Sunday, October 13, 2002
Copyright © Las Vegas Review-Journal

IN DEPTH

SOUTH STRIP: Mandalay Mile cashes in on clustering

Resort group hopes to corner market from Excalibur to Luxor to Mandalay Bay

The Mandalay Mile is only a catch phrase, but the power of the Mandalay Resort Group's turf at the South end of the Strip is undeniable.

Three of the Strip's biggest resorts, with space for another, tower above the western side of the Strip's Tropicana Road to Russell Road megablock.

Mandalay Mile, the name Mandalay Resort Group President Glenn Schaeffer coined to describe the company's Excalibur-to-Luxor-to-Mandalay Bay wall of megaresorts, is the core of the company that only a few years ago carried the name of its aging Circus Circus properties.

Mandalay bosses Mike Ensign, Bill Richardson and Schaeffer have transformed the company from a slot-revenue driven operation into a company boasting a powerful group of megaresorts, assets that Schaeffer says are only now beginning to show their true strength.

"What we've achieved with the Mandalay Mile is a dramatic transformation of the company that used to be Circus Circus," Schaeffer said in a recent interview. "Today we are square in the resort destination business. We are the youngest company on the Strip, and we have the most new rooms on the Strip."

Mandalay Resort operates profitable and relatively new properties in Detroit and Illinois, but the Mandalay Mile is the heart of the company, he said.

The company opened Excalibur in 1990, Luxor in 1993 and Mandalay Bay in 1999.

One of the key advantages of the megaresort row is clustering, Schaeffer said.

"The likeliest place for a customer to visit if he leaves your property is next door. With clustering, we own next door. It's the best way to keep customers' money in the company."

Schaeffer said the $235 million Mandalay Bay convention center under construction at the southwest corner of the Mandalay Mile will be a big boost for room rates at the three megaresorts.

Together, the three properties have more than 12,000 hotel rooms, and a $250 million, 1,250-suite hotel tower is slated to open at Mandalay Bay in October 2003.

"This is the largest integrated resort complex in the world and will always be thus," Schaeffer said. "This is the first instance in this industry for a master-planned resort complex."

Deutsche Banc Securities casino analyst Andrew Zarnett said Mandalay's focus on its South Strip properties is one of the company's strengths.

"They're smart," Zarnett said. "They're leveraging their core assets, both Mandalay Bay and a developing Mandalay brand, as well as Luxor, by adding the convention center and the new spa tower. These guys know what they're doing."

Bear, Stearns casino industry analyst Jason Ader credited the Mandalay bosses for transforming their South Strip location into a powerhouse.

"Mandalay's cluster is formidable, especially with the new convention center, which should be a fantastic driver for the hotels and casinos," Ader said. "These guys are sharp. They've dramatically improved the value of that real estate."

The Mandalay Mile may be the city's best geographical cluster, Ader said, the company's Las Vegas positioning remains second to powerhouse MGM Mirage.

"MGM Mirage has the best properties and the best locations," Ader said. "Mandalay took a mix of properties and an average location and made them a lot better. Park Place (Entertainment), on the other hand, with Caesars, Paris (Las Vegas), Bally's and the Flamingo has the worst properties in a great location."

The convention center's role is pivotal for the megaresort row, with Schaeffer predicting the company will be able to sell midweek rooms to convention guests at higher rates than the company can now charge.

"The convention center's most important contribution will be the boost to midweek room rates," Schaeffer said. "We'll be able to substitute very attractive business for our lowest-priced business."

And it is room-rate revenue, not slot machine winnings, that has the greatest effect on Mandalay Resort's bottom line, he said.

"We used to be a slot machine-dependent company, but today we are square in the resort destination business," Schaeffer said. "The pivot for us has been the rising room rates that come from customers that seek out branded hotel product."

Key to leveraging that room product has been establishing the Mandalay Resort brand, and the separate identities of the three megaresorts.

Mandalay Bay, the company's most upscale property, competes against Bellagio and The Venetian at the top of the market, Schaeffer said.

Despite targeting gamblers and hotel guests that probably have left their 20s behind, much of the property's restaurant and nightclub mix aims for the young adult demographic.

"We believe that popular entertainment is about youth culture," he said. "Our target market is baby boomers with high discretionary income, and the baby boomers want what's hip and happening. Twenty years ago, Las Vegas wasn't what was hip and happening. But now, with rumjungle, the House of Blues, Ra at Luxor, Las Vegas is hip. It is happening. And it's great for Mandalay Resort Group."

Schaeffer said he expects Mandalay Bay to continue to be as high-profile as any Las Vegas resort, noting that the company considers its events center, with no rafters or obstructed seats, to be the world capital of championship boxing.

"We designed the events center specifically for boxing, and it's been incredible," Schaeffer said. "When you host a major world championship bout, everyone in the world is looking at you. Mandalay Bay is the center of the world for the night."

Schaeffer said the Mandalay philosophy is to make sure each property is distinct,

Luxor competes with the MGM Grand for the upper middle market, and Schaeffer said the pyramid-shaped property is the most sensitive to Strip room rate competition.

The Mandalay convention center should boost Luxor and Excalibur midweek rates as well, he said.

Excalibur doesn't have many competitors in its mass-market, value-oriented niche, Schaeffer said, citing Park Place Entertainment's Flamingo as among the few players.

"It never hurts to be on the corner," he said of the castle-themed resort.

The southern corner of the Mandalay Mile, at Russell Road, remains open for development, but Schaeffer said it's too early to discuss plans for a fourth and final Mandalay Mile megaresort.