Assignments#4: Bellagio

Please read attached articles. Your assignment is to write a summary of the case and identify the problems. Use double-spacing, 12 point, TimeNewRoman, and no more than 2 pages. THE WRITER MUST READ THE ARTICLE FIRST AND THEN TO WRITE THE PAPER!!! Unknown' electrical trauma keeps resort closed By ROD SMITH GAMING WIRE The Bellagio, the flagship of the MGM Mirage chain, was closed and completely powered down Monday as workers continued efforts to repair systems damaged by an "unknown" electrical trauma early Easter Sunday, company spokesman Alan Feldman said. The power problems, which started about 2 a.m. Easter morning, led Bellagio officials to begin closing the property Sunday, forcing the resort to begin moving guests to other properties and sending many of its 8,000 employees home because its backup power system had to be shut down. The guests still registered in 800 rooms Monday morning were checked out of the hotel during the day, after which all electrical systems were shut down except for minimal emergency power. The hotel will be closed for at least 24 hours. By late Monday, MGM Mirage and Nevada Power officials still had not determined precisely what caused the power outage, which analysts estimate is costing the MGM Mirage at least $3 million per day in lost revenues. The officials did not know how soon full power would be restored to the five-star resort. Feldman said MGM Mirage hopes to begin restoring power to the hotel-casino today and that the hotel may reopen late today. However, as a newly built resort, the Bellagio relies on many complex technological systems which will require rebooting and testing before they are again operational, and the reopening might have to be delayed, Feldman said. "It's not as simple as throwing a switch. It's going to take time," he said during a Monday morning news conference. However, Feldman said whatever caused the initial power failure was not the responsibility of Nevada Power. "The lines that failed are between the power management system and the Bellagio. This is not Nevada Power's thing. They are out lines. We owned them, they were planned according to our specifications and we installed them," Feldman said. The darkened Bellagio on the Las Vegas Strip reflects off the lake in front of the hotel Monday. The Bellagio's power has been out since early Sunday morning. Photo by Jeff Scheid. A worker pulls a section of cable Monday from a manhole on Frank Sinatra Drive behind the Bellagio. Photo by Gary Thompson. 2 An investigation will be started as soon as power is restored, including the possibility that sabotage caused the initial blackout although there was no indication that had been the cause of the problems, Feldman said. The MGM Mirage spokesman, however, noted that all efforts at this time are focusing on restoring power to the megaresort. Feldman said Monday that Sunday morning's "unknown event compromised" the main power line leading into the 3,000-room Strip megaresort, damaging thousands of feet of cable beyond repair. Because Nevada Power does not maintain a sufficient inventory of replacement cable in Las Vegas, wiring for the massive replacement project had to be shipped in from Los Angeles and was arriving Monday morning. Backup power at the megaresort was brought online briefly after the initial blackout Sunday, but had to be turned off almost immediately so engineers could assess and begin repairs to correct the problems. During the news conference, Feldman suggested a possible design flaw in the development of the $1.6 billion resort may be responsible for the problem with the backup power system. Transmission cables for both primary and backup power run parallel to one another through the same duct work, which made it impossible to run the backup system while the primary power failure was being assessed and repaired. An industry insider and engineers who asked not to be named said running cables from the primary power source and the backup power source through one power duct rather than two eliminated a necessary redundancy in the system. The Bellagio, which opened in 1998, was originally designed and developed by Mirage Resorts which was headed by Las Vegas developer Steve Wynn who was not available for comment. The megaresort, which had been fully booked for Easter and Monday, generally accounts for $3 million a day, or $1 billion a year, out of MGM Mirage's total revenues, estimated to reach $4.1 billion this year, said Deutsche Bank analyst Marc Falcone. He said by the best estimates available, the closure will likely cost the company just under $1 billion in cash flow, a key measure of profitability. In addition, sources said the MGM Grand Conference Center computers, which normally run from the Bellagio, were shut down cutting off its booking and reservations systems. However, company spokesman Yvette Monet said a manual booking system has been instituted and such systems have