We’re no longer number one! in the LVBP

I’ve got a new piece in the Las Vegas Business Press about how Las Vegas is going to have to adjust to no longer being number one in gaming:

In June, Macau casinos took in about $2.6 billion in revenues, an increase of more than 50 percent from the previous year. This achievement highlights the dominant place that Macau has taken in the gaming world, and is another reminder that Las Vegas isn’t what it used to be … and that’s not necessarily a bad thing.

via Las Vegas Business Press :: David G. Schwartz : Slip in gambling rankings not bad thing for Vegas.

It’s been a while since Macau knocked Las Vegas out of that number one spot, but I really think it has just begun to sink in. Hopefully now we can start moving forward, to whatever the future holds.

A decade of decline?

This is one of those moment of ambivalence that we all face at some time or another. On one hand, I’m pretty happy to be finished working on the 2009 Nevada gaming breakdown (pdf) and the Nevada Gaming Revenue:Long-term trends report (pdf). On the other, the actual data in those reports aren’t really happy fun reading.

Basically, for 2009, it comes down to just about everything but baccarat did worse. Slot win was down more than 11% for the year, with no signs of real improvement. That’s a problem because while there are 334 locations with slot machines in Nevada, there are only 26 casinos that even have baccarat tables. This means any gains from bacc play accrue to a smaller number of businesses–in reality, we’re talking about maybe a dozen or so casinos that really cater to these high-end players. While the industry as a whole shows signs of life, the 300+ places that don’t offer high-end play are doing just as badly as they were six months ago, at least if the stats are to be believed.

Then there’s the whole “putting all of your eggs in one basket” thing (or “overspecialization,” which is the preferred technical term). But that’s a problem for another time.

Last year, I put up a 5-year trend analysis. This year, I went further back, all the way to the 20th century, to make it a 10-year trend analysis. Here are some highlights:

From 2000-2009, the…
Total number of gambling positions fell by 11.58%. Total casino revenues increased by 8.22%. I don’t know how the overall inflation rate from 2000 to 2009, but thanks to the inflation calculator, I’ve found that “What cost $9,602,586 [the 2000 gaming revenues] in 2000 would cost $11,892,995 in 2008.” So in order for revenues to keep pace with inflation, they should be at about $11.9 billion (or higher–this is in 2008 dollars), not $9.6 billion. That’s bad news for Nevada.

Total number of slots fell from 192,844 to 169,872–nearly a 12% drop. Slot revenues increased by about 10%, again not keeping up with inflation.

There are also about 10 percent fewer table games (with baccarat showing the only real increase) and revenues up by less than 10%.

Both blackjack and craps are showing overall negative trends, with craps revenues off nearly 30% from 2000 numbers. Baccarat had the most impressive gain–winning more than 80% in 2009 than in 2000–but win per table declined. In ten years, the number of tables more than doubled, and play didn’t quite keep up.

Poker showed big gains in both number of tables and revenues, but this doesn’t mean too much to the bottom line. Today, the average poker table makes about $440 in casino revenues a day (plus any ancillary F&B/hotel spend), while the average bacc table makes more than $12,000.

Seeing all of the red ink in the charts is pretty sobering–I’d suggest anyone with a stake in the future of the gaming industry–or the state of Nevada–give them a look, at the very least.

USA Today on penny slots

There’s a big piece in today’s USA Today about penny slots:

The penny slot machine, once a joke among serious gamblers, is the hottest form of betting during this recession.

Even casinos that cater to wealthy gamblers are replacing $1 machines with video slots that accept bets one cent at a time. “You can play longer with less money on penny slots,” says Ed Feigenbaum, editor of Indiana Gaming Insight, a newsletter.

The penny machines accounted for 36% of bets at Indiana casinos in July, up from 8% in 2005.

USA TODAY examined gambling data in seven states and found penny slot revenue soaring everywhere. National numbers are not available.

Las Vegas was slow to pick up on the trend to penny slots, but it has jumped on board, too. In the past two years, Nevada casinos have added more than 7,000 penny slot machines and removed 12,000 machines that require bigger bets.

via Casinos earn coin from penny slots – USATODAY.com.

As far as playing longer with less money goes, I don’t think so. I’ve already broken this down, but apparently it hasn’t bubbled up into the public consciousness yet. Here goes:
In 2008, the average Nevada penny slot machine had a hold percentage of 10.22%

The top bet on penny machines usually runs between 100 and 500 credits, though it can go even higher.
For the sake of argument, let’s take a conservative 200 credits as the max bet. This is what most players will play, since it gives them the greatest chance of unlocking the bonus rounds.
200 credits means $2.00 bet per spin. The average slot players spins the reels ten times in a minute. That means $20 a minute is being played through.
At 10.22% hold percentage, this means that after a minute of play the casino will hold (on average) $2.04.
That’s $122.64 over an hour of continuous play. One hundred dollars–my arbitrary benchmark buy-in–will last about 48 minutes and 50 seconds.
In 2008, the average Nevada quarter machine had a hold percentage of 6.11%
The top bet on most quarter games is 3 credits, or 75 cents per spin. The average slot players spins the reels ten times in a minute. That means $7.50 a minute is being played through.
At 6.11% hold percentage, this means that after a minute of play the casino will hold (on average) 46 cents.
That’s $27.60over an hour of continuous play. One hundred dollars–my arbitrary benchmark buy-in–will last about 3 hours, 47 minutes and 20 seconds

