INSIDE GAMING: SLS aims to avoid Cosmo’s mistakes

Much has been speculated about the business model for SLS Las Vegas.

Los Angeles-based SBE Entertainment is spending $415 million to transform the Rat Pack-era Sahara into a stylish, ultramodern hotel, bringing to the Strip amenities closely associated with Hollywood and Beverly Hills, Calif.

When the remade hotel-casino opens in September, SLS Las Vegas will have nearly a dozen restaurants and nightlife brands, most owned by SBE. The company operates about 60 trendy eateries and popular clubs throughout Southern California.

The SLS hotel name can be found in Los Angeles, New York and Miami — and it is growing. Other SLS hotels are planned for Seattle, Philadelphia, Boston and Houston. SBE hopes to tap into its vast hotel and nightlife customer database to fill the SLS Las Vegas’ 1,600 hotel rooms.

But the question lingers: Is the SLS Las Vegas focused too heavily on the business’s nongaming side?

Some observers worry SLS will become The Cosmopolitan 2.0.

When it opened in 2010, The Cosmopolitan of Las Vegas won rave reviews for stylish features, spacious rooms and signature restaurants. But it also was criticized for short-changing the casino. The property hasn’t made much money. It lost $19.4 million in the third quarter, following a $25.2 million loss in the second quarter.

SLS Las Vegas President Rob Oseland said his resort won’t repeat The Cosmopolitan’s mistakes.

Earlier this month, SLS announced it would use Bally Technologies’ casino management products to operate slot machine marketing systems and build a customer loyalty program. SLS also agreed to use Bally’s interactive gaming platform. Initially, a free-play casino website will be launched to introduce potential customers to the SLS brand.

Oseland, who spent several years as a top executive at Wynn Resorts Ltd., said the focus on gaming has changed in Las Vegas. Gaming Control Board statistics show casino revenue accounted for 35 percent of Strip properties’ overall revenue in the most recent fiscal year.

Oseland said gaming will account for 30 percent of SLS’ total business model.

“Gaming is no longer the primary source of revenue or income, but we are going to take a very serious approach to providing SLS customers with a high-level gaming platform,” Oseland said.

The former Sahara’s casino area has been gutted and reconfigured to provide a 60,000-square-foot space for 800 slot machines, 80 table games and a William Hill-managed race and sports book. Oseland said an analysis will begin early next year of which slot machine brands, titles and themes the casino will offer.

SLS’ gaming component might eventually include online poker. Oseland said the company will evaluate Nevada’s interactive gaming landscape late next year.

“It’s a tool that will be available to us,” Oseland said.

Recently, SLS hired Mandalay Bay’s former slot marketing director to oversee casino marketing.

“I can’t underscore enough that we’re going to appeal to the gaming customer,” Oseland said.

Gaming experts said casino success is relative to the level of investment. The Cosmopolitan cost about 10 times more to build from the ground up compared with SBE’s budget for the SLS renovation.

In other words, SBE has a much smaller nut to cover.

“We’re excited about the gaming component,” Oseland said.

Wall Street will be watching.

Wells Fargo Securities gaming analyst Dennis Farrell Jr. called SLS “an interesting experiment” whose biggest challenges are its location at the Strip’s northern end and competition for customers as a single-casino company.

“We like their food and beverage concepts and the nightclub offerings,” Farrell said. “But they will have some tough competition.”

SLS Las Vegas is already receiving notice for its restaurants and nightlife. A November article in The New York Times featured the ultrapopular Los Angeles culinary favorite The Griddle Cafe, which is opening its first location outside of Southern California at SLS.

SBE will oversee all aspects of SLS Las Vegas. Its brands, including The Bazaar by Jose Andres, Katsuya by Starck, Umami Burger, The Sayers Club and 800 Degrees, are in the lineup.

But Credit Suisse gaming analyst Joel Simkins said casino operators heavily invested in nightclubs — such as MGM Resorts International’s properties, Wynn Las Vegas and Encore — aren’t going to fold their cards and cede business to SLS.

“At some point, there is a concern about market saturation,” Simkins said of the Strip’s ever-expanding nightlife. MGM Resorts raised the bar, he said, by spending $100 million to open the Hakkasan nightclub at the MGM Grand.

Simkins credits SBE Entertainment CEO Sam Nazarian, however, with keenly understanding what it takes to enter a new market with a new product. He said the SLS hotels in Beverly Hills and South Beach in Miami have become market-leading success stories.

“SLS is going to be a motivated operator,” Simkins said.

With the transformation well underway, employment will soon become a focus.

SLS has abouy 70 employees already on staff, and Oseland said hiring for hotel and casino corporate management positions will start in January.

Afterward, SLS will launch its campaign to hire 2,700 employees beginning in April. Job applicants are being encouraged to visit www.slslasvegas.com/careers for job listings.

Oseland doesn’t expect SLS Las Vegas to have a shortage of applicants.

“We’re giving an opportunity to people in Southern Nevada,” Oseland said.

Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.