Thinking Logistics in Sin City

A few days into the 2012 New Year, 30 Stern students and our professor flew into Las Vegas for the "Operations in Entertainment - Las Vegas" course offered by Professor Harry Chernoff. For some students, this marked a return to Las Vegas. For others, this would be their first experience. Over five days, we studied a number of different industries ranging from hotel operations, gaming, real estate development, food/beverage operations, to nightclub management. Not only was the curriculum and Professor Chernoff's knowledge of the real estate industry highly engaging, but our class also had a dynamic mix of full- and part-time students with diverse interests in finance, marketing, operations, technology, and prospects of working in the region.

Although this was not my first time in Sin City, this trip was unlike any other. Instead of naively stuffing myself at the buffet, relaxing poolside and hitting the slots (which would be a dishonor to what we learned in this course – more explanation to come), I joined my fellow classmates to become an inquisitive researcher uncovering various strategies and marketing tactics crafted by top casino executives and business analysts. Each morning, we woke up bright and early, toured major hotels/casinos, enjoyed each other's company over food and drinks, and interviewed executives to learn first-hand how this rich entertainment empire operated. Can you explain which real estate ventures are being continued and which are being abandoned, and why? What are your casino's most profitable revenue sources, and how come?

Sin City economics

Top management presenters made their best effort to describe bets on the city's recovery and when it will occur. Most agreed the bottom had been passed last year, but sluggish unemployment in the local region and lower revenues from slots continue to worry even the most reassured executive. The new openings at MGM Mirage CityCenter (a more than $10 billion cost) and Deutsche Bank's Cosmopolitan (a more than $4 billion cost) look magnificent, but have bills with long pay-back periods which look as distant as outer space. We knew beyond all the glamour and sparkles, underneath the marble gold floorings, the Las Vegas real estate market is among the worst affected by the 2007-2008 financial crisis. The city led the country in mortgage defaults for 22 straight months through August 2011 and home prices plunged 60% from their 2006 peak. With high school graduation rates currently at 49%, employment in the region is still vastly dependent on the service industry.

Thankfully, Sin City is on the road to recovery, albeit slowly. Zappos will be moving its headquarters to downtown Las Vegas in 2013, which will help boost the economy and add jobs in the local area. Existing home sales have increased in the city, too. New mega-hotels/casinos have provided over 10,000 permanent jobs. Although large numbers of jobs are lost when the construction stops, these longer-lasting positions will help absorb the over-supply of housing that still exists. The hotels are back to acceptable occupancy levels, but most casino executives fear that the players may continue to gamble less than they used to. Professor Chernoff explained that as the local housing and real estate vacancies fill, business centers will again begin to thrive and the whole wheel will start spinning again. The biggest questions remain: When this will occur and how long can existing operations hold on?

Up close and personal

Over the week, we also had the extraordinary opportunity to meet with the movers and shakers of Las Vegas. We met with Lorenzo Fertitta, CEO of Ultimate Fighting Championship, Gordon Biersch Brewing Company, co-founder of Station Casinos, and Stern alumnus (MBA ‘93).  It is important to note his family history. Mr. Fertitta's late father, Frank Fertitta Jr., moved to Las Vegas in the 1960s and started working as a bellman. Through hard work, he moved his way up to dealer, pit boss, to casino manager. He saved up enough money to open a locals' casino, Bingo Palace, in 1976.

Over the years, Lorenzo Fertitta and his brother, Frank Fertitta, transformed their father's casino into the country's fifth-largest gaming company. Even with the success they established with multiple hotel resorts in Las Vegas, Mr. Fertitta's entrepreneurial spirit led him to purchase the UFC in 2001 when the company was in a dire situation. He saw an opportunity to rebrand the company and has successfully built the UFC into a franchise with exceptional pay-per-view coverage, brand extensions into magazines, reality shows, collectibles, video games, all whilst incorporating social media into each business unit. Mr. Fertitta showed how focusing on the company's core competency coupled with unrivaled distribution channels catapulted the UFC to its current popularity. For someone who has not viewed a fight before, you can count me in on catching the next one. When Mr. Fertitta shared his views that competing and fighting is universal, it resonated with me that in all areas of life, there will always be competition – fighting for a better job, better life, becoming a better person.  

We also had a wonderful experience meeting with Las Vegas Superhost Steve Cyr. His biography, "Whale Hunt in the Desert," provides a depiction of his career as a casino host, one that will keep your adrenaline pumping. What the book did not capture is his affable charisma. It's true that in Vegas, you can find all types of jobs unfathomable in New York, and Mr. Cyr's job is an example of this. As a casino host, he lures so-called "whales" (multi-million dollar high-rollers from around the world) to gamble at casinos he represents. For 20 years, he has been making sure his whales are happy by arranging ultra luxury villas fit for royalty, front-row seats to superstar concerts, tennis games with Andre Agassi, all in exchange for some gaming play. Basically, he can make anything happen (okay, just about anything).