New York-New York, a joint venture between MGM and Primadonna Resorts that's scheduled to open late this year directly across the Strip from the MGM. Though MGM will share in profits from the venture, it will be competing for customers.

"I've had a chance to see the Monte Carlo project," said Ader of the Mirage Resorts-Circus Circus joint venture also across the Strip from MGM. When Monte Carlo opens next month, "it's going to surprise a lot of people. It's amazing how far (project manager) Circus Circus can stretch their dollars. I thought it was terrific."

One of MGM's toughest competitors will be Mirage Resort's Bellagio, a $1.3 billion luxury resort opening next year north of the MGM, Ader said.

"This will improve MGM's overall revenue base, attract a wide range of customers and raise their level of repeat business. It should add $40 million to $50 million a year in cash flow by the time the project is completed."

That's exactly what MGM Grand President Alex Yemenidjian has in mind.

"We anticipate this will have a very positive impact on our earnings, consistent with our objective to enhance shareholder value," he said.

The project will be stretched over 30 months to avoid major disruptions. The first phase will be development of "Studio Walk," a restaurant and arcade promenade themed to portray a Hollywood sound stage.

A six-story golden lion will be built at the corner of the Strip and Tropicana Avenue, part of a theatrical experience featuring 80-foot video walls, water shows and statues. A $60 million, 300,000-square-foot convention center will replace part of the Grand Adventures theme park "and set a new standard for convention centers around the world," Lanni said.

The theme park itself will feature a faster, longer roller coaster ride as well as the recently announced SkyScreamer free-fall thrill ride. The main entrance porte cochere on Tropicana will be upgraded to simulate a movie premiere scene, while another entrance will be built on Koval Lane. Parking space will increase to 11,000 vehicles from 9,000.

"I think this will enhance MGM's position as the premier entertainment superstore in Las Vegas," Ader said.

If it does turn an underperforming asset into an entertainment superstar, the project will position MGM right where Lanni believes it should be to succeed in the future.

"Entertainment will be the major growth industry of the first half of the 21st century," Lanni said. "MGM Grand will be a leader in that industry."

The entertainment theme will run throughout the casino area "and outside into the streets," he said. "From the moment guests set their eyes on this facility until the moment they leave, they'll be treated to an entertainment experience."

Ader said Lanni and Yemenidjian "have done a terrific job of enhancing profitability" since taking control in June 1995. They instituted cost-cutting measures, including the layoff of 770 employes, and began looking for ways to turn each department into a profit center.

They also sought a method of better capitalizing on MGM's storied link to Hollywood through changes to the resort complex that opened in December 1994 with a theme park and a 5,000-room hotel -- the world's largest.

First-quarter financial results, which included a 527 percent earnings increase, indicate the changes are working.

One thing that won't change, though, is MGM's determination to attract a broad range of customers.

"You can't limit yourself to specific segments of the entertainment market," Lanni said. "You have to be all things to all people" -- from the low-end gaming patron to the high-roller.

"We just want to be sure we do it better than anyone else," he said.