Imagine walking down the famous Strip in Las Vegas and entering Deustche Bank. Not only to withdraw money from an ATM or to perform any other financial transaction, but also to play on slot machines and take up lodgings for the night! Deustche Bank is slated to open The Cosmopolitan of Las Vegas on New Years’ Eve 2010 with the most expensive Las Vegas casino resort in history!
Origin of Deal
The German banking giant has inadvertently entered the glamorous world of gambling. This happened when the recession forced the initial developer Ian Bruce Eichner to default on loans given to him in 2008 to build The Cosmopolitan of Las Vegas. What started off as a small loan to the developer snowballed into a mega eye-popping figure from where there was no turning back?
With real estate prices nose-diving, there were only so many ways the bank could turn. It could either write off the loan or continue what Eichner started in its own vision. At that time Deustche Bank’s stake in the project was $1 billion. The bank was unable to find any other partner to operate the casino. The prospective deals with The Hilton and MGM, among many others, fell through. Then the bank took upon itself the running of the show pouring in a further $3 billion!
The Cosmopolitan of Las Vegas:
• A two-tower building with a crystal bar and a glass facade built on 8.7 acres of land and 75,000 square feet of casino space will welcome visitors.
• It comprises 83 poker tables, 1474 slot machines, and 3000 rooms available for rent.
The Upside:
• Recession on the Strip is said to be hitting rock bottom. Casinos have started making a slow recovery into the green though not comparable to the profits earned in places like Macau.
• Deutsche bank is known to be a classy bank and its reputation will be its main pull. The Cosmopolitan is advertised as a place where you can get away from the stuffy atmosphere of the other casino resorts and enjoy an ambience of undisturbed and extensive opulence.
The Downside:
Deustche bank has already written off $1 billion of the loan disbursed.
There is no prior base of customers to take over. The resort is literally starting from scratch in terms of construction as well as business.
The recession and sub-prime crisis have subjected financial institutions to intense scrutiny and added regulation. Opening a casino in these troubled times could be inviting unnecessary difficulties.
What the Competition Says:
Competitors are concerned that in an effort to ensure room occupancy, The Cosmopolitan of Las Vegas will run down prices, threatening their existing customer base. Even Deustche officials deny contemplating this strategy.
Running a casino is not child’s play as even established players are taking a hit in the rough recessionary waves. As this is not Deustche Bank’s strong suit, there is justified skepticism on chances of staying afloat.
The road to success lies in cashing in on the initial interest that a new entrant in the market is likely to elicit and thereon keeping customers loyal with bonuses and promotions. It will be a cut-throat market place with stiff challenges ahead – Deustche Bank definitely has its work cut out.