The 2009 Nevada gaming numbers are in, and they are not exactly encouraging. From the LVRJ:
Gaming revenues in Nevada fell 10.4 percent in 2009, the largest single year decline in state history.
Casinos statewide collected almost $10.392 billion from gamblers during the year, the lowest one-year total since 2003 according to figures released this morning by the Gaming Control Board.
via Nevada gaming revenues fall by biggest percentage ever – News – ReviewJournal.com.
The December numbers have confirmed the pattern that we’ve seen since November: continued weakness in slot play, a big gain in bacc play. In December, bacc win more than doubled. For the year, it was up 26.6%. This is significant: the only games not to have double-digit declines were roulette and let it ride poker, which really shows how off games play has been.
Statewide, slot hold fell slightly for the year–from 6.16% to 6.10%. Slot handle–the total amount played–fell too, from about $125.8 billion to $111.8 billion. In other words, gamblers put $14 billion less into Nevada slot machine in 2009 than they did in 2008.
On the Strip, things were as dire as they were statewide. Given that the Strip has about 98.2% of all of Nevada’s bacc play, the doubling of baccarat revenues basically helped the Strip post its second straight month of revenue gains and essentially avoid catastrophe. Without those high rollers cutting loose in the bacc pits of the Strip, we’d be having a much different conversation.
I could continue crunching these numbers for hours, but the day is short, the work is hard, and 99% of readers want the executive summary. So here it is:
1. Gambling revenue for most of Nevada outside the Strip continues to decline. It’s not as sharp a decline as we’ve seen in Atlantic City (although in some markets it is), but it’s still significant. Many markets that used to have regional monopolies no longer do, thanks to the growth of Indian gaming in California, Arizona, and the Northwest. This is a systemic decline that wasn’t caused by the recession, though the recession has exacerbated it. In other words, there is no easy fix.
2. The Strip was a bright spot. Thanks to a year-ending surge in high-end play, the Strip posted a smaller decline than it did in 2008. The Strip, at least, seems to have rounded the corner.
3. This recovery is unlike the past two major post-recession comebacks. In the mid-1980s, casinos shifted to the mass market–lots of quarter slot players, as opposed to a few international high rollers. In the early 2000s, they shifted to a wealthy traveler who spent more on food, rooms, and entertainment than gambling. The pattern that’s emerging now is paradoxical–there’s more of an effort to get value-driven customers in to fill the hotel, but they aren’t gambling nearly as much as they have historically, so most of the money is actually being made from the high rollers. In some senses, we’ve gone back to the 1970s [insert polyester leisure suit/shag carpet joke here].
4. Looking at the LVCVA’s numbers, it’s easy to see this “split-level” strategy playing out: air traffic is down, while car traffic is up, which would indicate a renaissance for regional feeder markets. This might be the substitution effect: just like some gamblers are staying home instead of driving to Lake Tahoe (down 25.6%) or Laughlin (down 13.4%), others might be cutting out trips to Hawaii or the Caribbean and driving to Las Vegas instead. The good news is that they’re coming; the bad news is that they’re looking for bargains, and probably don’t have the kind of money to spend that they did three years ago due to declining personal wealth.
That’s the executive summary. Now for another point, CityCenter and the dreaded c-word–cannibalization. Here’s the thing: if casinos are shifting back to a 1970s model, where the hotel is essentially a loss leader for a thriving high-end market, it doesn’t really matter if the hotel is full or not. Let’s say you can book every room at Aria at an average of $200 per night. In one night, you’ll make about $800,000. That’s a pretty good haul, but a single baccarat player, laying down $20,000 a hand, can lose more than that in a hour. Of course, it would have to be a pretty catastrophic hour for him, but it makes the point: a casino could invite an unlucky high roller with 4,000 of his closest friends and comp all of their rooms, and if things went against him at the table could still make a profit.
This “split-level” strategy–reaching out to value-hunters and high rollers–is a necessary adaptation, but it has its own inherent weaknesses. For one, there is a much smaller universe of people who can bet $20,000 a hand than there is of those who will pay $300 for a quiet dinner for two, let alone those who have a trip gambling budget of $300. So attracting and keeping them is more difficult, and more costly. Second, there might be less investment in upper-mid-level amenities–the big shows, the celebrity chef restaurants–since they are predicated on a broad upper-middle class of visitors that is being replaced by bargain-hunters.
The end result of the “split-level” strategy may take us to places that no one can predict. But that’s why we play the games.
UPDATE: I”ll be talking about this on KLAS-TV and KVVU-TV tonight.