The New Las Vegas Music Market

The Story Behind The Palms Casino's Cancellation of Marshmello's Residency and the Closing of KAOS

Marshmello
Marshmello attends the grand opening of KAOS Dayclub & Nightclub at Palms Casino Resort on April 5, 2019 in Las Vegas. Gabe Ginsberg/Getty Images for Palms Casino Resort

Financial documents and a lawsuit filed by the Wynn Las Vegas shed new light on the shake-up that shocked the Vegas nightlife industry

Las Vegas is a town of contradictions -- a city that celebrates both long shots and sure things. Ronn Nicolli chose a perilous path between the two.

The Youngstown, Ohio, native got his start in the Vegas nightlife scene in 2005 as a promotions host and in August 2005 was hired as a doorman at the Wynn Las Vegas’ Tryst nightclub. By 2014, he had reached the top rungs of Wynn’s nightlife operations as senior executive director of nightlife marketing. Among his achievements: opening and marketing the red-hot XS nightclub in 2008, which grossed $88 million in its first year and topped trade publication Nightclub & Bar’s annual ranking of the 100 highest-grossing U.S. nightclubs for four years in a row, from 2012 to 2015.

By the fall of 2018, however, court documents from a lawsuit would later show that Nicolli had grown disenchanted with his employer. He felt his role had been diminished, and it was his opinion that the quality of the Wynn’s nightlife operations had deteriorated since the abrupt resignation of the resort and casino’s CEO and namesake, Steve Wynn, over sexual misconduct allegations.

That October, Nicolli had dinner with a longtime friend, Jon Gray, who was the GM of the Palms Casino Resort. The Palms’ owners, brothers Frank III and Lorenzo Fertitta, had gained a foothold in Vegas by inheriting the Station Casinos company from their late father, Frank Jr., but their fortune came from a shrewd decision to buy the Ultimate Fighting Championship for $2 million in 2001. In 2016, the Fertittas sold the mixed martial arts franchise for $4 billion to talent agency WME | IMG and several private equity firms.

Shortly after acquiring the Palms in 2016, Station Casinos had invested in a $690 million renovation of the property. The reboot included the creation of a 102,000-square-foot night and day club called KAOS that was anchored by a 70-foot bronze Damien Hirst sculpture of a headless, anatomically correct male creature titled Demon With Bowl that loomed over the main pool area.

 

During dinner with Gray, Nicolli discussed his frustrations with the Wynn’s management and the meeting eventually led to a job offer. In early November, he joined the Palms as senior vp creative strategy.

His first major project there was a daunting one. Approximately a month before Nicolli signed on with the Palms, the resort’s executive director of talent marketing, Ryan Perrings, also a former Wynn employee, had helped negotiate a reported $60 million deal with artist manager Moe Shalizi for a two-year residency for EDM superstar Marshmello.

The DJ-producer, who performs while wearing the equivalent of a marshmallow emoji over his head, had become one of dance music’s most bankable performers and commanded upwards of $300,000 for a headlining nightclub appearance, sources tell Billboard. The KAOS deal essentially doubled that figure.

It would fall to Nicolli and senior vp nightlife, daylife and events Ryan Craig -- yet another former Wynn executive who had come to the Palms from MGM Resorts International -- to market the residency to the more than 40 million visitors who come to Las Vegas each year.

Despite the Palms’ opulent makeover and Marshmello’s popularity, making a profit off the DJ’s residency -- the $60 million price tag reportedly had set a record -- was going to be a challenge. The Palms was located a mile-and-a-half from the Vegas Strip on the other side of Interstate 15, and off-strip casinos usually see a fraction of the traffic and sales generated by other top-tier establishments on the city’s main drag.

But Nicolli had drafted an ambitious 20-point marketing plan designed to overcome this disadvantage. Guests who checked in to the Palms would be bombarded with reminders that Marshmello was the resort’s new marquee resident artist. His image would appear on poker chips, keys, robes, pillowcases and even water bottles and snacks stocked in the rooms’ minibars. Coachella attendees would encounter billboards advertising his residency on the I-10 as they left the Indio, Calif., festival and, for Super Bowl LIV in Miami, models would be hired to zip around the city on mopeds promoting the same.

In mid-November, Nicolli made a critical error when emailing himself a copy of his plan. “I inadvertently forwarded an email containing marketing strategies for DJ Marshmello from my personal email account to my Wynn email account,” he wrote in a sworn declaration dated Dec. 7, 2018, that is filed in Clark County, Nevada District Court.

That revelation is among the court papers generated by the 10-month legal battle that resulted when the Wynn Las Vegas sued Nicolli for violating his employment agreement and the misappropriation of trade secrets. The ensuing conflict would make its way to the Nevada state Supreme Court, and on June 3, 2019, a three-judge panel would overturn the District Court’s ruling and grant an injunction that blocked Nicolli from continuing in his senior vp role at the Palms. On Aug. 20, attorneys for the Palms notified the Wynn that Nicolli was no longer employed at the Ferttitas’ casino. 

Nicolli would be the first of several Palms executives --- all veterans of the nightlife scene and all of whom, at some point, had worked at the Wynn -- to depart the resort in the weeks following the court ruling. By the end of August, Craig had left as well.

