CEO Shuffle at Scientific Games – Vegas Seven

In this week’s Green Felt Journal, I take a look at the CEO transition at Scientific Games:

In a move with big repercussions for the gaming industry, manufacturing giant Scientific Games recently announced that its chief executive officer, Gavin Issacs, is being replaced by former Norwegian Cruise Line CEO Kevin Sheehan. This is a major transition for Sci Games and reveals the direction the industry is headed. 

Read more: CEO Shuffle at Scientific Games – Vegas Seven

The manufacturing side has seen a lot of consolidation but remains just as compelling as the operating side.

Three excerpts from Roll the Bones

Today I’ve added three excerpts from Roll the Bones to the site to give you a little flavor of the book if you haven’t picked up a copy already. Enjoy!

1. Author’s Note/Prologue

This is the introductory overview to the book, giving an idea of its scope—and the changes in the Casino Edition.

2. Why the Mob won Vegas

This excerpt, from chapter 10, “A Place in the Sun,” explains how the Mob carved out influence on the Las Vegas Strip in the 1950s and 1960s, and why it was so dominant.

3. The Rise of Atlantic City

The opening pages of chapter 12, “America’s Playground…Again” discuss the rebirth and rise to (brief) dominance of Atlantic City’s casinos in the late 1970s and early 1980s.

To learn where you can buy Roll the Bones: The History of Gambling, please visit here

Today I’ve added three excerpts from Roll the Bones to the site to give you a little flavor of the book if you haven’t picked up a copy already. Enjoy!

1. Author’s Note/Prologue

This is the introductory overview to the book, giving an idea of its scope—and the changes in the Casino Edition.

2. Why the Mob won Vegas

This excerpt, from chapter 10, “A Place in the Sun,” explains how the Mob carved out influence on the Las Vegas Strip in the 1950s and 1960s, and why it was so dominant.

3. The Rise of Atlantic City

The opening pages of chapter 12, “America’s Playground…Again” discuss the rebirth and rise to (brief) dominance of Atlantic City’s casinos in the late 1970s and early 1980s.

To learn where you can buy Roll the Bones: The History of Gambling, please visit here

2011 Wrap-Up in the LVBP

In this week’s Las Vegas Business Press, I look back at 2011, trying to see what the big lessons are:

Closing the book on 2011 in the Las Vegas casino scene, one word comes to mind: paradox. There wasnt a clear trend leading us either into a more prosperous future or into the muck of even worse economic malaise. Instead, we got a little bit of everything, which means that the last page of this story hasnt been written yet.

via Las Vegas Business Press :: David G. Schwartz : In 11, lots of noise, little certainty for casinos.

This is probably the last look back at 2011 I’ll do–from here on out, it’s looking ahead–at least until next December/January.

Is the party really over?

Interesting column in The Economist that I don’t necessarily agree with:

More important, few residents of Las Vegas would any longer agree that their city is either great or happy.

Nevada has America’s highest unemployment rate. In Las Vegas, unemployment has risen more this year even as it has flattened in the rest of the country; it peaked at 15.5% in September. Nevada also has America’s highest foreclosure rate. In Las Vegas more than 70% of homeowners with mortgages owe more to the bank than their houses are worth. This desert valley, which once represented the most extreme pleasures in American consumerism, now has the most severe hangover.

via Las Vegas in crisis: Party over | The Economist.

There’s a lot of truth in this article, but the perspective is just slightly wrong. And that makes all the difference.

For instance, the author says that “Tourists are now returning, but in numbers too small” to help Las Vegas. While it’s true that the average spend per visitor has fallen, visitation actually rose in 2010. This would have been a more accurate article a year ago, but even then I’d insist the real story wasn’t that Vegas visitation had fallen, but that it was so resilient. At the (hopefully) tail end of the worst recession in sixty years, 37 million people still came to Las Vegas this year. Surely, that’s got to count for something.

And I take issue with the idea of an “existential” crisis for Las Vegas. Yes, I do believe that it’s possible that the rapid devaluation of people’s net work over the past three years has probably made them more risk averse, or “gun shy,” as I was quoted as saying. But the fact is, they are still coming to Las Vegas, which means that the city doesn’t have a major crisis of existence.

Even my theory, as logical as it sounds, is just a theory, and will never be a fact. As I explained to the reporter, it’s impossible to falsify a claim like that–you would have to have done measures of risk tolerance among people coming to Las Vegas in, say, 2006, then re-done studies on the same people this year. And since it can’t be falsified, it can’t be “true” in the way that 2+2=4 is. So, as I said, it’s the kind of thing that I’ll bring up at cocktail parties if people ask for a pop psychology explanation of what’s going on, but I can’t really say if that’s the reason for falling table hold percentages (a phenomenon which pre-dates the recession, BTW).

For that matter, I asked the reporter for evidence of this big cultural shift: how can he prove that the “zeitgeist” had shifted? It’s a pretty glib concept that, again, can’t be falsified. I could just as reasonably say that, since people saw the economic system melt down and saw companies insulated from their bad choices via government bailouts, people might have a greater tolerance for risk, or at least a lesser appreciation for its consequences.

