Seven Year Switch: How Las Vegas Hospitality Has Changed – Vegas Seven

Not to fear. Yes, I talked about the past seven years of casinos in Vegas Seven this week. Yes, I began with a scenario from the book of Exodus. But no, I have not abandoned talking about gambling for a career in Biblical exegesis. This was just my way of trying to think more deeply about what the last seven years mean:

…this hasn’t turned into a soul-seeking tract. I only want to remind you how deep the idea of economic cycles runs in us. We understand that there will be good years and bad years, and that if we fail to plan ahead, the bad years will be tragic. If Biblical wisdom doesn’t do that for you, next time I’ll talk about Kondratiev waves.

Read on: Seven Year Switch: How Las Vegas Hospitality Has Changed – Vegas Seven

So it all seems good, but I’m not content to say “the Recession is over!” and leave it at that. As I discuss towards the end of the article, there is some evidence building that more fees has slowed or even halted revenue growth in other areas. It’s not a concern this quarter, but someday, it might be.

The complex Vegas story in LVBP

It’s not every day that venting about the frustrating aspects of your job leads you to a column. But if you read my piece in the Las Vegas Business Press, you’ll see how I use some misconceptions about Las Vegas as an opportunity to set the record somewhat straight:

Recently, for example, I received an e-mail for a U.S.-based correspondent for a respected foreign publication who wanted to know whether the rumors were true, and that Las Vegas would soon be closed because of the poor state of the economy.

via Las Vegas Business Press :: David G. Schwartz : Beyond the headlines, real LV story is complex.

For some reason election season put me on a lot of foreign correspondents’ radar, even though I almost never talk politics. I don’t envy those who have to quickly dial into a complex situation and summarize it for a general audience at all.

Still, the idea of Vegas closing down made me think of the end of National Lampoon’s Vacation.

Look at quarterlies in LVBP

I’ve got another LVBP column up, in which I discuss whether looking at Nevada’s gaming numbers by quarters can yield any insights:

The financial quarter is a handy time measure for evaluating the Nevada gaming industry’s recessionary progress. Three months is long enough to absorb monthly volatilities, but not as long as a year. Looking at how different areas of the state have fared over the past three years may be the best way to forecast what will happen over the next three years.

via Las Vegas Business Press :: David G. Schwartz : Strip offers hope for recession-weary Nevada.

No matter which way you slice it, Las Vegas just isn’t looking very good right now. As much as I pooh-poohed analysts who offered sunnier outlooks earlier in the year, they might have been right in the short term, though it’s possible that we’re headed back down.

It’s really hard to use history to handicap the near future, but looking at these quarterly results really demonstrates the magnitude of the recession.

Recession luxe in Vegas Seven

This week’s Green Felt Journal is out–I talk a bit about marketing luxury properties during a recession. From Vegas Seven, as usual:

The laws of supply and demand aren’t sentimental, particularly when it comes to hotel rooms. No matter what kind of rate a suite might have gotten in the past, when there are more beds than bodies to fill them, the room rate will go down. But when running a luxury property, there are concerns beyond just filling rooms tonight: Long-term position of the hotel’s “brand” can make price-cutting a double-edged sword.

via Selling luxury in the Great Recession | Vegas Seven.

It’s been a busy week around here, which explains the fewer blog posts. I wanted to talk a bit about Bill Zender’s bacc protection seminar, which was profiled in the LV Sun. Some positive news is that instead of just doing a blog post about the kids unattended in cars thing, I’m writing a Vegas Seven article about it. I’ve already talked to Jerry Markling with the Gaming Control Board and look forward to talking with a few other people.

I also am working on a few work projects that I might talk about here, time permitting.

The Burger King Revolution

It’s a happy day in UNLV gaming-land. An article I wrote a while back about how Las Vegas bounced back from the 1980s recession is out in Gaming Law Review and Economics:

MOST WHO HAVE CONSIDERED Las Vegas history have concluded that not much happened in
Las Vegas gaming between the openings of the original MGM Grand (1973) and Mirage (1989). In fact, several structural changes during the 1980s had already reversed a declining appeal. Responding to three crises—competition from Atlantic City, a national economic downturn, and the MGM Grand fire—Las Vegas casino operators began to draw more extensively on a middle-class mass market. Capitalizing on the “Burger King Revolution,” Strip casinos drew more gamblers who, on average, played less, and slot machines displaced table games as the industry’s leading revenue producer. This successful strategy broadened the city’s visitor pool and created a base for later expansion.
The Burger King Revolution: How Las Vegas Bounced Back, 1983–1989

Enjoy reading it while you can–I think that the article’s only available to non-subscribers for 2 weeks. If you’re a casino professional, you should definitely consider a subscription to GLRE, since it’s packed with informative articles.