encountered no problems in the past. 3 "If this persists, the financial impact becomes greater than a couple of days, of course. If that's all it is, it's not material since business has been strong and it is early in the quarter. Otherwise, it'll add up quickly," Falcone said. Guests in about 2,000 rooms were relocated to other hotels Sunday. All of the guests in the remaining 800 rooms, as well as guests with reservations for another 1,100 rooms, were being referred to sister MGM properties -- MGM Grand, Treasure Island, New York-New York and the Mirage -- to Caesars Entertainment hotels, and to the Monte Carlo, which is owned in partnership by MGM Mirage and Mandalay Resort Group. Feldman said it was not clear how many guests had been referred to MGM properties and how many had been referred elsewhere, but Caesars Entertainment spokeswoman Stacy Solovey said her company had been able to provide more than 600 rooms at Caesars Palace, Bally's and Paris-Las Vegas to visitors who been forced to vacate the Bellagio. "As always, we're willing to help out our friends on the street and we're doing everything we can to help," she said. Feldman said the conservatory will not be damaged while the hotel is shut. Workers have been hand-watering the plants. Furthermore, enough air is circulated by the minimal emergency power that the art work hanging in the hotel and in the Bellagio Gallery of Fine Art should not be damaged, Feldman said. The Clark County Fire Department sent inspectors to Bellagio to ensure that fire safety features remained operational from emergency power. "A number of safety features have to have electricity to function, such as emergency lighting and pumps for sprinklers," Fire Department spokesman Bob Leinbach said. "We've been in touch with them and we're monitoring it closely. If there is a need for (fire) surveillance, we will ask them to do that." Meanwhile, guests with reservations who have questions about accommodations are being asked to call 693-7223 for information or assistance in finding alternative accommodations. No performances were scheduled for Cirque du Soleil's "O" show Monday or today, Feldman said. Refunds will be given to guests with tickets to any shows, and guests with room reservations who need other accommodations are being handled on a case-by-case basis. MGM Mirage closed Monday at $46.25, down 18 cents on 328,700 shares traded, just over half the normal trading volume. 4 Tuesday, April 13, 2004 Copyright © Las Vegas Review-Journal Bellagio workers lose out on pay Wages lost to power outage should be restored, union says By ROD SMITH GAMING WIRE The continuing power outage at the Bellagio has left many of the megaresort's 8,000 workers out of work and without pay for at least a day. D. Taylor, secretary-treasurer of Culinary Local 226 which represents 3,925 of the workers, said the idled workers and lost pay are a serious concern to the union and it will urge the company to restore workers' hourly pay while the resort is closed. Taylor said the idled workers are of great concern to the union on two fronts because workers will lose both their hourly pay and their tips. "I don't know the full scope of the effects on our workforce yet and once we know that, we'll talk with the company. This is a question of their income now," he said. "The workers should clearly be paid for the time they're (not working), even though I haven't consulted with our attorneys yet," Taylor said. The company began sending some of its employees home Sunday following an early morning power outage that left most the five-star resort without power all day Sunday. MGM Mirage officials do not expect the resort to begin reopening until today, and possibly later. Between 2,000 and 2,500 workers were still on site Monday morning, mainly helping guests check out, serving them buffet food, providing security and helping to power down the entire property, said MGM Mirage spokesman Alan Feldman. He said the number of employees still working would gradually decrease throughout the day as guests were checked out and relocated to other properties. By the end of the day, Feldman said he expected only security officers and company engineers would still be working, none of whom are members of the Culinary union. Other workers, the bulk of the total workforce of 8,000, will be called back to work gradually as power is restored piecemeal to the property and it is ultimately reopened, he said. Idled workers will not be paid although their benefits will be protected in full, Feldman said. Feldman said the company is hopeful it can start calling employees back to work today, but he said there are no guarantees and the hotel-casino's operations are 5 hostage to the massive project of replacing all the electrical cables delivering power to the property. Workers are being asked to contact their supervisors for information about being called back to work. Wednesday, April 14, 2004 Copyright © Las