In the wake of this fallout, the Palms canceled Marshmello’s residency on Sept. 24 a little over six months after it began. The mystery -- and gossip -- deepened when the following day, Wynn Resorts’ longtime executive vp nightlife, Alex Cordova, who had served as the plaintiff’s main fact witness against Nicolli -- quietly departed the company. On Oct. 2, Gray, who had brought Nicolli to the Palms, left as well. (Nicolli and a representative for the Palms declined to comment for this story. Marshmello’s manager, Moe Shalizi, did not respond to requests for comment.)

Court documents show that both the Wynn and the Palms bid on a 2019 Marshmello residency. When the Wynn, where Marshmello had been a resident from 2016 through 2018, lost the DJ to the Palms, lawyers for the Wynn alleged that Nicolli “induced Marshmello to not renew his residency agreement with Wynn” by using “his insider knowledge to engineer Marshmello’s move to the Palms.” The mysterious exit of Cordova, who was photographed attending parties with Shalizi at the Wynn in July 2018 and at Shalizi’s birthday party in Miami that September only ramped up the intrigue and speculation, although sources at both companies contend that the prime reason for the closing of KAOS and the cancellation of Marshmello’s residency boils down to ill-advised business decisions by Palms owners the Fertitta brothers.

 

Those accounts are backed up by financial documents filed with the U.S. Securities and Exchange Commission that show KAOS lost $13.2 million in its first year. And according to a third-quarter 2019 financial report and investor call, Marshmello generated approximately $18.6 million in revenue in 2019 but the club cost over $32 million to operate. The report also indicates that Marshmello emerged from the wreckage with $28.6 million -- a one-time writedown that the Palms took to end his contract.

The situation was exacerbated by steep drop-offs in guests’ spending on food, beverage and gaming at the Palms after KAOS opened -- an unwelcome surprise for Station Casinos executives who expected exactly the opposite effect.

The crowd that came to KAOS “did not have spendable money. We didn’t see the crossover into the casino,” Frank Fertitta told investors on a Nov. 6 conference call. “We’ve now operated Palms without the nightclub for about five to six weeks, and we’ve actually seen no degradation in any lines of business at the Palms,” he added.

Even if Marshmello had attracted big spenders to KAOS, veterans of the Vegas nightlife scene say the economics simply did not work and expressed surprise that the Fertittas and Palms management either did not do the math or ignored the results: $60 million amortized over two years and 100 shows comes out to roughly $600,000 a night. According to a veteran nightlife source, in a really strong weekend, a top-tier nightclub will attract approximately 2,500 people. Typically, the door charges $20 to $50 for entry, which, if the guest list isn’t massive, yields $50,000 to $125,000.

Using information and guidance from that source, Billboard estimates that even at $50 a head, KAOS would have had to generate $190 per person in food and beverage purchases to make its guarantee, and that’s not factoring in staffing and the hard costs of running an energy-intensive nightclub experience.

“Whenever you have a huge upfront talent cost, you get stuck chasing that breakeven number, and it only takes a few bad nights to put it completely out of reach,” says Matthew Minichino, corporate vp nightlife and daylife at Hard Rock International.

Minichino also says that nightclubs can no longer rely as much on the VIPs and high rollers to drop $10,000 to $50,000 in a night. That market has shrunk as big-spending boomers have aged out of the nightclub scene and millennials and Generation Z Vegas-goers spend their money on other pursuits. The advent of day clubbing and pool parties has also intensified the competition for consumer dollars.

According to a 2018 report from the Las Vegas Convention and Visitors Authority, just 7% of visitors surveyed reported going to a hotel nightclub, down 13% from 2017, while 52% went to a bar, down from 68% in 2017. Minichino says the report is skewed because of the sheer number of bars in Vegas, but he still considers it an indicator of the many entertainment options that are available in town, including concerts; pop, rock and country residencies; and sports attractions like Topgolf (which also features musical acts) and, beginning this year, the NFL’s Las Vegas Raiders at Allegiant Stadium.

For agents, promoters and talent managers that book Vegas’ top nightclubs, the opening of KAOS and the deal it struck with Marshmello was initially taken as a sign that there was still room for growth in the club business and in the income potential for A-list DJs. Now there is concern that the market is cooling, particularly for mid-tier DJs. One less club in the market means less demand. "It’s a buyer’s market now in Vegas," says Sean Christie, president of events and nightlife for MGM Resorts International. 

Stephen Cootey, the CFO and treasurer of Red Rocks Resorts, which manages and owns significant equity in Station Casinos, suggested as much when he discussed the closure of KAOS during a Nov. 6 investor call. “It’s obvious that the nightclub environment of Vegas is extremely competitive,” he told Deutsche Bank analyst Carlo Santarelli. “It doesn’t appear that the market has grown enough for the amount of supply in the market. The cost of entertainment is excessively high, and we just made the decision to focus where the fish are and acknowledge that nightclub business, at least at the Palms, was not working for us.”

The high-end Vegas club scene is dominated by three players: in order of the number of venues each operates, Hakkasan; Tao, of which the Madison Square Garden Company is a majority owner; and the Wynn. (Significant outliers include Drai’s at The Cromwell and On the Record at the Park MGM.)

In October 2018, the Palms ended its agreement with Tao to develop and manage KAOS, and insiders say a new nightclub operator will likely take over in 2020. The massive space is currently being used for private events.

One Vegas insider says that converting the space into a year-round water park was among the alternative uses under discussion. That idea is no longer under consideration, which is probably for the best. 

“If they are going to have kids use the space, they’re going to have to put some shorts on the giant naked statue,” says the insider. “Otherwise parents might be looking at some pretty uncomfortable conversations on the drive home.”

Additional reporting by Jack Tregoning.
 
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