Casinos ready luxury salons

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MGM MIRAGE Inc.’s MGM Grand and Park Place Entertainment Corp.’s Caesars Palace each plan to open private gambling rooms in the fall. Such salons had been illegal in Nevada, where state law requires gambling to be public and accessible to regulators. But in 2001, the Nevada legislature heeded the cries of casinos struggling to compete with private salons overseas and voted to allow the closed-door rooms. “The persuading argument was there was a whole potential market of players that would not otherwise come to Vegas,” says Dennis Neilander, chairman of the Nevada Gaming Control Board.

The board authorized the first private gambling room, at the MGM Grand in June. It will require private salons to operate around-the-clock video surveillance cameras, so that regulators in their offices can observe the play in real-time.

Private gambling is the most deliberate effort so far by U.S. casinos to harpoon more “whales,” players with $500,000 in cash or credit who fuel casinos’ lucrative high-end games, where betting starts at $500. The Strip has been losing international whales for years to private casinos in burgeoning gaming markets such as Macau, Australia and elsewhere in Southeast Asia. For Caesars Palace and the MGM casinos, where high-end play contributes as much as 25% of revenues, overseas competitors have made the game even more volatile and risky.

Whales nearly disappeared from the Strip after Sept. 11 brought travel complications; with the stock market sputtering, they are staying away. Bear Stearns analyst Jason Ader estimates that high-end gaming by international players in Las Vegas is down 15% to 20% this year, still not fully recovered from the 75% plunge in September. Money wagered at baccarat tables — most popular with Asian high rollers — was down 62% in June compared with a year earlier, the Nevada gaming board says; casinos’ baccarat winnings for June were down 84%.

Undaunted, the MGM Grand is still hunting whales. It is remodeling its Mansion Casino wing and expects to start offering private gambling there in September. Among the changes: thick doors to keep oglers out. (Casino executives note, however, that even in high-roller rooms open to the public, ordinary patrons have usually felt too intimidated to drop in and watch.) The area will have a hallway leading directly from high-roller hotel suites to private UFABet gambling rooms — eliminating the need for big spenders to pass through public spaces on their way to play.

Caesars Palace, meanwhile, expects to win approval next month for private salons. It plans to add doors to rooms in a high-roller tower that it opened late last year, in anticipation of the approval.

Analysts suggest it will take more than privacy to bring back whales. Both MGM Mirage and Park Place say they are actively courting international high rollers, relying more than ever on marketing agents to work connections overseas. When wealthy gamblers do visit, they can expect the royal treatment. MGM flies its best customers in on private jets. Park Place hosts cultural events and throws celebrity-studded parties. When big-name entertainers come to town, big gamblers often get free tickets.

The perks are hurting profits. A whale’s high-end hotel room can cost up to $20,000 to build and stock, calculates Ashley Craig, an analyst with Morgan Stanley. Today’s big spenders get more than monogrammed bathrobes: They often receive in-room dining with a private chef, unlimited wine and drinks, money for shopping, discounts on losses, promotional chips and cash incentives, Ms. Craig says.

In fact, the high-end game has become so competitive that the Rio, a unit of Harrah’s Entertainment Inc., dropped out of the running last year. “Several quarters in a row we just didn’t come close to making our projected numbers,” a Harrah’s spokesman says. “You can easily lose a million dollars to one high roller.” The Venetian, a unit of Las Vegas Sands Inc., says it has become more “selective” about pursuing high rollers.

Large companies with several properties catering to high rollers — such as MGM with its MGM Grand, Bellagio and Mirage casinos — have fared the best, Morgan Stanley’s Ms. Craig says. If a high roller feels unlucky at one hotel, he or she can move to another owned by the same company. The longer a casino can keep a player betting, the greater its odds of winning.

The companies are starting to show restraint. Caesars Palace officials say they are saying “no” to high rollers’ demands for extravagant bets or excessive discounts on losses. Caesars’ President John Groom attributes the casino’s second-quarter profit rise to “being attentive to profitability in high-end play.”

“I won’t say we’ve never made a bad decision,” he adds. But while trying to give high-end customers a fair shot at winning, the casino also is being mindful of the bottom line. Caesars Palace now follows guidelines when dealing with such customers. “You can be willing to pay no more than what the play is worth to you,” Mr. Groom says. “That’s where people got off track a bit.”