I didn’t do too many interviews for this article–I mostly used documents–but I’ve got to say that Jeffery Silver was great to talk to. He was not only an expert on the subject, but has a keen sense of humor and was remarkably generous with his time.

Nothing doing in New Jersey

Casting around the Internet for stories to comment on, I saw a promising headline: Newsweek would tell me exactly why Garden State casinos were having such a hard time. Here’s the first paragraph, but you should click through and read the whole thing, just for fun:

The Great Recession has brought more bad luck. According to a recent report by the American Gaming Association, casinos—a supposedly recession-proof sin business—shed revenue in 2008 and ’09. That’s the first two-year decline since the industry went national in 1978, and it hit the traditional gambling hubs hardest. Nevada suffered the steepest plunge in state history (more than 10 percent last year), while New Jersey slid about 13 percent, as more than a third of Atlantic City’s casinos declared bankruptcy.

via Gambling and the Great Recession in New Jersey – Newsweek.

It’s amazingly content-free. That article gives Seinfeld a run for its money in being about nothing. Seriously, besides recapitulating a few stats, there’s nothing there–no effort to explain why. Talk about bait and switch.

Old-school at the eC

This week’s Green Felt Journal is about the El Cortez:

In many ways, the El Cortez is the anti-CityCenter. Built in 1941, it’s the oldest continuously operating hotel-casino in Las Vegas. Its most prominent feature—the “new” neon sign—was installed in 1946. It has only 364 guest rooms, and, for better or worse, it’s in the middle of a real urban neighborhood.

Yet there are some similarities to CityCenter. The El Cortez has a swanky nongaming hotel a few steps from the casino. The old Ogden House, massively renovated in 2009 and reopened as the Cabana Suites, might not have the Mandarin Oriental’s cache, but its art-deco-meets-mid-century modern stylings and contemporary fittings (plasma screens and iPod docks) are a fraction of the price. And, thanks to the renovation, natural light spills through the hallways.

via Old-school El Cortez wins by staying relevant | Vegas Seven.

I had a lot of fun researching this story, much of which was talking with Mike Nolan. As I referenced in the article, he’s been around for a while and really knows a lot about the business.

There were really two separate things I wanted to get across–that it’s still “old school” gambling at the eC, but that there’s a lot of new stuff, and that the casino’s connecting with the arts in a different way. The first is pretty obvious if you walk around the place. Hearing the plinking of coin-in slot machines really brought me back–you don’t miss it until you hear it again. The El Cortez is just a cool, unpretentious place.

The second point, about the arts, needs a little more explaining. This isn’t a contrived attempt at being hip or artsy, it’s just a response to what’s happening downtown. Opening the former Fremont Medical Center as Emergency Arts is a brilliant move, and really the logical way to bring the arts into the neighborhood. It’s the kind of thing that CityCenter could have done, but didn’t. Sure, there’s galleries there, but if they’d have converted some of their condos into artists’ lofts and recruited artists from all around the country to move in, they might have had something unique. They wouldn’t have made much money renting the spaces–I’d practically give them away–but you’d at least create an attraction, and maybe start drawing serious art patrons, a group that would probably be comfortable with the luxury, non-trad-Vegas approach at CityCenter. That’s what got me thinking about the “anti-CityCenter” idea.

The El Cortez has done this on a downtown budget, and I’m eager to see how it turns out.

One stat I didn’t get to include: the El Cortez’s casino has about 70% local patrons, 30% visitor. With that many repeat locals, you know that they’re doing something right as far as the gambling goes. I don’t think many locals would drive down there for 6/5 blackjack.

So if you haven’t seen the El Cortez for a while, give it a chance.

Lake without a casino

The centerpiece casino of the Lake Las Vegas development announced today that it will be closing. Following the news that the Ritz Carlton is soon to close, this raises even more questions about the future of the development–and ties into a Nevada gaming trend that pre-dates the recession. From the LV Sun:

Casino MonteLago at Lake Las Vegas will close at midnight March 14, the casino owner announced today.The closure is a direct result of last week’s announcement that the Ritz-Carlton would be closing on May 2.The casino is owned by CIRI Lakeside Gaming LLC and is leased through Village Hospitality LLC, which is an arm of Deutsche Bank and owner of the Ritz-Carlton at Lake Las Vegas.More than 170 people will be out of work as a result of the closure. Employees were informed by management today.John Tipton, a spokesman for the company, said the casino was in the middle of negotiations with other investors when the announcement of the Ritz-Carlton closure hit, resulting in those investors pulling out of the casino.

via Casino MonteLago at Lake Las Vegas to close next month – Las Vegas Sun.

