Las Vegas been built on a long history of bold bets on ever larger casinos resorts that have resulted in the Las Vegas Strip we see today. But along the way, there have been plenty of bad bets that went bust. Fountainbleau sits empty on the north side of The Strip to this day, Harmon Tower in CityCenter is being taken down before anyone stayed a night there, and the High Roller ferris wheel behind Flamingo appears to have been a flop from Day 1.
The next flop could already be taking shape behind the New York-New York resort where MGM Resorts (NYSE:MGM) and AEG are building an arena with the hopes of drawing big crowds for ... something. I don't think the problem will be attracting crowds to fights or concerts -- it'll be what happens to those crowds after the event is over.
The arena on the Las Vegas Strip
Las Vegas Arena and The Park, as the complex is being called, is a $375 million, 20,000 seat facility built to NBA and NHL specifications. There are discussions around the NHL expanding into Las Vegas (I'm not making that up), but right now the Las Vegas Arena is being built without the guarantee of a permanent tenant from either league. Instead, it will initially focus on attracting UFC, boxing, concerts, and award shows.
Part of the goal is to attract large events like the NBA Summer League that's currently held at the 18,500 seat Thomas & Mack Center. But it'll also attract events that may have been held at the 16,800 seat MGM Grand Garden Arena or the 12,000 seat Mandalay Bay Events Center, both incidentally owned by MGM Resorts.
It's unknown whether that fairly small area on the south end of The Strip can handle three arenas, but the problem for The Las Vegas Arena could come down to location and Las Vegas' economics. Attracting events won't be enough to make the arena a success, MGM wants people to stay and gamble at their nearby casinos.
What makes arenas in Las Vegas work
Let's say AEG and MGM are indeed able to fill the new arena with people a few times a week -- then what? Las Vegas' other arenas are successful because when patrons leave they file directly into the casino. That's where the real money is made and it's easy to drop a few more dollars before heading home for the night.
As you can see above, The Arena is being wedged behind New York-New York and will be flanked by New York-New York's parking lot and CityCenter's employee parking lot. If people do want to walk past the parking lots to a casino, it's nearly a half-mile walk just to get to a casino floor from The Arena.
I understand that MGM is working with the land they have, but after an event it's going to be easier for people to hop in their car to go home or catch a taxi to another hotel than it will be to go to head to the gaming floor at New York-New York or CityCenter. That seems to defeat the purpose of the arena in the first place.
Time will tell if The Arena flops
Even if the arena can attract an NHL team it's unknown whether or not consumers will want to see regular sporting events in Las Vegas. Asking visitors who are there for a few days to take in a hockey game in the middle of the desert is a stretch and asking them to walk past a parking lot to go to the casino might be to.
The Las Vegas Arena and The Park are set to open in early 2016 and it won't take long to see if Las Vegas customers like it. If the arena becomes the "go to" venue for UFC fights, short concert runs by pop stars, and other sporting events it could be a success for AEG and MGM. If it's not the hottest venue in Las Vegas it'll be a flop out of the gate.
Even if people fill the arena, it's still unknown if people will head home from the arena or make the trek to a gaming table at New York-New York, CityCenter, or Monte Carlo. If they don't stick around and spend money in casinos MGM will view the project as a disappointment. It's a big gamble and I have doubts an arena in Las Vegas flanked by parking lots will be a success. Time will tell if those doubts are justified.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.