Projecting the future

A while back, some folks asked me what I thought the near-future held for Las Vegas gaming and tourism. After mulling over some of the LVCVA data for the past 40 years, I gave them six different scenarios. This might be nice for a wider audience, I thought. But, since I had a lot on my plate, it fell to the bottom of my to-do list.

Today, reading about the PWC report in the Las Vegas Sun, I decided to share what I came up with.

There are so many variables at play, I decided to forecast out six different scenarios that begin with the current trend, but allow for some flexibility.

Instead of looking at statewide numbers, I focused on Clark County, since I was using the LVCVA’s data and they include Clark County gaming revenue with their visitor data.

Through September, Clark County revenue is just about flat with 2009; that’s about where it should end up (a while back I did a post with some statewide revenue projections if you’re curious). The Strip is definitely trending up, but everywhere else continues to drag.

My methodology was simple: by dividing the total county gaming revenue by the number of annual visitors, I got a neat “gaming spend/visitor” number. Yes, this includes the locals’ play with the visitors’ play, but since the locals’ economy is largely driven by tourism (more tourist spending=more tips/paychecks for locals that can end up a locals’ casinos) this wasn’t necessarily a drawback.

Based on the about 2.5% increase in visitation we’ve seen for Las Vegas this year, I decided to offer two main scenarios: a modest and a major increase over the next six years.

The modest increase in visitation assumes a compound annual growth in tourism of 1%. Yes, that’s less than the 2010 total, but I figured this was averaged out for six years, and should conservatively take into account some possible contraction.

The major increase in visitation assumes a compound annual growth in tourism of 7%, which is about equal to what the Strip saw in the 1990s. Not likely, as far as I can see, but it’s a good best-case scenario.

For each possible increase in visitation, I posited three possibilities:

1. Gaming spend/visitor will continue to fall at the 2009-2010 rate (3%)

2. Gaming spend/visitor will remain flat (sounds good, but when adjusting for inflation isn’t)

3. Gaming spend/visitor will increase by an average of 3% year

Below, I’ve got summaries of each of the six scenarios [I'll post jpgs of the data this afternoon, time permitting]

SCENARIO 1
(Modest increase in visitation, 3% gaming spend/visitor decline)
Visitation +1%, Spend -3%
Clark County gaming revenues decline by about 10% by 2015. More visitors coming doesn’t matter, if they don’t spend more. This kind of sustained decline would have serious impacts for the state’s budget, since 85% of all gaming revenues come from Clark County.

SCENARIO 2
(Modest increase in visitation, gaming spend/visitor flat)
Visitation +1%, Spend Flat% By 2015, gaming revenues increase by about $500 million, to $9.2 billion. This looks like a win, but it's actually going to be running neck-and-neck with inflation.

SCENARIO 3
(Modest increase in visitation, 3% gaming spend/visitor increase)
Visitation +1%, Spend +3%
Now we’re getting somewhere. Gaming revenue increases by $2 billion by 2015, with about $10.8 billion coming in. This is at least a viable future.

SCENARIO 4
(Major increase in visitation, 3% gaming spend/visitor decline)
Visitation +7%, Spend -3%
Even if visitation skyrockets, it’s not worth much if spend/visitor declines: despite handling almost 6 million more visitors in 2015, the total gaming revenue actually fall below their 2010 levels.

SCENARIO 5
(Major increase in visitation, gaming spend/visitor flat)
+7% visitation, flat spend
This looks workable, with an increase of gaming revenue to $10.2 billion by 2015. If there’s a bigger bump in non-gaming spending and higher sales tax collections that offset the increased costs associated with having more visitors, this could be workable.

SCENARIO 6
(Major increase in visitation, 3% gaming spend/visitor increase)
7% increase in visitation, 3% increase in visitor spend
Isn’t this the best of both worlds? More visitors, spending more. We get Clark County gaming revenues rising to $11.9 billion by 2015.

——

Let’s compare my scenarios with PriceWaterhouse Coopers. In 2014, they believe that Nevada’s total gaming revenues will be $12.4 billion. Extrapolating from my Clark County data (assuming that the county will average 85% of total state revenues), here my estimated 2014 statewide totals. These might be a bit optimistic, since I’m guessing that Clark County’s total share of state gaming revenues will increase.

Scenario 1:$9.4 billion
Scenario 4:$10.4 billion
Scenario 2:$10.9 billion
Scenario 5:$11.8 billion
PWC: $12.4 billion
Scenario 3:$12.7 billion
Scenario 6:$13.3 billion

I think the PWC folks might have been right on this one. It’s not the most optimistic projection, but it’s not unduly pessimistic, either. If I had to handicap it, I’d say that in 2014 the statewide gaming revenues should be somewhere between $11.5 billion and $13 billion. There are so many variables out there, though, that it’s pretty hard to handicap.

3 Responses to 'Projecting the future'

  1. FoolsGold says:

    I have a sudden urge to avoid looking at all numbers and to instead look at motivation. I just listened to a podcast wherein there was a comment “readjusting their own gambling techniques” and policies. The discussion seemed to be a spur of the moment comment prompted by a discussion of 6:5 blackjack making further inroads.

    Visitors to Vegas? Conventions? Museums of crime? Casinos? What is the draw? What is the former “draw” up against: longer lines, body scanning? For those who simply come to Vegas to gamble it seems gambling is available everywhere. Better roads or better train service from Los Angeles? Sure. Good idea. Before the bonds are any where near to being paid off, there will be real casinos in Los Angeles. There are already hookers in Los Angeles, but I don’t know how much of the air traffic is working girls?

    Guessing at trends is fine, but I think we need better samples!

  2. dave202 says:

    OK, if the casinos of the Strip get more than 50% of their revenues from non-gaming spend, what is the importance of the emphasis on this gaming revenue issue? Is that still true? Or did non-gaming spend slip even more than gaming revenue?

  3. Thanks for putting all this information about the possible future growth of Las Vegas on your website. Hopefully soon airlines will start increasing their number of flights out to Las Vegas. That will really help increase tourism in Las Vegas.