Playboy Enterprises (NYSE:PLA) signed a deal last week with the Palms Casino Resort and the Nine Group to bring the Playboy brand to Las Vegas (yet again). According to the release, there will be a retail store, nightclub, and lounge associated with the agreement. Although details concerning the integration of the Rabbit culture into the various businesses are minimal, one would have to assume that all kinds of merchandise tied to the famous hare logo will be on display and, obviously, for sale. It has also been reported that hostesses will be decked out in sartorial styles reminiscent of the halcyon Bunny days.
This is an excellent move, one that propelled the stock higher when it was announced, indicating that investors are quite infatuated with the bunny hop to Sin City. To begin with, the company thinks that the deal will bring additional revenues in the seven-figure range once the complex's doors open in 2006. In addition, I have to agree with the spin the release gives to the deal, because this time, the spin is inarguable: The gambling desert mecca is indeed a pristine showcase for the Playboy image, as the company has always attempted to associate itself with the upper-crust, high-flying lifestyle of a James Bond kind of character, which is part of Vegas' almost natural, hedonistic appeal.
Another thing to consider is that this is basically a licensing deal; no doubt some expenses are incurred in bringing the agreement to fruition, but it is a more cost-effective scenario for Playboy to give another group the right to develop properties with the Rabbit logo as opposed to the company itself laying out inordinate amounts of capital for construction. It's similar to what Disney (NYSE:DIS) wants to do concerning its retail stores: eliminate the Mouse's direct ownership of those locations in favor of a licensing scheme.
Playboy's last quarter wasn't too titillating. The company still suffers from an inability to grow its paid-subscription base for the cornerstone of the empire, i.e. the magazine itself. There's just so much competition out there from softer-but-still-sexy magazines such as Maxim, as well as late-night mature movies/series on the premium cable properties, and even the whole Internet itself; just throw a few choice keywords into the Google (NASDAQ:GOOG) search engine, and you'll come up with a bunch of free adult entertainment in something like a nanosecond (or so I've heard).
Playboy undoubtedly needs to keep up the effort in refreshing and repositioning its brand stature. Here's a suggestion for the Vegas venture: Don't make it too sophisticated. That may sound counterintuitive, but I'm convinced the company needs to make the Rabbit more hip for a younger, more college-age crowd.
For individual investors -- especially ones with a Y chromosome -- this is a fun one to own, but it is definitely a long-term play and should be considered only in the context of a well-diversified portfolio.
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Fool contributor Steven Mallas owns shares of Disney but none of the other companies mentioned.
