Critical Paths To Casino Development by W. J. Palermo Gaming & Resort Development, Inc. Whereas, there is a logical progression of steps necessary to assure the successful development of casino facility, the critical path is largely dependent upon how one prioritizes the goals. What Price Glory? Every project wants to open as soon as possible, yet often the additional costs associated with fast-track construction and possibly minimizing amenities & quality standards can outstrip the advantages. A recent Class III project in the northeast utilized three construction shifts a day, and a hastily negotiated development loan at three times the typical interest rate, so that they could open six months sooner. The interest charges alone over the life of the loan, not to mention the additional construction costs, exceeded the benefits. Another project in the southwest entailed construction of a temporary facility, whose infrastructure requirements and costs were just as much as constructing a permanent building. The net effect was higher development costs, and an eventual unuseable building with little residual value. Do The Math There are of course many success stories of how a ramped-up development program can be advantageous in terms of establishing market positioning strategies and for underlying political reasons, but these factors should first be weighed, before embarking on an approach that ultimately does not “pencil-out.” Temporary facilities can oft times be very advantageous, especially when markets are evolving, and funds are limited. One project we were involved within Arizona entailed our recommending to the Tribe that, instead of contracting with a management group to finance a large project, who would then participate in the profits, they operate a scaled-down temporary facility in an available retail space, utilizing available funds and short term equipment loans. This strategy provided them with a management learning curve, the ability to test the market response, and accrued operating profits that were sufficient to leverage into the full scale resort casino we eventually developed for them only three years later. Phased Approaches Not to date myself, but in my youth I spent some time as an intern at Grossinger’s, a once popular resort in the Catskills, and I remember how I was initially struck by how “rambling” the place was. There were lobbies in all directions, restaurants and shops in others, and the guest room wings were sprawled around the grounds; hardly an example of the type of proper management efficiency I was studying at the time. While taking a break in one of those many lobbies, I found a book about the resort’s history and it explained how over the years it slowly evolved, section by section, building by building, improvement by improvement. While it was a maintenance engineer’s nightmare, the configuration met the immediate expansion needs and prospered. Eventually however it lost its charm and relevancy, and now sits idle, waiting hopefully for possible redevelopment as one of the three Class III casinos authorized for the region. The point here, aside from stirring my nostalgia, is that proper planning for expansion is always the best approach, and that projects should be designed to evolve as seamlessly as possible. This phenomenon is also quite apparent in Las Vegas and Atlantic City, as many of the older casinos contain adjuncts that result in circuitous paths through seemingly endless corridors, that are eventually razed to meet the new paradigms. Factors To Consider In previous articles I’ve discussed the importance of conducting a comprehensive market analysis before embarking on a casino development program. One of the key aspects of this type of evaluation, and often omitted from studies conducted by many of the feasibility study firms out there, is a determination of how best to meet the measured opportunities in terms of project scope and market positioning strategies in relationship to available assets. Although a study may show strong support for a $100 million facility, such an undertaking may require a level of investment & expertise that is available only through an equity investor partnership. What would happen however, if a smaller project were to be undertaken that would not necessitate sharing profits, while accruing profits for future expansion? Some markets can support such a strategy, while others would not. The recently opened Thunder Valley Casino in Lincoln, California, developed by the United Auburn Indian Community and Station Casinos, Inc., is a good example of how a major installation met an increasingly competitive base and is seemingly “sucking the oxygen out of the market.” It is apparent that a smaller, less complete facility would not have been as proportionately successful, and that Station’s investment and expertise are well worth their share of the profits. On the other hand, sometimes starting-out small is the best approach. Over the years we have worked with the Sprit Lake Sioux, North Dakota, whose earliest casino project entailed utilization of a couple of double-wide trailers and a converted gymnasium. This facility spawned yet another small operation, and both were eventually leveraged into a large installation that now includes a resort and marina, all managed and financed by the Tribe. In this particular market, bigger did not necessarily mean better, and that growing in response to the demand curve, maximized its net returns. A Stitch In Time Once a development strategy has been adopted, there is often a tendency to rush headlong toward opening as soon as possible. Although the project should not languish in unnecessary delays, the critical-path dictates that a “stitch in time, saves nine.” Unless the project is being developed by a highly experienced team of contractors, architects and operators, design-build and fast-track methods can result in missed opportunities and change orders that are both expensive and time consuming. We were recently brought in on a casino & hotel project that was under construction, to help organize the pre-opening process. Unfortunately, the project’s development team didn’t have the benefit of any operational input during the design phase, so the configuration, layouts and equipment specifications were not reflective of either the market demand patterns or efficient management. The gaming pit areas were not efficiently laid out and lacked synergies; the buffet only configuration limited restaurant choices while increasing overhead; their million-dollar kitchen couldn’t produce a room service menu; the gaming floor had not made provisions for floor porters or adequate beverage service; there wasn’t a coat check area; and many other disconnects that result in either lost profits if not corrected, or lost time and additional costs when not detected on a timely basis. The key aspect here is to create a