Clearly, it “costs” substantially more to play penny slots with max credits than it does to play quarters. And this was with a conservative 200 max bet plugged in. If you’re playing a 500 credit machine, you’ll be “paying” on average $306.60 for an hour’s play. Yes, if you’re dribbling in the credits and playing very slowly you could milk a penny machine for a few hours. But if you’re playing with any intent to get a jackpot that actually matters, you would be better off (from a bankroll perspective) playing a quarter or even dollar machine. From an entertainment perspective, you may do better with the pennies.

By not disclosing that penny slots typically have far worse hold percentages than higher denominations, this article suggests that the player is better off playing them. As I said, this may be true from an entertainment perspective, but it certainly isn’t if you’re using time on device as your yardstick for value. I would think that this was an important part of the equation.

And as far as penny slots being the new thing in Las Vegas, they aren’t. Here’s the breakdown of Nevada’s statewide slot mix for 2008:

Denom # of machines percentage of market
1 cent 35,842 20.87%
5 cent 10,973 6.39%
25 cent 21,633 12.59%
1 dollar 14,411 8.39%
M-Deno 83,245 48.48%
Other 5,589 3.25%

As you can see, multi-denomination machines are what’s big now. They’ve gone from about 11% market share in 2002 to nearly 50% in 2008. Penny slots have increased impressively, but according to the numbers there are more than twice as many multi-denoms out there. Granted, these machines can act as penny slots, but they are clearly the dominant presence.

My final critique involves the idea that penny slot revenue has increased despite the recession. Here’s the pith of that point from the USA Today article:

Revenue from every form of gambling has fallen in Nevada during the recession — except penny slots. Penny slot revenue was up 3% in the year ending June 30. The 32 other types of gambling tracked by Nevada regulators — from sports betting to roulette — plummeted 19%.

It is true that penny slot revenues have increased, but that’s because the installed base has increased. For example, in June 2009, for all Nevada casinos:
39,089 penny slots, winning $155,209,000 for the month, an increase of 0.51% over the previous June. However, from June to June Nevada added 3,797 penny slots, an increase of 10.53%.

When you add 10 percent more product but do a half-percent more sales, you are becoming less profitable per unit. Indeed, revenue per unit for the month of June 2008 was $4,365. In June 2009, it was $3,970. So revenue per penny slot actually fell by 9%.

That’s not as bad as some other games (craps, which had the same number of games, saw its revenue decline by 15 percent). But it’s hardly the out-of-the-park home run that is suggested by the rather narrow reading of the Nevada revenue numbers by the author. At best, you could say that the penny slots out-performed the gaming revenues at large, which lost 13.86%, though that number is tempered by fewer games and slots. All in all, “same position sales” indicate that penny slots did slightly better than all other forms of gambling in Nevada.

Gaming win at Clark County casinos – Las Vegas Sun

The Las Vegas Sun has a graphical “snapshot” of gaming revenue numbers for the past five years:

Gaming win at Clark County casinos – Las Vegas Sun.

As far as revenue per game/slot goes, this is an interesting graphic because even if this number remains constant gaming revenues will still decrease, as there has been a definite shrinkage of both slot and table inventory, as you can see in this handy pdf that we put together a few months ago.

Back to 2004

The June numbers are in, and it’s woefully obvious that there’s no recovery in sight for Nevada’s gaming industry. From the LVRJ:

Nevadas monthly gaming revenues have sunk to levels not seen since 2004.

And analysts said theres no telling how low the bar will fall.

“Were still hearing from the casino operators that weekends are doing well, but filling rooms during the middle of the week is an issue,” Frank Streshley, chief of the Gaming Control Boards tax and license division, said Tuesday after the agency released gaming revenues for June. “People are coming, but they are just not spending.”

Nevada casinos collected $818.2 million from customers during June, a 13.8 percent decline from $949.3 million collected the same month a year ago.

The total was the lowest monthly figure since July 2004, when casinos won $813 million from gamblers. June was the 18th straight monthly decline as the gaming industry continued to be hampered by the sagging economy.

On the Strip, gaming revenues fell 14.8 percent in June to $414.5 million, compared with $486.4 million last year.

For the first six months of the year, gaming revenues are down statewide almost 13.5 percent, while the money won from gamblers on the Strip is off 14.7 percent.

June marked the end of fiscal year 2008-09 and gaming revenues for the 12 months were almost $10.8 billion statewide, a 13.7 percent decline from $12.5 billion in 2007-08. On the Strip for the fiscal year, gaming revenues declined 15.3 percent to $5.65 billion, compared with $6.67 billion in the previous fiscal year.

via NEVADA ECONOMY: Gaming revenue at 2004 level – Business – ReviewJournal.com.

