Casino's Gamble on Vegas Conventions

By Tamara Audi
From The Wall Street Journal Online

More than a decade ago, before his name started popping up on lists of the world's richest men, Sheldon Adelson had an idea few thought would work: build two massive casino-resort hotels on the Las Vegas strip joined by millions of square feet in convention space. In those days, the convention trade was just an afterthought in Vegas, a mechanism to fill rooms during the week before the gamblers invaded on the weekend.

Now the Las Vegas Sands Corp. chief executive's vision is nearly complete, and Vegas's convention and meetings business has transformed from filler during slow periods into a pillar of the casino industry.

In late December, Las Vegas Sands plans to open the $2 billion Palazzo hotel tower, next to the company's Venetian hotel, which opened in 1999. Both hotels, with their total of more than 7,000 rooms, will be linked to the recently expanded Sands Expo and Convention Center.

When the Palazzo opens, the company will unveil a marketing campaign that pitches the entire 19-million-square-foot complex as MEGACENTER -- in all-capital letters true to Mr. Adelson's "bigger is better" style. The center's 2.25 million square feet of meeting space, Mr. Adelson says, is more than that offered by the entire city of San Francisco.

Without stepping outside, a guest at either of the hotels would have access to 30 restaurants, two spas, casinos, theater and shops -- as well as five stories of meeting space with rooms for groups as small as 50 and as large as 55,000.

The completion of the complex comes as the Las Vegas convention business is in the midst of a boom, with resorts aggressively pursuing the convention business as profit from hotels, restaurants, spas and other entertainment has outstripped that from gambling's slot machines and blackjack tables.

Though conventioneers have tromped across casino floors on their way to exhibit halls and conference rooms for decades, their numbers -- and spending -- have recently skyrocketed. Last year, 6.3 million business travelers visited Las Vegas for conventions or business meetings, up from 5.7 million in 2004, according to the Las Vegas Convention & Visitors Authority. Those visitors spent $8.2 billion. The group says it has tracked a significant increase in the number of business conferences, smaller group meetings of anywhere from 10 people to 1,000. Meanwhile, conventions and trade shows draw tens of thousands of visitors annually.

"In the last five years you have seen an explosion of meeting space and exhibit space," said Chris Meyer, vice president of convention sales for the LVCVA.

In the past, Las Vegas businesses didn't see conventioneers as a prime target, in part because their rooms were steeply discounted and some groups were notorious for their light gambling habits. These days, weekday room rates at convention hotels have risen because of the rising demand from business travelers. And even if convention attendees don't gamble, they often spend on Vegas's vastly expanded retail, dining and spa offerings.

Mr. Adelson, a native of Boston, made his name and fortune with Comdex, at one time Las Vegas's premier computer trade industry show. He has made conventions the centerpiece of his business model at the Las Vegas hotel, casino and resort development company.

Today's business is certainly a long way from when Mr. Adelson took over the Las Vegas Sands casino in 1989. Then, the average daily rate for a room was $60, he recalls. He demolished the old casino -- an iconic locale that hosted Frank Sinatra and the rest of the Rat Pack in its heyday -- to make way for the all-suites Venetian. In the first three quarters of this year, the average rate for a night at the Venetian was $259, with 99.7 percent occupancy. Mr. Adelson attributes the rise in room rates in large part to the convention business, and his company says 40% of the Venetian's overall occupancy comes from convention and meeting visitors.

The company opened Sands Expo in 1991, and last year added 400,000 square feet of meeting space to it.

Even hotels without massive exhibit halls are eager to take advantage of growth in the meetings business. Harrah's Entertainment Inc., which owns six properties in Vegas, recently recast its conference strategy by offering the same perks and discounts at all Harrah's properties for a single event. Planners and VIPs in attendance also get a "diamond" card allowing them to wait in different lines than tourists at all Harrah's properties. The visitors and planners "get this unique experience with varied properties, but they also get to leverage their spending with one organization," says Michael Massari, the vice president of Las Vegas Meetings By Harrah's Entertainment. Harrah's started the program in 2005, and revenues from its conference and meetings business have grown by 43% from 2004 to 2006, he says.

In 2003, MGM Mirage significantly increased the convention and meeting space at its Mandalay Bay property from 200,000 square feet to 1.5 million square feet.

The LVCVA is expanding the city's free-standing convention center by a million square feet. When the expansions and renovations are complete in 2012, the center will total four million square feet.

Even as Vegas puts the finishing touches on new convention space, and plans still more meeting space in the future, business travel may drop if the U.S. economy continues to slide. That could put a dent in Vegas' convention business in the short term, analysts say.

"It's reasonable to expect some slowdown. But hotel and convention centers aren't disposable assets. You build them for the long-term,'' said Robert LaFleur, a lodging and gambling analyst for Susquehanna. "And at the end of the day, people will want to go to Las Vegas. They always have, and they always will."

Las Vegal Sands executives said that one hurdle with Megacenter is to avoid overwhelming visitors. They stress that the two hotels are run as separate entities with separate staffs and lobbies for better service.

"The customer gets a critical mass of a 7,000 room complex in an intimate 3,000 room setting," said Sands executive vice president Brad Stone, only half-joking. Mr. Stone, who has been with Mr. Adelson from the early planning stages 12 years ago, says the Palazzo was in the works for so long that the concept changed from an island resort motif to a luxury concept -- reflecting Las Vegas's move away from the theme-park trend in favor of more grown-up decor.

The Palazzo is joined to a section of the Venetian that houses a theater and restaurants, and leads directly to exhibit and meeting space. Unlike the Venetian, with its gondoliers and renaissance clown jugglers, the Palazzo features soaring sunlit spaces, clean lines and wide corridors that will be filled with gardens and fountains. On a recent tour of the property, a sleek Barney's department store was taking shape, along with an ornate, low-lit cafe.

"The vision for this property has been validated a long time ago," Mr. Adelson said. At the time he was planning the hotel-convention complex, "everybody always thought I was nuts...Now everybody is copying us."

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