Rebirth of the Cosmopolitan

New ownership has refined some aspects of the resort, and the results are showing

William McBeath, president and CEO of the Cosmopolitan of Las Vegas, makes a few remarks Wednesday, Feb. 18, 2015, during an event celebrating the resort’s new ownership by Blackstone.

High-Limit Slots at the Cosmopolitan

A view of the new high limit slot area at the Cosmopolitan Wednesday, Jan 13, 2016. Launch slideshow »

The casino at the Cosmopolitan looks much different today than when the Blackstone Group took over the resort in late 2014.

In just the past few months, the casino debuted a high-limit slot space, a chic cocktail lounge called Clique, a relocated race and sports book, and a revamped Bond lounge. And there are more changes to come.

For instance, a Starbucks is slated to open soon by the resort’s eastside entrance to Las Vegas Boulevard. CEO Bill McBeath also plans to make changes to the iconic Chandelier Bar and move the location of the resort’s Identity loyalty program.

It’s all part of a new strategy led by McBeath, who was named CEO in December 2014 as the Cosmopolitan was changing owners. Blackstone bought the resort from Deutsche Bank for $1.7 billion.

McBeath spearheaded the development of a business plan that included about $200 million in investments in areas such as the casino and the resort’s food and beverage offerings. The goal was to bring those areas more in line with the “cool, hip Cosmo brand” the resort already had established, McBeath said.

“In a lot of areas, we weren’t delivering on that expectation — specifically in the casino,” he said.

Slots, in particular, left a lot of room for improvement before McBeath took over.

The resort used to have high-limit slots and table games all in one place on the casino floor. Now, high-limit slots and tables have distinct spaces.

“Through the years, we’ve discovered that that’s not the same customer,” said Kevin Sweet, the Cosmopolitan’s vice president of slot operations and marketing. “They really don’t want to be in the same room. To truly provide great guest service for both ends of the spectrum — tables and slots — each one of them needs its own address.”

Even before segmenting the high-end gaming areas, the Cosmopolitan already had made significant progress growing its gambling revenue.

Compared with 2014, gambling revenue rose 13 percent through the first nine months of 2015, resort officials reported to the Securities and Exchange Commission. Slot revenue grew 20.4 percent, and table games revenue increased 9.8 percent. The Cosmopolitan’s strong casino performance bolstered two straight quarterly profits, a major accomplishment given the resort consistently had been unprofitable since it opened in December 2010.

Casino revenue growth alone wasn’t responsible for the profit. Net revenue actually was down slightly during the first nine months of 2015. Operating expenses, however, fell sharply year over year, with depreciation and amortization expenses showing a particularly significant drop, from $125.6 million in the first nine months of 2014 to $83 million in 2015.

Depreciation expense declined because of a revaluation of the fixed assets related to the Blackstone sale, Cosmopolitan officials said. In other words, the purchase price of the Cosmopolitan was lower than what the resort had been valued at by its previous owner.

“It’s difficult to maintain a case that the value of an asset is X, if it sold for .8 of X,” Union Gaming Group analyst Christopher Jones said.

The Cosmopolitan also reduced operating expenses for the hotel, food and beverage, entertainment, sales and marketing, and corporate operations.

That the Cosmopolitan was able to grow casino revenue so strongly is noteworthy because gaming revenue on the Strip was relatively flat in 2015.

Jones said the resort had been “undershooting its potential” in the past. He said he was confident about how the casino had changed since Blackstone and McBeath entered the picture.

“Moving into the higher end and ultimately more profitable side of gaming requires investment into quality facilities and the willingness and ability to handle the sometimes volatile nature of the high-limit gaming business,” Jones said. “One only needs to walk the floor of the Cosmo, especially on the weekend, to see that they have made positive improvements to their gaming business.”

The casino at the Cosmopolitan is smaller than many other Strip resorts’, and with much of the Cosmopolitan’s nongaming amenities located on higher floors, customers easily can bypass tables and slots. But McBeath said the layout is beneficial in important ways.

“The corporate meetings love the Cosmo because of how compact it is and how easy it is for their delegates to move up and down and through the space,” McBeath said. “You don’t have to traverse three-quarters of a mile to get to your meeting room, and we think that’s an incredible positive.”

The impact of Blackstone and McBeath has not been limited to the casino floor.

During the first nine months of 2015, the Cosmopolitan’s revenue from entertainment, retail and other areas dropped 21 percent as the resort held fewer entertainment events than it did the previous year. But related expenses fell 32.8 percent over the same period.

McBeath said revenue often was less than expenses for the resort’s entertainment bookings in the past. Accordingly, resort officials have taken a more judicious approach to entertainment costs.

“We put as many offers out there for acts; we just modified what we were willing to spend based on what the public was willing to consume at a price that allowed us to make money,” McBeath said.

McBeath said he expected to have more entertainment events in 2016.

And moving forward, the Cosmopolitan is scheduled for even more physical changes. Restaurants Eggslut and Beauty & Essex are set to debut this year, and McBeath said the resort is working on plans to create “Manhattan penthouse-type” suites on the top floors of its east tower.