Saturday, Jan. 2, 1999 | 4:01 a.m.
The first thing that strikes you is the size -- the sheer enormity -- of the Venetian.
Like an inanimate bodybuilder bulked up on steroids, the massive new hotel-casino swells high above the Strip, dwarfing the nearby Mirage and Treasure Island, each with a similar number of rooms.
The structure's monumental appearance seems a fitting metaphor for the gamble it represents -- a billion-dollar bet that the Venetian can succeed in a market threatened by rising room inventories, flat visitor volume and a declining share of the domestic gaming business.
The Venetian is due to open next April, right after Mandalay Bay and the Resort at Summerlin add more than 4,000 hotel rooms to a Las Vegas resort market still struggling to absorb last October's debut of the 3,000-room Bellagio.
With an expansion at the Hard Rock hotel-casino and next September's scheduled opening of Paris-Las Vegas, Southern Nevada's hotel-motel inventory will balloon to 116,626 rooms.
Meanwhile, competition from other gambling venues adds to the industry's challenges. While Nevada's overall gambling revenues rose each year in the decade through 1997, the state's share of domestic casino revenue fell to 38.6 percent from 61.8 percent. Gamblers are spending their money in a lot of other places.
Gaming's expansion has forced Las Vegas casino operators to come up with new ways to stimulate demand, leading to the recent waves of themed resorts and increased emphasis on noncasino revenues. But a key element of the Venetian's strategy calls for it to appeal to customers long scorned by casino operators.
Venetian owner Sheldon Adelson believes the resort can draw free-spending convention business during traditionally slow midweek periods, and remain full on weekends with independent travelers willing to pay a premium for its luxurious suites.
The Venetian's 35-story hotel tower owes its pumped-up profile to those 3,000-plus oversized suites, each almost twice as large as a standard Strip hotel room. The space they occupy gives the unfinished 480-foot-tall building its imposing appearance.
That look will change, Venetian President William Weidner says, as the facade's finishing touches are put into place.
The work will transform the hulking structure's Strip frontage into a warm and inviting panorama replicating scenes from Renaissance Venice -- the arched bridges, flowing canals, open vistas, alluring niches, shops, restaurants and unique landmarks such as the Doge's Palace and the Campanile Tower that have made the ancient Italian city one of the world's most romantic destinations.
Yet, with just four months to go before its scheduled opening next April, the Venetian in Las Vegas appears a long way from finished.
From the outside, the 45-acre complex is a jumbled maze littered with tons of construction equipment and supplies, swarmed over by 3,000 workers rushing to finish their tasks by the deadline.
But wending one's way through the site with Weidner, the longtime resort executive who's been a top aide of Adelson since 1995, one begins to see a method to the madness.
The hotel-casino's common areas are rapidly taking shape, as is the restaurant, retail and entertainment space that covers 500,000 square feet.
The lobby, with its 65-foot domed ceiling, is being decorated with Venetian-themed fresco-styled paintings. The ornamental columns and replicas of the three-dimensional-style floors found in Venetian palaces are being installed in the barrel-vaulted main passageways.
The outdoor swimming complex features five pools. It will be surrounded by gardens, waterways, fountains and sculptures, and is ready for decorative work.
The hotel tower's lower floors have finished, furnished suites. Higher up there's more work to be done, but Weidner is confident that at least 2,000 of the resort's 3,036 suites will be ready by April 13.
That's the date when the construction manager, Lehrer McGovern Bovis Inc., is supposed to "substantially complete" the sprawling resort. If it doesn't, and the time drags on, Bovis and its parent company, the British conglomerate Peninsular & Oriental Steam Navigation Co., may be liable for damage payments that could ultimately reach $300,000 a day.
Unless the resort is open and operating, that money could be critical in allowing the Venetian, its parent -- Las Vegas Sands Inc. -- and various affiliates to pay bank and other debt that is expected to peak at $930.2 million, according to the company's latest filings with the Securities & Exchange Commission.
At a blended rate of 11.1 percent, the debt will require interest payments of $103.2 million a year, or about $283,000 a day. Tack on estimated operating expenses of $346.7 million annually and the Venetian will have to generate $1.2 million a day in net revenue to break even.
Adelson's financial forecast projects net revenue at $527.8 million for the first full year of operations. It assumes the 3,036-suite resort will record a 93 percent occupancy rate and an average daily room rate (ADR) of $167.
That rate is aggressive compared with recent numbers from typical large Strip hotels. Bear Stearns & Co. reported third-quarter ADRs of $94 at MGM Grand, $78 at New York-New York, $81 at Bally's Las Vegas, $53 at Harrah's Las Vegas and $88 at the Rio, the only other all-suites hotel in Las Vegas.
In its SEC filing, LVSI said it had booked 337,000, or 66 percent, of the first-year group sales goal of 510,000 room nights. Twenty percent of the booked rooms have been contractually reserved for in-house (Sands Expo and Venetian Congress Center) groups and conventions, while the remainder have been set aside for trade-show vendors and are subject to standard cancellation clauses, without penalties.
The company began marketing to trade-show attendees for individual room reservations in the current quarter.
