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]
(Modest increase in visitation, 3% gaming spend/visitor decline)
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.
(Modest increase in visitation, gaming spend/visitor 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.
(Modest increase in visitation, 3% gaming spend/visitor increase)
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.
(Major increase in visitation, 3% gaming spend/visitor decline)
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.
(Major increase in visitation, gaming spend/visitor flat)
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.
(Major increase in visitation, 3% gaming spend/visitor increase)
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.