Vegas Review-Journal Power may be restored to Bellagio today Correction on 04/15/04 –Wednesday's Page One story about the Bellagio contained two errors. A Tuesday meeting of MGM Mirage¹s board was a regularly scheduled meeting. Also, the board concurred with management¹s recommendation that hourly workers be paid for days not worked because of the 3-day power outage at the Strip resort. By ROD SMITH GAMING WIRE A small army of workers scurried all day and night Tuesday to get Bellagio ready for a reopening today although several government officials described any timetable to restore power and inspect the resort's electrical and safety systems as "extremely fluid." The $1.6 billion Strip megaresort remained closed and darkened for a third day despite a brief scheduled return of the lights overnight Tuesday. A still unknown event disrupted primary power about 2 a.m. Easter morning and led Bellagio officials to begin closing the property Sunday, moving guests to other properties and ultimately sending 7,000 employees home because its backup power system had to be shut down. Only 1,000 employees were still working Tuesday. On Tuesday, county officials who are investigating the loss of power said conclusions about what caused the initial power problem are still premature. Nevertheless, reports and rumors are already surfacing suggesting design flaws in place when the five-star megaresort was built caused what could have been an avoidable electrical problem. Also Tuesday, the MGM Mirage board of directors voted unanimously in an emergency meeting to reverse an earlier management decision and pay all hourly Maria Robinson of San Francisco stands in front of the Bellagio Hotel and Casino on Tuesday. The $1.6 billion Strip megaresort remained closed and darkened for a third day. Photo by John Locher. 6 workers their wages for scheduled shifts Sunday, Monday and Tuesday, MGM Mirage spokesman Alan Feldman said. Culinary Local 226 Secretary-Treasurer D. Taylor, which represents 3,925 of the resort's workers, was notified of the decision by Mirage Resorts President Bobby Baldwin Tuesday afternoon. "I think that's great that workers are going to be compensated for missed work and benefits are going to be paid," he said. Feldman said pay issues beyond Tuesday will be addressed if the company is unsuccessful in reopening the 3,000-room megaresort by the end of today. Deutsche Bank analyst Marc Falcone said the property stands to lose at least $3 million a day in revenue and $1 million a day in cash flow, a key measure of profitability. MGM Mirage engineers planned to restore full power briefly sometime Tuesday night, then conduct a second, complete power down, and finally restore full power to the property once necessary inspections are completed, Feldman said. If the so-called "shunt" -- a fire department term for shutting down and restarting a major electrical system -- works, the company will start the meticulous process of bringing the hotel-casino systems back online, testing each one individually, in preparation for a hoped-for reopening by the end of today, Feldman said. In addition, Gaming Control Board agents will have to be on-site today to supervise the reopening of the casino. Agents started working closely with Bellagio staff in the early hours of Easter morning when the initial power failure and shutdown of backup power left the casino without surveillance cameras, Gaming Control Chief Enforcement Officer Keith Copher said. "We worked with them as much as we could, but it got to the point when they realized the extent of the problem and had to shut the whole place down," Copher said. Copher said the Gaming Control Board will have to examine the surveillance system after power is permanently restored to make sure the casino still has the coverage required by law and meets all state standards. Also, gaming control agents will have to verify the electronic memories of all slot machines and make sure all players with credits outstanding are paid before the casino can reopen. He agreed with other government officials in calling the timing of any opening "very fluid." But he said the Gaming Control Board will have agents on-site whenever MGM Mirage says the property is ready for the process of reproving systems for inspectors. 