The financial forecast also projects casino revenue at $280.5 million annually, including a daily slot win of $151 per machine and a daily table game win of $2,463 from its nonbaccarat table games.
In September, the slot win at the 19 largest Strip casinos averaged $116 per machine per day, and the table-game win was $2,106 per day.
Only a few gaming analysts regularly study the Venetian because the privately owned company's only publicly traded securities are $425 million of 12.25 percent mortgage notes and $97.5 million of 14.25 percent senior subordinated notes. (The remaining debt consists of bank credit facilities.)
Todd Gray, a Moody's Investors Service vice president for high-yield gaming securities, assigned speculative ratings to the Venetian's debt because of concerns about the financial projections.
"Convention customers typically spend less time and money in the casino than other types of gamblers ... and forecast casino expenses are substantially lower than its competitors' despite similar casino space," Gray says. "I believe the projected casino margins may be somewhat optimistic."
The analyst also sees the area's growth in room supply, including some targeted at higher-spending travelers, as a threat to the Venetian's ability to achieve its projected $167 ADR.
"Due to the high construction costs of the resort and the Venetian's substantial debt burden, coverage of fixed charges and liquidity could become problematic if the commensurate revenues aren't achieved," Gray says.
Reflecting those concerns, prices for the Venetian's publicly traded debt are below par. The mortgage notes were recently trading at $940 per $1,000 par value, yielding 13.76 percent, while the senior subordinated notes were at $890, yielding 16.1 percent.
Adelson's financial projections are based on the Venetian's first phase. No firm date has been announced for construction of the Lido, a proposed second tower with another 3,000 suites.
Another uncertainty is what might result from any potential Culinary Union opposition to the Venetian's recruiting and employment programs. The union wants the resort to recognize it as the bargaining agent for future employees, while Adelson wants the workers to make their own choices on union representation.
Union officials aren't saying what they plan. But Culinary members picketed the Frontier for years before it was sold to an owner willing to bargain, and some observers expect the union to pursue a similar strategy at the Venetian.
Weidner, though, says the resort will offer wages equal to or higher than union scale and a flexible benefits program likely to convince workers to reject Culinary representation.
He also says he and Adelson believe the revenue projections are attainable. And he points to the complex, multi-layered structure of the Venetian's business plan and the resort owner's related business experiences as reasons for that confidence.
Adelson created COMDEX, the world's largest trade show, and ran it for years before selling it in 1995 for nearly $900 million. The former owner of Tristar Airlines, Adelson also operates GWV, the Northeast's biggest tour wholesaler.
Adelson bought the Sands in 1989 from MGM Grand Inc. and built a 1.15 million square-foot Sands Expo & Convention Center in the back of the 63-acre site. As time progressed, he decided to raze the aging Sands and replace it with a new, themed resort, settling on Venice after honeymooning there with his wife, Miriam.
In planning the new resort, Adelson joined a handful of other casino owners who'd concluded Las Vegas could no longer continue to grow solely by offering low-cost rooms and inexpensive buffets to inveterate gamblers. He believed the market's future depended on attracting a new breed of customers.
His experiences convinced him the convention and trade-show business was an underserved niche in the Las Vegas market. He saw an opportunity to build an all-suites hotel that would cater conventioneers during slow midweek periods and draw tourists and gamblers on weekends.
He believed the business and leisure travelers he planned to target would be attracted by the suites, with their sunken living rooms, raised sleeping areas, marble bathrooms and other amenities.
He expected the resort to attract higher-budget business and free and independent travelers, resulting in a higher-budget customer mix year-round. This would reduce the company's reliance on lower-budget tour-and-travel customers.
Adelson included 500,000 square feet of meeting space in the new resort that, added to the Sands' Expo Center, would bring total meeting space to 1.65 million square feet and enable the complex to compete effectively with the Las Vegas Convention Center and the new MGM Grand Inc. convention facility.
The Venetian's Congress center would be used to draw business conferences and upscale business events that would generate room-night demand during the move-in/move-out periods at the Expo Center.
But Adelson decided to hedge his bets, theorizing he'd get more return and run less risk if he "outsourced" key parts of the resort, such as restaurants, retail, entertainment and even the heating and air-conditioning.
The latter facility, for example, is being built at a cost of $67 million by Atlantic-Pacific Las Vegas LLC, a joint venture formed by subsidiaries of the utility holding companies Atlantic Energy Inc. and Pacific Enterprises.
The venture will sell heating, ventilation and air-conditioning services to the Venetian and its various affiliates, as well as to each independently owned restaurant, retail outlet and entertainment providers.
Adelson also opted against operating restaurants. The Venetian will offer room-service food and banquets to its customers, but all other food outlets will be leased and operated independently, as will an expected 55 retail shops in the resort's 500,000-square-foot mall.
In theory, the result would add value to the investment of Adelson and his creditors. Adelson himself put up $95.3 million in cash and contributed 45 acres with an appraised value of $225 million to the project.
His total investment of $320.5 million, coupled with the projected debt, would raise the project's cost to $1.25 billion. And with the retailers, restaurateurs and entertainment providers adding an estimated $300 million of their own to finish off their leased spaces, the Venetian's final cost would exceed $1.5 billion.
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