Obviously, this is awful news for the 170 people who work there, and it’s hardly a bellwether of economic recovery. With luxury on the Strip selling so cheaply, luxury on the lake is difficult to sell.

As far as the state goes, I’m currently in the middle of crunching the numbers for 2002 to 2009 to get a handle on where gaming is going. I’ve noticed some interesting macro trends.

The total number of gaming positions (slots + seats at tables) is down again in 2009; the number has fallen every year from 2002 (221,476) to 2009 (217,962). Nevada’s casino footprint is 8.11% smaller than it was eight years ago, and continues to shrink. Casino Montelago will be part of that trend continuing in 2010: its 635 slots and 12 tables will probably not be the only ones missing come next January. All told, Nevada has lost 16,558 casino slot machines since 2002, a total reduction of nearly 9 percent. As I’ve said before, the implications of this shrinkage for the state’s tax structure are significant, even if they are not commented upon.

Decreases in volume have partially been offset by net increases in win per unit. The average gaming position made $139.90 in 2009, an decrease again from the 2007 high of $168.04, but still an improvement from 2002 ($116.87). All told, the average gaming position makes 19.7% more money today than it did in 2002, which may or may not have more to do with inflation (money is “cheaper” now than it was eight years ago) than increased operational efficiency.

In 2009, table games got slightly looser (from 12.51% to 12.04%) and so did slots (6.16% to 6.10%). The overall trend has been for slots to get tighter and tables looser, which is likely a result of slot players gravitating towards lower-denom, higher hold machines, while baccarat, which has a lower hold than the table games average, continues to gain as other tables fade.

I haven’t finished crunching everything yet, but expect an update within the week.

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 –

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.

2009 is history

…at least as far as the LVCVA is concerned. The December and year-end visitor numbers, minus the gaming figures for now, was just released. Here are some highlights from the executive summary:

December: Visitor volume up 1.5%, room inventory up 6% compared to December 2008.
2009 (total): Visitor volume down 3%, room inventory up 6% compared to calendar 2009
Average Daily Rate (ADR) was down a whopping 22% for the year, but only 5.8% in December
Both the number of conventions held (19,394) and the number of attendees (4,492,275) were down substantially for the year (13.6% and 23.9% respectively)
Air passengers deplaned declined by 8.2%, traffic on all highway was up by 2.5%, and on I-15 by 4%

First, the good news. The drop in ADR was less than double-digits for the first time all year. Considering that March and April saw drops of more than 30%, losing less than 6% in room rates with a jump in occupancy in December was actually good news. Convention travel showed a year-over-year increase in December, the first increase all year. I don’t know if this classifies as “green shoots,” but it’s definitely better than a straight year of annual declines.

Now, the so-so news. Visitor volume was down 3 percent, which is actually better than the 2008 decline of 4%. There seems to be some correlation between the falling ADR and the rising visitor volume, meaning that cutting prices on rooms helped to lure more people to town–no surprises there. With the number of air passengers falling, casinos clearly need to ramp up their outreach to Southern California and encourage people to make the drive up I-15.

But wait–there is also some bad news. Visitor volume fell by 3 percent for the year. Room inventory increased by 6 percent. It doesn’t take an economist to realize that there’s still an imbalance between supply and demand that does not bode well for the future. The increase in visitor volume for December–despite a highly-hyped casino opening–was less than the increases in the previous three months. Since September, the monthly gain has decreased steadily. In December, at least, it doesn’t seem like the new supply brought enough visitors to Las Vegas to compensate for the increase in capacity.

There is still hope, though. When the gaming numbers come out, we’ll get a better idea of whether the people who came to town in December gambled more than they did in 2008. That was the case in November, but the 6.9% bump in revenue for that month was largely driven by high-end baccarat play, as the slot play actually fell by a billion dollars, an indicator that people for the most part are gambling less. If high-end play increases, then a jump in gaming revenue can compensate for the lower occupancy rates, at least for the short term.

But the larger trend–less air traffic, more auto traffic–seems to run counter to the high-end strategy. We’ve got a confusing year ahead of us, that’s for sure.