7 During a Monday news conference, Feldman said the resort's backup system was turned on after the early Easter morning power disruption but had to be shut down because cables for the property's backup and primary power sources run through the same ducts. Thus, the damage to the primary power cables could not be assessed or repaired with electricity running through the backup cables. Much of the speculation about possible design flaws is focusing on the fact that both primary and backup cables were run through a single conduit. An industry insider and engineers who asked not to be named on Monday said the redundancy essential to keeping the resort running was compromised by running both sets of cables through one power duct. And on Tuesday, a former utility executive involved in the 1998 construction of the resort said Nevada Power offered to build a power distribution system with adequate redundancy that connected the resort to the utility's own power lines. However, the source said, Mirage Resorts, the original owner and builder of the megaresort, rejected the utility company's proposal, saying it didn't need a "Cadillac" system that ensured true redundancy to prevent a power failure such as the one experienced Sunday. Instead, the company chose to "take a chance" and have its own subcontractors build a system "on the cheap," the source said. Steve Wynn, who was then president and chairman of Mirage Resorts, was not available for comment Monday and Tuesday. Another report on the initial cause of the outage surfaced on KXNT-AM saying that Bellagio maintenance workers who were replacing a 12,000-volt circuit breaker Sunday morning tried to force the part in place, causing a back flow of power into the main lines. The back flow overheated, the report said, and burned out main and backup power lines because they were in the same duct work. Feldman denied that report although he said maintenance crews Tuesday were installing the circuit breaker as part of their repairs to the system. He said the company will initiate its own investigation after Bellagio reopens. Clark County is also investigating the cause of the blackout, and Development Services Building Division employees have been onsite with technical experts from MGM Mirage to monitor the repairs. All of Bellagio's life-safety systems have been operational since the power system failure, including the fire alarm system, the sprinkler system, smoke detectors, heat detectors, fire pumps and the smoke evacuation system, Fire Chief Earl Greene said. The county said its investigation should determine the cause and what preventative measures may be required. Feldman also said any decision on whether or not to build a new cable and duct work system to assure redundancy and prevent a repeat occurrence will be made only after the investigation is completed. 8 In the meantime, Feldman said repair crews have been concentrating their efforts on repairing the damaged cables in preparation for a reopening as soon as possible. All the damaged cable was replaced by Tuesday morning, Feldman said, and county building, fire and health officials met Tuesday afternoon to discuss how to recertify all necessary systems. If the power restoration works as planned, inspectors will recertify the building after which the company will be able to start bringing its systems online one-at-a-time to make sure they are working in anticipation of a reopening late today. "Because of the scope of this situation, the process of returning power to the Bellagio resembles that of the opening of a new hotel," he said. Prior to re-opening the property, county officials will coordinate re-testing of the primary emergency power systems of the hotel casino, said County Building Official Ron Lynn. County staff will be on standby to monitor the testing process and help assure the structure will be safe prior to re-occupancy, he said. A fire engine with crew and two members of the Fire Prevention Bureau will be on standby when the power is turned back on. When power was interrupted, fire officials tested the alarm system batteries and ensured the fire pumps operated properly, Clark County Fire Chief Earl Greene said, who added at no time in the past three days has there been a fire threat at Bellagio. "We've been over there every day to make sure they're up and running," Greene said. "When they flick the switch to test (the restoration of power), we'll have engines there for standby just as a precaution." The other major concern about reopening the hotel-casino centers on the property's slot machines and table games. They were carefully monitored by hotel security and gaming control agents during the day Sunday while the casino remained open, but there are no video records to resolve any disputes since power to the surveillance systems went down. Feldman said the casino had sufficient warning Sunday morning to notify players that the casino was going to be closed and settled all but a handful of accounts before the slot machines were shut off. Copher said claims of less than $100 were settled Sunday, but claims in excess of $100 still have to be settled with players, although Feldman said there were only a handful of such customers. Feldman said the company hopes to be able to check in its first new guest late today at the earliest. Bellagio plans to reopen casual dining outlets today, but gourmet restaurants are not expected to reopen before Thursday. 