The Mirage Resorts Essay, Research Paper
The Mirage Resorts
At Mirage Resorts, we dream our guests’, address their desires and build resorts to accommodate the experience. Over this past year, we have fulfilled some dreams ourselves, including the opening of two spectacular new resorts- Bellagio on the Las Vegas Strip and Beau Rivage in Biloxi, Mississippi. Mirage Resorts is the world’s leading developer and operator of casino-based resorts. Bellagio, a spectacular $1.6 billion resort inspired by the drama and elegance of fine art, opened in October 1998. Its sister property, The Mirage, ranks first in operating income in the State of Nevada. Treasure Island, located adjacent to The Mirage, is one of the state’s most profitable resorts. In addition, the company owns 50% of the very successful Monte Carlo hotel-casino. Each of these resorts is located on the Las Veags Strip and ranks among the world’s largest hotels.
Mirage Resorts also owns the Golden Nugget, the largest and most profitable hotel in downtown Las Vegas, and the Golden Nugget-Laughlin, which is located approximately 90 miles south of Las Vegas.
In March of 1999, the company opened Beau Rivage, a luxurious $685 million reort in Biloxi, Mississippi that captures the vitality and grace of the New South. The company also intends to build a destination resort in Atlantic City, New Jersey, and recently has assembled another development site at the heart of the Las Vegas Strip.
Financially speaking, 1998 was a transitional year. We incurred a great deal of costs associated with the successful launch of Bellagio. We also were affected by the financial turmoil in the Far East, which hurt our high-end business. The costs of opening Bellagio are now behind us and the Beau Rivage opening costs will be expensed in the first quarter of 1999. As for the Far East, we have seen considerable improvements in our high-end business in recent months.
Our progress during 1998 really is best demonstrated by the success of the new resorts. Both are now accommodating guests and setting new records in their respective markets. The simultaneous development and construction of two such remarkable resorts was perhaps the biggest challenge ever undertaken by our company.
Mirage Resorts 1998 revenues after promotional allowances grew by $105.2 million, or 7%, over 1997, primarily reflecting the October 15 opening of Bellagio. Our casino revenues increased by $35.5 million, or 5%, and our non-casino revenues were up $70.1 million, or 12%.
During its 77 days of operation in 1998, Bellagio achieved net revenues of $220.7 million and operating profit before preopening expense of $34.1 million. Bellagio’s depreciation expense for this period was $18.9 million. These strong initial results were achieved despite high staffing levels and other inefficiencies historically associated with the opening periods of new facilities. We expensed all $83.3 million of Bellagio’s previously capitalized preopening costs in the 1998 fourth quarter. These costs include the costs associated with hiring and training some 9,300 employees, operating the reservation and marketing offices and various other costs incurred before opening this $1.6 billion resort. After tax, the charge for Bellagio’s preopening costs reduced our 1998 earnings by approximately $0.30 per share.
The international business declined during 1998 due to the economic difficulties that have been experienced by certain Asian countries. The devaluation of certain Asian currencies and subsequent declines in certain Asian stock and real estate markets that occurred primarily in the second half of 1997 began affecting the baccarat component of our revenues in the first quarter of 1998. Including Bellagio’s partial-year contribution, out table games revenues declined 2% compared with 1997. Excluding Bellagio’s contribution, our table games revenue declined 22%. Luck was also a factor; our company-wide table games win percentage in 1998 was 19.4%, compared with 21.5% in 1997 and 19.3% in 1996.
Apart from the decline in table games revenues, the other components of the casino revenues generally equaled or exceeded historical levels. Same-store slot revenues, excluding Bellagio, achieved a 2% increase over 1997. Slot revenues including Bellagio grew by $40.2 million, or 12%.
The same-store net non-casino revenues in 1998 were down by 4% compared with 1997, which attributed from primarily to additional competitive pressures in the Las Vegas market. At year-end 1998, there were approximately 106,000 hotel and motel rooms in Las Vegas, compared with 86,000 at December 31, 1995. This increase has resulted in a slight decline in citywide occupancy and room rates as the new capacity is being absorbed. The occupancy and average daily room rates of the Mirage Resorts hotel have generally outperformed the Las Vegas averages. Combined standard room occupancy at the Las Vegas hotels was 97.6% in 1998, 98.0% in 1997 and 98,8% in 1996. Also, the combined average daily standard room rate was approximately $93 in both 1998 and 1997 and $92 in 1996. Excluding Bellagio, the total room occupancy in 1998 remained at approximately 98%, and the average daily standard room rate declined to $89.
Nineteen ninety-eight was not a good year for the stock price. After 25 years in ehich the stock appreciated at a 28% compound annual rate, it declined 34% during 1998. This was particularly surprising, in the past, our stock has performed well in the years that we opened major new resorts. Our stock price recovered significantly in the first three months of 1999, but still has underperformed the market over the past two years.
Wall Street seems to be heavily focused on a few short-term items. One of these is the economic situation in the Far East. In mid-1997, the currencies of certain Far Eastern countries were sharply devalued. Although many of our customers from those areas of the world are very wealthy and remain wealthy after this turmoil, it nevertheless influenced their spending habits during 1998. We could have limited the effect of this on our short-term earnings by reducing our marketing efforts in this area. We chose not to do so. We continue to have marketing offices in several international cities and we have an extensive organization in Las Vegas to cater to this very important clientele.
Apart from these factors, 1998 was a good year. The Mirage maintained its leadership as the most profitable hotel-casino in Nevada, although it is not by any means the largest, Treasure Island, the Golden Nugget, and the Monte Carlo also performed well in competitive market conditions. The Asian turmoil is ending as the yen has continued to do extremely well and the Asian markets are following right along.
3600 Las Vegas Boulevard South
Las Vegas, NV 89109
CEO: Steven Wynn, chairman since 1973