A year and a half into “the decline,” and it doesn’t seem to be letting up. There were a few signs of life: despite a dismal month at the tables, both baccarat and roulette posted modest gains. This wasn’t enough to offset the tremendous decline in blackjack, craps, and everything else, but it shows that everything isn’t doom and gloom. It’s difficult to extrapolate from those two games, since they have little in common, besides the fact that they are both played in casinos and have little strategy about them. Roulette is generally a casual gambler’s game and baccarat is favored by high rollers and serious gamblers. If this was a renaissance in “real” gamblers, you’d expect to see craps and blackjack do better, instead of declining by about 15 and 20 percent, respectively.

Those are the statewide numbers. On the Strip, table revenues didn’t fall quite as much as slot revenues, assisted by an impressive 12.7% gain in roulette win. A particularly lucky high roller who favors the red and the black? An upsurge in demand for the game? Again, without more information it’s hard to say for sure, but I’d guess that it’s the former.

The nearly 50% decline in nickel win looks catastrophic. Supply has been reduced, but only about about 1/3, from 3,581 to 2,571, so it’s clear that nickel slots aren’t as popular as they once were. But players didn’t flock back to lower-hold quarter and dollar slots–instead, they moved mostly onto penny machines, which actually pay back less to the customer. Maybe the slots players who are looking for value are staying away, while those who are just into quick thrills are coming out.

Year to year, the shrinking of the Strip gaming floor continued, albeit not entirely. The Strip added a total of 18 table games and 3 poker tables from June ’08 to June ’09, and lost 755 slot machines. That’s with the addition of Encore, so it’s likely that “same store sales” would show a deeper decline.

Down in the Boulder Strip area, the volatility at M seems to have cooled off. For the whole reporting area, table games showed about a 10% decline, though roulette had a 14% increase. The house may have lost last month, but it won this time around.

NV casino revenue down

The February gaming revenue numbers are in for Nevada, and the news is not good. From the LVRJ:

Casino revenue statewide continued a 14-month downward spiral in February. But there was one bright spot in the avalanche of negative numbers — gaming tax collections increased for the first time in seven months.

Throughout Nevada, gaming revenue fell more than 18 percent during February and more than 23 percent on the Strip, figures released Tuesday by the Gaming Control Board show. The raw numbers — $839.5 million statewide and $427.4 million on the Strip — were the lowest single-month gaming revenue totals since 2004.

For the first two months of 2009, gaming revenue statewide is off 16.3 percent compared with 2008 while Strip gaming revenue is down almost 19 percent.

NEVADA ECONOMY: Casino revenue falls – Business – ReviewJournal.com.

I took a look at the Gaming Revenue Report for February 2009 myself, and if anything I think the RJ article downplays the bad news. On the Las Vegas Strip, table games were off by more than 35%. Baccarat was down by over 50%; pai gow took in just under 60% money this February.

Part of this is probably due to the Chinese New Year falling in January rather than February. But it’s not just a calendar issue: for the past 3 months, those games are off 32%, 35%, and 41%, respectively. To me, this suggests a serious weakening in high-end play, particularly from Asian high rollers (if you’ve got an alternate theory, I’d love to hear it).

I don’t see much compensation at the low end. Penny slot revenues are up 18%, it is true, but the installed base of penny slots grew by about 25%, from 8,003 to 10,006. The win percentage also increased by about 1 percentage point, which ultimately translates into less time on machine and less player satisfaction. Good news for the remaining high-denom players, though: $5, $25, and $100 machines all had lower hold percentages this February. $100 machines held only 2.61%, compared to 6.85% a year ago. Yet total win fell by more than 75%, despite having nearly the same installed machine base.

All told, slot win on the Strip was down by over 9%, which is in line with a drop in visitors of about the same percentage.

This suggests that the middle-market gamblers who are coming to Las Vegas are still playing their share; the high end, though, is either staying away or playing appreciably less.

The best parallel is to the early 1980s, when a recession and international economic turmoil kept previously big-spending players away from Vegas. In response, casinos began courting the “middle-class” gambler with a little more fervor. This meant coupon books, cheap rooms, and cheap food. It was remarkably successful, until in the 1990s operators became convinced that if they could make money off of middle-market gamblers, they’d clean house with masses of free-spending upmarket visitors. That worked pretty well, too, until our current difficulties.

The answer simply isn’t to burn all the baccarat tables and install penny slots, though. Reno is the best counter-argument. The casinos there didn’t go upscale or substantially re-invest in their facilities, and by every measure the industry there is smaller than it was ten years ago. If it was just about offering people free and cheap stuff, Primm, Laughlin, and Jean would be the most successful markets in the country. They’re not, so there’s got to be more to it.

For now, though, it seems clear that any company relying heavily on high-end table play is going to be running against the wind for quite some time unless they figure some way to attract high rollers when the rest of the market can’t.