9 MGM Mirage closed Tuesday at $45, down $1.25, or 2.7 percent, on 713,200 shares traded, just above normal trading volume. Review-Journal writer Adrienne Packer contributed to this report. Thursday, April 15, 2004 Copyright © Las Vegas Review-Journal Bellagio Reopens After more than three days of being dark, Strip resort welcomes guests By ROD SMITH GAMING WIRE Lights, action, check-in and gamble. After 3 1/2 days in the dark because of a freak power failure, Bellagio turned the lights back on and began welcoming guests back to the 3,000-room Strip megaresort. After an unexpected paid holiday from work while the Strip resort was shut down because of the Easter morning power failure, 2,000 employees were called back to work Wednesday to greet between 1,000 and 1,200 guests who had reservations to check into 800 rooms. When the hotel opened about 5 p.m. Wednesday, there was a large crowd of people waiting 20-deep in the lobby to check in. "I'm shocked and exhausted but thrilled to be here," said Roberta Koomer, a Piscataway, N.J., resident who was making her third trip to Las Vegas. "Under no condition did I expect to see this mob scene. Our journey started yesterday at 5:45 p.m., and I feel like it's still going on." But she added she was happy to be at Bellagio, MGM Mirage's flagship property. Others were not so happy about the delays. "This comes as a huge disappointment," said Deb DiDonato of Jackson, Tenn. "We booked the trip for my 50th birthday and it was very disappointing to be turned away yesterday, and we don't know yet if they'll be able to make it up to us. "Still," she said, "It's very exciting." People on Wednesday line the edge of the lake at Bellagio after the hotel reopened at 5 p.m. Photo by K.M. Cannon. Bellagio guest line up to check in after the resort opened at 5 p.m. Wednesday. The hotel-casino had been shut down following an Easter morning power failure. Photo by K.M. Cannon. 10 A man from Somerset, England, who declined to give his name, said he and his wife had to find an alternative place for their baggage for four hours. The man said they had been awake for 24 hours, and he was exhausted and very, very frustrated. "Still," the man added. "It's just a little hiccup at the beginning of our trip." For company officials, Wednesday's reopening was a lot like a beginning, too. "This was almost the same as when (Bellagio first) opened five years ago," MGM Mirage spokesman Alan Feldman said. The biggest difference is that when then-Mirage Resorts Chairman Steve Wynn, who developed Bellagio, opened the $1.6 billion hotel-casino in 1998, it opened all at once. On Wednesday, however, Feldman said the Strip resort would have very limited food and beverage service available Wednesday night. Initially, the hotel offered a buffet and a full bar for guests in the convention center, while room service, the Cafe Bellagio, lounges and bars were to open later in the evening. The remaining restaurants, including the resort's gourmet restaurants, shops and the art gallery were expected to open today or Friday. Performances of Cirque du Soleil's "O" are scheduled to resume at 7:30 and 10:30 tonight. Bellagio's problems began Easter morning when an "unknown event" disrupted the hotel-casino's primary power about 2 a.m. The disruption, which burned thousands of feet of power lines at the megaresort, led Bellagio officials to begin closing the property Sunday, moving guests to other properties and ultimately sending 7,000 employees home because its backup power system had to be shut down. The cause of the blackout is still under investigation by the company and county officials, and sabotage has not been ruled out although it is considered unlikely. Still, anti-terrorist and gaming industry experts said the incident underscored the city's vulnerability to terrorist attacks and should serve as a clear signal that all reasonable steps need to be taken to protect critical infrastructure such as electrical systems. The company has said there was a cable failure in an electrical vault that compromised two of the hotel-casino's main power circuits, he said. That failure created overheating in the vault, which damaged all adjacent power cables, Feldman said. In order to safely assess and repair the damage, the remaining power lines, including the backup power lines, had to be shut down. 11 He said employees on duty Easter morning took all appropriate safeguards in response to the blackout and the hotel's emergency systems functioned "flawlessly." "While it could well have been that the cable failure was simply a random event, we continue to investigate all possible causes," he said. "While it is not uncommon for a building of this size to lose a single circuit, it is very rare to lose two simultaneously," Feldman said. Feldman said Wednesday the company has hired a forensic engineer and shipped some of the damaged cable material to a technical laboratory for testing as part of its investigation. He said there are no plans to redesign or re-engineer the generators, electrical systems or cable conduits until the investigation is complete. "We need to understand what happened