Third parties help casinos draw patrons in Las Vegas

"Third-party operators have changed the casino business model," said Tony Henthorne, associate dean for research, graduate and international programs at the William F. Harrah College of Hotel Administration at the University of Nevada, Las Vegas. "It allows casinos to concentrate their efforts on what historically they've done really well. Their strength has always remained in gaming."

Henthorne said most casino operators are "smart enough" to surrender a little control in return for a much greater reward when a specialist with drawing power operates clubs, restaurants and or other amenities that are as much of a draw as their gaming tables.

The us$ 3.9 billion Cosmopolitan of Las Vegas wasn't the first to seek out celebrity chefs, but the Strip's newest hotel concentrated on bringing in chefs who didn't already have restaurants in Las Vegas, and grouped most of its nine third-party operated restaurants in the hotel's third-floor P3 Commons. That's a signature element that appeals to the "curious class" of consumers who like to explore interesting restaurants, hotels and shops. That sense of adventure has translated into packed restaurants nightly and revenue for Nevada Property 1, The Cosmopolitan's parent company.

The third-party restaurants - Comme Ça, STK, Estiatorio Milos, Scarpetta, Blue Ribbon Sushi & Grill, China Poblano, D.O.C.G., Holsteins and Jaleo - generated a substantial portion of the us$ 154.67 million earned from food and beverage at the property in the first six months of this year. During those same months, the hotel's casino brought in a relatively small us$ 69.5 million.

The idea of using a third party to manage different businesses within a casino isn't new. For years, casino sports books have been run independently, with operators paying rent and a percentage of the profits to the house. Casino operators like that setup because it allows a third party with special expertise to set the odds, accept the wagers and take all the risk. But hiring a third-party company isn't risk-free. "The biggest concern has always been if a guest comes to a property, say Caesars Palace, and has a bad experience. Would they blame the hotel and then go gamble at The Mirage?" said Tom Kaplan, senior managing partner with the Wolfgang Puck Fine Dining Group. Other potential setbacks include bad reviews, employee complaints, short-lived restaurants or lawsuits between owners. All have the potential to hurt the casino's reputation.

Creating brand loyalty
Wolfgang Puck is credited with starting the fine-dinning revolution in Las Vegas when he brought Spago to the Forum Shops at Caesars in 1992. Twenty years later, Puck has eight Las Vegas restaurants, including two part-year pool restaurants. "We were really the first group to come to Vegas," Kaplan said. "The landscape is much more crowded today. It's about creating your own niche in a town with a lot of business." Celebrity chefs joining Puck on the Strip include Bobby Flay, Gordon Ramsey, Hubert Keller, Emeril Lagasse, and Mario Batali. If done well, Kaplan said, third-party operators can create a unique customer experience, which creates brand loyalty for the restaurant and casino. "

Robert Lopez, director of accounts with Johnson Gray advertising in Irvine, California, said both companies have to look out for each other's interests. Neither, he said, should rely solely on their own brands when marketing themselves. Kaplan said with "capital tight right now," deals with celebrity chefs or well-known brand make financial sense for both parties.

The Palms, which is spending us$ 50 million to upgrade the property's rooms, casino and other amenities, is relying on third-party companies such as The One Group, which will open Xishi, a pan-Asian restaurant, and Heraea at the Palms, a sports-themed restaurant.

The N9NE Group also has an extensive business relationship with the Palms, operating ghostbar, the Palms Pool & Bungalows, N9NE Steakhouse and Nove Italiano restaurant.

In a statement, Palms said only that the property has "forged many unique partnerships that have successfully brought the Palms brand to life.

Reaching into the past
Although Strip operators may depend heavily on leased venues and third-party operators, Station Casinos is turning back the clock to end leases and operate most restaurants itself. Fifty-seven of the 67 restaurants companywide are owned and operated by Station Casinos. The shift to owned-and-operated outlets began after the locals gaming company emerged from bankruptcy last year. Mark Lavoie, corporate VP of food and beverage, said it was done to create consistent companywide brands. The advantage for Station is more control over food quality, employee quality and marketing and the ability to create brands that executives feel can stand on their own. Eateries controlled by Station, as opposed to those operated by outside chains, allow for more control and consistency across properties, Lavoie said.

Meeting heightened expectations
Although Station has taken a number of brands in-house, the company still relies on third-party dining groups to round out a mix of restaurants aimed at serving its well-defined locals market.

Oliver Wharton, VP of hospitality development, said the locals market has evolved, heightening expectations. The company has found success leasing venues to Yard House, Smashburger and Lucille's Bar-B-Que, among others. Wharton said the challenge, whether the restaurant is run by the house or an outside operator, is gearing the mix of restaurants to local customers, similar to what consumers might find at a mall or in a neighborhood retail setting. "People's tastes have evolved," he concluded.