Biggest drop ever

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.

Author: Dave

Director of the Center for Gaming Research at the University of Nevada, Las Vegas and author of several books, including Roll the Bones: The History of Gaming. Also Gaming and Hospitality editor for Vegas Seven magazine.

8 thoughts on “Biggest drop ever”

  1. David, I think your analysis is ‘dead-on’ and right to the point. In fact a lot of the 70’s strategies could be called up and used depending upon an operators physical plant and debt structure.
    One of the most important points in delivering a targeted product is to remember that the backbone of the delivery is the line employee. Now more than ever, upper management needs to understand that the middle management they have created in the last 5 years cannot adapt to this philisophy and has never had to work for the business. If I were an owner in this environment, I would look for those few living marketing people that have prospered in those tough 70’s and 80’s environments; bring them in and let them train my middle management on how to make line employees feel like they are the backbone of the company. At the same time, allow these ‘sage’ marketers to pull past experiences into modern needs.

  2. This is a really good analysis. I always worry about giving too much praise or compliments towards anyone, because doing so can sometimes be a mild form of manipulation.

    I read about this subject of compliments once in a book titled ‘Games People Play’. It was a book aimed at corrections officers who run jails and prisons. They are cautioned to be suspect of the prisoners who say things like: “Gee, Officer Joe. You are the only good guard in this block. You’re not like the other guards. You take time to care about us and even give us aspirins on the sly. I know I can count on you to not report me for bringing my hidden baloney sandwich back to my cell”.

    Sometimes, even the compliments that come from friends have to be held suspect when they say things like: “Dude. You’re a great friend. I know I can always count on you to loan me your pick-up truck and help me move my furniture”.

    Compliments often times have strings attached. And in this town especially…people are often rightfully leery of anyone who gives compliments.

    But being complimentary is part of my nature. I usually rail unmercifully against all the bull-dung I see around me and those people I think are inept. But when I see the occasional bright star among all the drabness, it gets me excited and I like expressing my true thoughts.

    DGS is a guy who deserves compliments and respect for the extra-ordinary work he does in deciphering and explaining the gaming industry to us all.

    Like this report. It’s a knock-out of a report. Read it three times or more and you’ll easily see that.

    This week I’ve sort of gotten ‘caught-up’ in Dave-O-Mania…due to the back-to-back reading of two of his books. His book ‘Roll the Bones’ is a phenomenal undertaking. I have no idea how someone could compile so much data on the history of gaming (going back to the B.C. era). And after somehow gathering all this data he writes about it and provides truly incredible assessments, etc. etc.

    ‘Roll the Bones’ is an amazing history of gambling as well as an amazing history of world culture and human nature. It blows my mind to see such an incredibly thorough accounting of gaming history…told in such a intriguing and often humorous way.

    My hat is off to DGS…for his books and for his daily reports on current events. He provides great and impartial judgments of all that is happening in gaming…and I can’t imagine that’s too easy of a thing to do…with all the variations of reader’s expectations, beliefs, vested interests and the contrasting opinions of both gamblers and casino operators.

    I rely on Dave to provide well-thought, fair and unbiased analysis on the Vegas Scene. And I’ll probably read his report again three more times to have his thoughts thoroughly penetrate my (often-times) oblivious mind.

    I know that all of Dave’s readers appreciate his work as much (and maybe more) than I do. That’s a given. And the local news teams and citizens feel the same way.

    So..with all of that being said, I’ll now drop the praise and complimenting…cuz, it usually just embarrasses the recipient anyway. But my compliments are true and I have nothing to gain by making them. In fact, I don’t even know Dave and have no hidden desire to ask him to help me move furniture or do me any favors.

    I just admire the man…for doing so much in his 37 years and for his reliability to always provide good assessments. Quite honestly, the only other person I respect and admire as much as Dave…is CNN’s Anderson Cooper (another brilliant, honest and humor-filled mind, in a field of overly-biased ignorami).

    With all that being said, I wish I could end this gushing malarkey with a good Seventies’joke about Leisure Suit Larry or how many pieces of Grade A Hash ended up dropped and lost in all those shag rugs. But I can’t.

    Enuff said. Yes. Compliments ARE embarrassing…so let me drop that subject and go onto the next thing…which will be trying to find a TV to (hopefully) watch Dave’s news appearance tonight. If not, I’ll be reading his chapter on ‘Star Spangled Gamblers: The Birth of American Gambling’ (Roll The Bones – 2006).

