Cosmopolitan boss says first year was good

15 December 2011

LAS VEGAS, Nevada -- The most expensive hotel-casino ever built on the Strip celebrates one year in business today, but its CEO, John Unwin, isn't satisfied. It has been a good year, but for Unwin, year one was all about opening the doors of The Cosmopolitan of Las Vegas.

Year two is all about making a profit.

Even before the casino opened on Dec. 15, 2010, there was pressure from clients and investors on how long it would take to recoup Deutsche Bank's $3.9 billion investment.

Deutsche Bank, which acquired the property in 2008 out of bankruptcy, spared no expense in completing the construction of The Cosmopolitan, which has a 150,000-square-foot casino overshadowed by a three-story glass chandelier that encompasses several cocktail bars.

Critics and guests rave about the urbane ambience and oversize luxury rooms with wraparound terraces. Visitors like the small footprint: The Strip hotel sits on 8.5-acres -- twin towers at 52 stories, compared with low-slung and sprawling neighbors such as Bellagio, which tops out at 36 floors on 164 acres.

Restaurateurs and retailers, meanwhile, are doing brisk business.

But obstacles remain.

"First and foremost is creating awareness," Unwin said. "So a year and half ago nobody had heard of us. I think you sometimes have to tell people what they want instead of asking people what they want."

He credited The Cosmopolitan with introducing Las Vegas to some "pretty bold ideas" from rooms with terraces and restaurants on the third floor instead of the casino floor.

"It's been hard and difficult to open a business like this," he said. "I think we are one of the 20 to 25 largest hotels in the world. But it's not just a hotel; it's a hotel, casino, and restaurant business. The sheer complexity of standing it up was a big challenge."

But Unwin, who was recruited from Caesars Palace, wouldn't have it any other way.

"It's the opportunity of a lifetime for me," he said.

Unwin loves his job, but low gaming revenues have made it difficult for the resort to move into the black. Unwin said the focus in 2012 will be on the casino.

For the first nine months of 2011, The Cosmopolitan lost $169.6 million on net revenues of $357.7 million. In 2010, when the resort was open for 17 days, it reported a loss of $139.5 million, attributed to opening expenses of $116.5 million.

A STAKE IN THE STRIP'S REBOUND

Despite the losses, Unwin said the resort has contributed to the Strip's recent rebound by attracting more people to Las Vegas, many of them first-time visitors. The Cosmopolitan seems to have become a favorite among business travelers, locals and a younger clientele looking for a more boutique feel.

"We set out to redefine luxury," Unwin said. "It's more about having fun and getting premium products. It's less about status."

Its Marquee Club, which will host a New Year's Eve party featuring Stevie Wonder, is always crowded, as are its bars, restaurants and shops.

"Our nightclub is probably going to be the highest-grossing club in the country this year," he said. "It's been incredibly popular."

The Cosmopolitan's retail strategy was to bring new brands to Las Vegas. Today, the hotel-casino is home to 15 exclusive retailers, including England's trendy AllSaints, Jason of Beverly Hills and the upscale men's clothier Stitched.

"All of them are doing really well," Unwin said. "AllSaints' sales have been off the charts. So retail has done better than I expected, and our retail with our name and logo has done very well."

He expects only modest changes to the retail lineup. Droog, an Australia-based lighting and furniture store, was expected to close this month. Despite lots of foot traffic, Unwin said Droog just hasn't resonated with customers.

"But I think one out of 15 stores isn't bad at all," he said.

Besides replacing Droog, the hotel will add a second-floor newsstand modeled on the ubiquitous green metal huts found on the streets of New York.

The resort also has had hits with its Wicked Spoon buffet and branches of top restaurants such as Jaleo, the tapas restaurant by Spanish chef José Andrés, Blue Ribbon Sushi, and well-known Los Angeles brands Comme Ça and STK.

Food and beverage continue to represent the largest piece of The Cosmopolitan's earnings pie. The property earned $68.9 million in the third quarter from food and beverage alone.

The Cosmopolitan has generated $310.6 million in food and beverage revenue since its grand opening, U.S. Securities and Exchange Commission filings by its parent company, Nevada Property 1 LLC, show.

"We continue to learn what our customers want," Unwin said. "We are developing some late-night options, which is harder than you might think here in Las Vegas."

It's difficult to attract people after a concert or night of gambling in a town with infinite options and overwhelming marketing. So The Cosmopolitan decided to zig while everyone else zags. Its third-floor pizza restaurant doesn't even have a name, and the resort intentionally makes it hard to find. Thus it is popular among those who pride themselves in knowing things others do not.

"It's ridiculous,' Unwin said. "I've been there at midnight, 2 o'clock in the morning, and it's been crowded.'

Unwin noted the hotel's strong start in terms of reservations and meetings.

"Our convention business has been very strong ... as well as our occupancy. We've had the highest (room) rate in the market."

That average room rate was $233 -- compared with $129 a night at Aria next door -- and occupancy stood at 83.7 percent at the end of the third quarter, the company said in a regulatory filing.

UNDERPERFORMING CASINO

While The Cosmopolitan's clientele has been willing to spend on luxury rooms, food, drinks and entertainment, it has been less likely to drop thousands on roulette, blackjack or slots, typically a Strip resort's largest source of profits.

"The Cosmopolitan has been most impactful in its lodging and restaurants," said David G. Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. "The casino itself, however, has consistently underperformed."

For the first nine months of 2011, The Cosmopolitan generated $83.1 million in gaming revenues. The company reported its hold percentage in the third quarter was 7.6 percent, below its expected range of 12 percent to 15 percent.

Weak gaming revenues have forced Unwin to seek help. On Monday, the company said it hired Thomas McCartney as chief operating officer. McCartney, formerly president and COO of Tropicana Las Vegas, will oversee The Cosmopolitan's food and beverage and gaming operations.

To help build the casino's profitability, Unwin approved construction of the Talon Club, a high-end gaming room on the second floor, featuring baccarat and blackjack with scotch and cigars.

He also cut a deal with Marriott to access the company's large database of travelers. While the list does not specifically focus on gaming, it does allow the hotel to market to a wider audience.

"As for where the property is going over the next year, much of that depends on which direction it takes," UNLV's Schwartz said.

"If new COO Tom McCartney refocuses the casino marketing and is able to increase revenues, the entire operation will be much better off."

Related Links
Deutsche Bank Securities Inc. Gaming Vendor Information
The Cosmopolitan of Las Vegas Details
Nevada Gambling


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