It’s particularly galling that the author didn’t acknowledge existing revenue trends that might disprove his argument. Slot handle, which I consider as good a measure for the broad “demand” for Nevada gaming as any, rose for the first time in October.

As I told him, the idea that the zeitgeist has shifted against Las Vegas and gambling is both incredibly glib and not borne out by the facts. According to the best archaeological evidence, humans have been gambling for thousands of years; its short-sighted to say that a recession, even one lasting three years or longer, is going to change that.

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]

(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.

(Modest increase in visitation, gaming spend/visitor flat)
Visitation +1%, Spend Flat%
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)
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.

(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.

(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.

Looking at 2010

Here’s some breaking news: things don’t look so hot for 2010, at least if you’re in the casino business. From the LVRJ:

The impact the recession had on the casino industry in 2009 has not been completely accounted for, but by all measures the year will go down as the worst on record.

Through October, gaming revenues have declined more than 12 percent both on the Strip and throughout Nevada. Monthly revenue figures statewide have fallen to 2003 levels.

Get ready — 2010 may not be any better according to one casino industry analyst.

Fitch Ratings Service, which follows the high-yield bond markets, believes gaming revenues nationwide will continue to be pressured by the economy. Spending trends remain weak and unemployment will continue to reduce how consumers dole out their discretionary dollars.

via CASINO INDUSTRY: Outlook: Unfavorable – Business –

This is where the casino executives earn their keep. It’s easy to run a profitable resort when the market’s expanding by five percent each year. When it’s shrinking, it’s another story.

I’m of two minds about the continuing economic gloom. On one hand, we won’t just wish our way out of it. On the other, it seems that this is just a continuation of the long-standing predicting trend of extrapolating the present into the future indefinitely.

This is one of the reasons that trying to predict the future, in any except the most rudimentary ways, is futile. Over the past few weeks, I’ve had several reporters ask me if 2010 will be better than 2009. I have told them all that I just don’t know. Of course, if I said, “Yes, it will get better” or “No, it will get worse,” I’d have about a coin flip’s chance either way. There are simply too many variables to try to forecast what’s going to happen except in the most basic terms.

Casino executives should prepare for a challenging year and focus on delivering a combination of value and favorable experience to their customers. Simply dropping room rates then cutting levels of service will be harmful in the long run. In order to compete with the mushrooming number of gaming options, destination casino resorts will have to offer both good deals and unique experiences. In the past, they’ve usually offered one or the other; now, they have to deliver both.

It’s not going to be easy, but battening down the hatches and waiting for the crisis to pass isn’t going to get the job done. That seems to have been the dominant industry paradigm for about two years now (with a few exceptions), and it’s not a viable long-term option.

It will be important for casinos to concentrate their resources where they can make the most favorable impact on customers, be it on the casino floor or off it.

Room rates, 2009, and the future

Because we can’t wait for the future, everyone wants to know what’s going to happen. Spectrum Gaming has a 21-point list of what to expect, but I’ll give you my own views, focusing mostly on Las Vegas.

This is all with the caveat that, as I often say, “my work is not predictive.” That’s just a fancy way of saying I can’t tell the future, and a more polite one, too.

With energy prices and room rates down, I can see a rebound in business, but depressed room rates (relatively speaking) might reverse the steady trend of gaming revenue’s decline as a portion of total revenues.

That’s wordy–let me put it plainer: in 1984, Strip casinos made more than 58% of their total revenues from gaming. That number held fairly steady until 1994, when it began an unprecedented slide. In 1999, the figure dipped to 48.1% percent, and from 2005-7 it hovered between 40 and 41%.

With room rates down and consumers spending less freely on shows, expensive meals, that number may start to move in the other direction. If gaming revenues decline proportionally to room rates, we are in trouble. Year to year, they were down more than 14% in October, and occupancy was down more than 6%. That means a 20% total drop in room revenues. If gaming revenues fell by one-fifth for the year, the state’s budget would probably implode.

So, to borrow a phrase from Mr. Mom, somebody better figure out a way to get people gambling in Las Vegas pretty fast.

Slashing room rates and offering generous comps may do the trick, but what will the consequences be?

When analysts pencil out expected return on investment for future properties, they’ll note the trend of falling room rates. So builders won’t be able to borrow as much money to build higher-end rooms, since you can’t justify spending the same on a room that’s going to earn $110 a night as one that will pull down $160. The next wave of casinos might be a step down in terms of detailed finishes from what we’ve been seeing.

With casinos making more money, proportionally, there will be a greater drive to maximize revenues, which in the end will mean more labor-saving devices, fewer employees with their pesky wages and benefits, and, in the end, greater control over comps. It might be easier to give away a $90 room than a $250 one, but I think casino departments will have their feet held to the fire to maximize their revenues. In the long run, this might not be the same as optimizing them.

Since gas prices have fallen quicker than airlines have added capacity, I see a quicker rebound in drive-in traffic than fly-ins, which means generally stronger results for companies sensitive to value shoppers. The question is, once people have $250 a night to spend on a room, will they be willing to do so if they’ve just spent $90 a night? Or will they feel gouged?

While 2009 will see some great deals for people coming to Vegas, I think that everyone should be aware of the unexpected consequences of cheaper rooms. It may change the face of Vegas in ways that will please some, but not others.