design program that is as comprehensive as possible, and not just limited to general sizing characteristics, such as the number of games, a buffet, a couple of bars and a meeting room. Based on the market positioning strategy, the plan should specify detailed information about every aspect, right down to the menus in the dining rooms. You can’t serve a California style pizza without a wood burning oven, and you can’t have a wood burning oven without the proper ventilation, and you can’t install this type of exhaust hood just anywhere, (at least not economically). Design Team It has been my experience that utilizing the “design team” approach is usually the most efficient method of assuring relevant design, budgets and time-lines. Architectural plans without input from the construction managers typically wind up having to be amended to meet the prescribed budget; so why not involve them in the early stages, and adopt a plan that has already been “value engineered?” The same holds true for the operational aspects of the design program. Having management involvement in the initial planning will assure that the final plans reflect effective day-to-day operations. Moreover, the design team leader should be someone with the “big picture” perspective, that includes the underlying market positioning strategies, the financial goals, the operational knowledge, and is experienced in the development & pre-opening processes. Utilization of outside consultants to fill this role is often preferred, as general managers may not possess the requisite skills, and are otherwise occupied organizing the day-to-day operations. Hard Lines While preliminary plans are necessary to explore design concepts and program relationships, they should not be utilized for any design-build or fast track construction. It is far less risky in terms of maintaining budgets to commission a full set of architectural & engineering plans and specifications that are competitively bid before commencing any ground breaking, especially when they have been value engineered by the design team. Whether the project includes a construction manager and/or a general contractor under a negotiated bid basis, it is the subcontractors that represent the core bidders for the various aspects of the plan. With detailed plans & specs, they can provide far more accurate “takeoffs” in their bidding process, which are also less apt to include large “unknown” allocations that tend to increase the bid when details are not available. Completion Schedules Establishing “realistic & practical” completion schedules with appropriate bonuses and penalties, are always advisable. However, it is important to note that these programs should not be used to “strangle” them, for a bankrupt sub only delays the project completion. It is for these reasons that it is recommended that the financial strength of each subcontract or be an integral part of the bid evaluation process that obviously also includes their previous project history. We’ve Got To Stop Meeting Like This Too often there are too many job progress meetings that waste time by including unrelated construction/design team members. Smaller “subcommittee” type meetings that focus on particular disciplines are usually far more productive, and should be augmented with inter-discipline “coordination” sessions. Logistics The challenge of logistics is to get from point A to point B in the least amount of moves, and flexibility is a key component. As a pilot we learn early in our training that we always have alternative solutions. So on takeoff and landing we have our abort maneuvers handy, and while en route, we are always vigilant of alternative airports should weather or mechanical problems arise. While there are thousands of details attendant to the construction process, there are far more relating to furnishing and equipping a casino operation, and their installation is just as complex. Ideally, everything arrives on site the day it is to be installed, but what typically happens is that the lock-sets arrive before the doors. Having a “staging area” is critical to the critical path. When developing a casino-resort facility in the Bahamas some time ago, the first components we built were the staff quarters and a receiving warehouse. Systems Design As we’ve come to rely more and more on information technologies, and as they become more sophisticated and complex, their design and installation into a new gaming facility is yet another critical path element that must be dealt with early-on in the process. Essentially, these systems connect with virtually all areas of the property: from the front desk, to the gaming pits, to the slot accounting system, count rooms, cages, kitchens, cashier counters, retail shops, receiving dock, housekeeping, and so on. The only way to avoid having to install unsightly power poles throughout the facility to accommodate the installation of an “afterthought” configuration, is to incorporate a fully integrated system into the “hard line” plans, even if it may not be immediately needed. Similarly, items like readily accessible electrical power throughout the gaming floor is essential. Although items such as electric shufflers may not be used on all table games today, they may become requisite some time in the future. Operational Pre-Opening At this point along the critical path, the project construction is running smoothly, on time and on budget (rarely the case, even when everyone thinks it is; but that’s another article). Concomitantly, the day-to-day management team should be organizing each department’s operating formats, procedures and staffing. They too require a “staging” area in which to conduct this process, including interim offices, and hiring/training centers. With many new Class III casinos now offering table games, there is a lack of experienced dealers. Since they require hundreds of hours of training in order to be proficient enough to solo, a new facility must establish their own school, which requires ample space and equipment. Moreover, this is also a good opportunity to set-up a make shift gaming pit to train surveillance staff as well; which necessitates installing strategically located cameras. It is also advisable that some of these key positions, including slot technicians and regulatory staff, be sent to independent and specialized off-site training centers that are becoming increasingly more available around the country. Additionally, there is a growing array of service-related educational and indoctrination type programs available that include audio-visual aids, at-home programs, and on-site lectures that should be included in the general staff orientation. Someone once said that today’s preparation determines tomorrow’s achievement. So long as they weren’t speaking about the Chef’s special, I think that sounds like good advice.
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