to understand prevention measures," Feldman said. "It's easy to second guess building the system, but no one has ever had the problem and no one would have built (a system intended to prevent a problem that had never occurred before)," he said. Deutsche Bank analyst Marc Falcone has said the property stands to lose at least $3 million a day in revenue and $1 million a day in cash flow, a key measure of profitability. Feldman has said the final costs will certainly go higher, but the amount will not be material for a company the size of MGM Mirage. At a press briefing earlier in the week, Feldman called the incident relatively innocuous since no one was injured. However, Nevada Homeland Security Adviser Jerry Bussell said the incident illustrates how a power failure can erupt into a major dislocation. If a single, random, minor event can close a major Strip property, a concerted attack could have nearly unimaginable consequences, he noted. "I don't see any evidence of terrorism or sabotage, but it shows the importance of infrastructure. If (terrorists) could take out some of the critical infrastructure, it would have far-reaching and long-term consequences. That's why we have it right at the top of our priority protection list," Bussell said. University of Nevada, Las Vegas professor and casino industry expert Bill Thompson compared the incident to the MGM Grand fire. "It underscores our vulnerability. Since our economy is so dependent on these properties, it makes us doubly vulnerable. Our police and the FBI have to look at this and make sure it's a design flaw or a freak incident and wasn't caused by deliberate human action," he said. 12 "Then they have to identify key points and make sure we have the security we need. In some ways, it's like the MGM fire of 1980. That alerted us to the need for increased fire security and safety," Thompson said. More than 1,000 engineers, county inspectors and Gaming Control agents hustled through the night and all day Wednesday to complete repairs, inspect all the hotelcasino systems and recertify building, health and fire permits and the casino's gaming operations. County building, fire and health officials OK'd the building for occupancy late Wednesday afternoon, and the lights were turned back on. County building official Ron Lynn said the building was approved for occupancy about 4 p.m. Wednesday. After the lights were rebalanced, Gaming Control Board agents checked out the computer memories on all slot machines and the operations of surveillance equipment, and gave the green light for the casino to reopen early Wednesday evening. Gaming Control agents examined the surveillance system after power was permanently restored and made sure the casino had the coverage required by law and met all state standards. One outstanding issue that will have to be addressed involves a small number of customers who claimed to have more than $100 in slot machines when the casino was closed during the day Sunday. Guests with reservations for another 1,000 rooms will arrive today and the hotel should be fully occupied again Friday, Feldman said. 13 Sunday, April 18, 2004 Copyright © Las Vegas Review-Journal WEEK IN REVIEW: Power outage leaves Bellagio in the dark Denise Lum will never forget April 11, and not just because it was her wedding day. It was also the day Bellagio went dark, plunged into a nearly four-day power outage that shuttered the hotel, closed the casino, cost the five-star resort millions and compelled a tearful Lum to storm into the lobby and shout at Bellagio staff members as dozens of people watched. Lum got hitched without a hitch at one of the hotel's chapels. But several hours later, her father suffered a heart attack in the lobby. Lum wasn't allowed to rush to his side because she had forgotten her room key. "I'm really pissed off," she said. "This is a five-star hotel?" About 3,000 guests awoke Easter morning to muggy rooms, no air conditioning and cold showers. Hotel officials hoped to have power restored that evening, but soon the 1,500 remaining guests were shuffled off to other properties. Over the next three days, workers scurried to restore power. Meanwhile, everything Bellagio shut down, including the popular Cirque du Soleil "O" show and the famed dancing water fountains. When the hotel reopened about 5 p.m. Wednesday, large crowds packed the lobby and lined up 20-deep to check in. Alan Feldman, a spokesman for MGM Mirage, said the media coverage and buildup created an opening day atmosphere that seemed to carry through the following day, when hotel stores reported twice as much foot traffic as normal. With such a start, the retailers were optimistic of making up for lost revenue. Hotel and county officials still don't know what caused the blackout. Bellagio, the flagship of the MGM Mirage gaming empire, was swathed in darkness Monday following a power outage that company and county officials say they still cannot fully explain.