When demand is soft, any freshman taking Economics 101 learns, it's best to tighten up supply.
Unless you're Vegas. Then you go on ahead and open another sleek, multibillion-dollar mega-resort with another 3,000 rooms and hope it is the catalyst for better times.
The $3.9 billion Cosmopolitan of Las Vegas, a two-tower, 52-story casino-hotel, made its debut tonight, that rough economic environment be damned. Construction began back in 2005, when the Vegas boom was so robust that few imagined anything could ever go wrong. Building was too far along by this year to turn back, so the doors opened following a ceremonial dice throw by chief executive John Unwin, who rolled a nine.
"If you don't open it, it's not going to make any money," said Robert LaFleur, a gaming and hospitality industry analyst for Hudson Securities. "So you can finish it and open up a fairly nice casino resort that's going to be coming into a market that is staging a slow but very grudging recovery."
Unwin is more optimistic than that. After all, that's his job.
The former general manager of Caesars Palace believes he's imbued the project with an aura of high-class naughtiness -- the slogan is "Just the right amount of wrong" -- that will appeal to an educated, urban, artistic clientele not yet enticed by Las Vegas offerings. A fleet of vaunted chefs, mostly from New York, and unusual boutique shops from Los Angeles will provide incentives for these people to either discover or return to Vegas.
The architecture is unusual for Vegas. The massive resort with all those rooms -- plus a 100,000-square-foot casino, 150,000 square feet of meeting space and a nightclub that overlooks the city's skyline -- sits on only 8.5 acres. Most Strip resorts sprawl across as many as 100 acres, so the Cosmopolitan has a vertical, intense feel that is intended to be like an urban environment.
That's appealing, Unwin told AOL News, to what he dubs the "curious class, a group of 59 million Americans who self-identify as creative, broad-minded, of enjoying diversity. They like foreign foods, they like hotels with interesting concepts and they like to travel."
That may explain, for instance, why the first TV ad for the property aired during the season finale of AMC's "Mad Men," he said.
[Click here to hear Steve Friess' podcast interview with Cosmopolitan CEO John Unwin]
To some, this is mere marketing hype. The idea that 59 million people -- that would be more than one in six Americans -- are unaware of what Vegas offers in terms of sophistication is questionable, said E.C. Gladstone, a Vegas blogger for Orbitz.com.
"I do believe there is a large number of people, largely East Coast people, who do feel there's nothing in Las Vegas for them," Gladstone said. "Whether or not the Cosmopolitan is somehow going to attract them in ways that CityCenter or Wynn and Encore or Bellagio or Venetian and Palazzo haven't is something I'd be interested in seeing."
If all this sounds familiar, it's because a year ago this week marked the opening of CityCenter, an $8.5 billion project that included six skyscrapers and a 500,000-square-foot mall. The intent was to manufacture a 67-acre urban campus anchored by a 4,004-room hotel-casino, Aria, and including two other non-gaming hotels and thousands of condominium units spread across four of the buildings. CityCenter is immediately to the south of the Cosmopolitan.
At that time, MGM Resorts CEO Jim Murren insisted there were large swaths of well-heeled people seeking this metropolis feel on their vacations. Yet the economy has remained stubbornly sullen, and Murren's prediction that CityCenter would single-handedly drive a 7 percent increase in visitor volume in 2010 did not come to pass. One of the buildings, the Harmon, may implode before it ever opens, partly because demand for the rooms isn't there and partly because it has been beset by construction problems.
What both Murren and Unwin fail to realize, casino mogul Steve Wynn says, is that urban people don't seek urban experiences when they travel. Wynn virtually invented the notion of high-end Vegas with the Bellagio in 1998 and the Wynn Las Vegas in 2005, both of which continue to garner some of the Strip's top room rates.
"People want something they can't get at home," he said. "They want to go out to Las Vegas and have a party in an environment that is a resort environment, that's a fantasyland. They don't want to be in a steel concrete structure like they can in downtown Detroit or downtown Chicago or downtown New York or downtown Baltimore. They want to look and see green and sky and feel like they are free, and for that you need natural light and sunshine, flowers and plants. That's how you get to be free."
Unwin, of course, is undeterred. His resort has many intriguing design features, most notably
the three-story chandelier at the center of the casino, which contains 20,000 square feet of bar and lounge spaces, and some of the only rooms with balconies on the Strip.
All of this, of course, is academic if Americans don't begin to feel more comfortable spending disposable income on vacations. Unwin, Wynn and other operators insist that convention bookings for Vegas are looking great for 2011, but there remain many trouble signs out there.
"I don't think any specific property is the key to the turnaround to the Las Vegas economy," said Stephen Brown, director of the Center for Business and Economic Research at the University of Nevada at Las Vegas. "The key to the turnaround of the Las Vegas economy is tourists having more money. It's not the attractions that are the problem. The problem is that the American public isn't feeling as wealthy as it did two years ago."
What worries competitors is that adding 3,000 more rooms in a market that already has 148,000 will dilute whatever demand is starting to return.
"Our room rates suck," said Phil Ruffin, owner of the Treasure Island Hotel-Casino. "We get what we can, but we've kept low rates to try to stay competitive. Hopefully, it picks up next year. With all those rooms coming on board, the struggle is going to be room rates."
"I've been practicing for this my entire professional career," he said. "I see myself as the little guy. I'm the indy, we're the start-up and we're spunky, and we're going right after it."
Good luck, Wynn says.
"The Cosmopolitan is an extraordinary example of ill-conceived plans," he said. "If that young man they brought in, if he makes a go of this, he gets the Nobel Prize."