  3. Hey. I didn’t realize that KLAS-TV’s provides ‘local news videos’ on their website (in the VIDEO section).

    I just watched their report on Superbowl Weekend in Las Vegas. Pretty cool. All this time without my TV and I didn’t even realize KLAS has most ALL their news-stories on-line.

  4. Focus on the finger!
    You run your finger down the page and find numbers that interests you, but be sure that finger doesn’t hide any information because you must also focus on the fickle finger of fate!

    Vegas was bright because the strip was bright but the strip was bright mainly because of Baccarat and Baccarat is largely high-rollers which presently means Asians.

    A tiered market (referred to as a seventies market)? Okay. So what happens when you lose one of those tiers? Fewer fliers? Does that mean the middle is being lost? You’ve got Locals, Regionals and Whales and that’s it? Yeah, okay one Whale can make up for a virtually empty hotel but Whales are fickle and might even win!

  5. FG–you are right: this strategy comes with a risk, which is that the whales will stop coming. This is EXACTLY what happened in 1980-1982, which was when the Strip focused on international high rollers. A slump in international economy, a devaluation of the peso, and suddenly the casinos were hurting. Most of them shifted to a broad-based, mass-market strategy–lots of smaller players–and made their profit on sheer volume.

    From 2001-2007, casinos relied on a “middle-upper” market of the folks who could drop $150 for a single show ticket and gamble a few thousand per trip. As long as there were enough of them, they could afford to take on debt to expand.

    But since they’ve dried up, casinos have fallen back to the “retro” split-level strategy: bargain-hunters at one end, whales at the other. One group is responding to the new economic climate by spending less, the other is immune to it.

    Being dependent on international high rollers is like having a successful army that’s marching deep into enemy territory: they are winning, but their supply lines are getting longer, and there’s a lot that can go wrong, from disruptions in travel to volatility in the action. Many casinos have shown that they’re uncomfortable with that kind of volatility.

    I’m not saying that this is the best possible strategy–I’m just saying that, for Vegas, it appears to be working to an extent, and is at least saving us from a Tahoe-level decline.

    One last note on volatility–look at the Boulder Strip numbers, and you’ll see pretty big fluctuations in the monthly hold percentages since a casino at the Blvd and St. Rose Parkway opened. That’s because that casino has more high-end play than the rest of the market, and there’s way more volatility.

  6. >Being dependent on international high rollers …
    I think the critical difference is that having a present marketing strategy is different than being dependent upon. Decades ago Circus Circus dumped their high rollers and went after families with kids. It depends upon how nimble management is. Construction decisions can saddle a casino with debt that management is unable to avoid no matter how perceptive and nimble they are.
    Many people commute to Las Vegas: hookers, burglars, etc. We like to think of gamblers and conventioneers “traveling” there but we are also mindful that as Indian casinos opened near the California highways, Reno visitors declined. Whales can travel without impediment and usually so can their cash, but other tiers are limited. Some visitors take a vacation to Vegas but eat at the same fast food chain they have available to them locally. That is a “tier” which is vulnerable to travel costs and diminished “glitter”. Why drive three hours to Reno and eat at Burger King when an Indian casino is closer and supplies less glitter but just about as much substance?

  7. Thanks for your excellent analysis Dr. Schwartz and everyone else’s opinions here. They all make sense and 2009 was a lousy year in Las Vegas and for the entire state of Nevada.

    That being said one very important reason not as many people came to Las Vegas in 2009 was that many people (including myself and probably lots of people who contribute and read this blog) lost thousands of dollars in their 401K’s in 2008 and 2009 (primarily between September 2008 through May 2009). It’s hard to justify flying out to Las Vegas and spending a bunch of money on gambling, drinking, dining, etc. when you have lost thousands of dollars of your personal wealth. Now that the stock market is back near 10,000 again most people have recouped some of their losses which is good. Las Vegas needs the middle class back out there spending money and having fun to thrive once again.

    If 2010 is worse than 2009 Las Vegas is definitely in trouble. I think (maybe I am hoping) that 2010 will be a lot better.

  8. The ultimate test of an economic recovery versus a statistical indication of continued recession:

    Some gambler’s recent tweet:
    I am at the xxxxxxx’s buffet. Ridiculously long line for a Tuesday. Has to be a good sign for the economy.

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