Las Vegas gambling plummets--What does it mean for the city?

[BTinSF]

. . . a precipitous drop in Nevada's gambling revenue. Statewide, gambling revenue in May slumped an eye-popping 15.2%, with table games down 15.7% and slots off 15.1%. Things were even worse on the Las Vegas Strip, where total gambling revenue fell 16.4% -- the largest decline yet in 2008, and one that is at an increasing rate as quarter-to-date revenues for the Strip are off 9%.

"The decline in Strip revenues is worse than the period immediately following Sept. 11, 2001 and except for January 2002 is the worst monthly performance in more than 10 years," wrote Robin Farley of UBS in a note. "The weakness in gaming revenues was not confined exclusively to the Strip as the Las Vegas locals market declined 19.5% in May, bringing year to date revenues down 8.7%."

Source: http://www.marketwatch.com/news/story/precipitous-drop-gambling-revenue-guts/story.aspx?guid={EA917796-F25B-455A-9BF4-7BFE27E85A00}&siteid=yahoomy

I'm interested in what people think this means for the city beyond the gaming halls. Will some or many of the new restaurants whither and their chefs leave? Will it stop construction and, if so, will those who work in that industry leave? Will a Las Vegas in a deep recession still be a place those who can afford the gas or air fares still want to visit?

[dimondpark]

Ya know,
I was in LV in February and I gotta say that of our large group that was there(about 30-40 of us), only a few of us went gambling. We spent more time eating, watching shows and strolling the strip than anything else. Oh, and shopping. Did a lot of that too.

I think Vegas has evolved past its dependancy on gambling income as the only major source of revenue. This is evident by LV successfully morphing itself into a place for singles to have fun and party, but also a place where families can do all sorts of activities that are not gambling-related but still cost a pretty penny.

That said, weakening revenue is bad for any industry so who knows whatll happen. Maybe gas prices are keeping the weekend gamblers from SoCal away?

[urbanactivistTX]

I think LV will be alright... just time to beef up advertising in foreign markets. A Las Vegas vacation is a steal right now for foreigners... well, except for maybe airfare.

[dimondpark]

Originally Posted by urbanactivistTX

I think LV will be alright... just time to beef up advertising in foreign markets. A Las Vegas vacation is a steal right now for foreigners... well, except for maybe airfare.

I wonder how much of a competitor Macau really is to LV?

The casino developers probably dont care since many of them have casinos in Macau too that sometimes look just like their LV hotels.

Wynn Macau


MGM Macau


Venetian Macau

[BTinSF]

I was recently invested in Macau casinos (Melco PBL Entertainment: Crown Macau, City of Dreams etc) and took a bath. I recently got out for the tax loss. The industry there is completely different than Las Vegas. The target market are wealthy Chinese "VIPs" but they come as part of organized groups, put together by "tour" operators who not only book the hotel and other arrangements but lend the customers huge sums of money with which to gamble. These tour operators demand a percentage of the profits from casinos with which they do business and are getting more and more of those profits as the various hotels compete to book the groups. So far, there's not much left for the casino operators and I think that situation has as much to do with the poor performance of casino companies as the Las Vegas situation.

[brickell]

Could travel costs be the final straw that let's people rationalize going to Biloxi, Branson, Atlantic City, even Orlando instead of Vegas. Even in places where it's not legal, things have taken off.

Here in South Florida we've converted some of our parimutuals into Racino's with vegas style slots and the Seminole Indians have recently put in table games. But beyond that corner store "arcades" have proliferated.

Vegas can compete without gaming, but it competes with a much larger pool.

[tablemtn]

If things don't turn around in Las Vegas before those 30,000 new hotel rooms and other facilities currently under construction come on-stream, things will really get interesting.

[unusualfire]

Wow 30k more???? They don't all need to be filled to make money though.

[BTinSF]

Originally Posted by dimondpark

I wonder how much of a competitor Macau really is to LV?

The casino developers probably dont care since many of them have casinos in Macau too that sometimes look just like their LV hotels.

It's but, as I was saying, and by remarkable coincidence:

Macau Acts to Help Its Casinos
Officials Will Cap Fees to Promoters Of Gambling Trips
By BRUCE STANLEY
July 10, 2008; Page B2

See Corrections & Amplifications item below

HONG KONG -- Macau has moved to help its casinos cap the rising cost of drawing customers in an effort to shore up profitability in the world's hottest gambling market.

Government officials, after meeting with industry executives, agreed late Tuesday to put a ceiling on the commissions casinos pay promoters who bring them their most valuable customers: VIP gamblers from mainland China. Recently, casinos have been paying rising commissions to a new generation of promoting company that shuttles customers to the one place in China where gambling is legal.

Wynn Resorts Ltd. of the U.S., Galaxy Entertainment Group Ltd., a Chinese casino operator in Macau, and Sociedade de Jogos de Macau SA, the gambling company controlled by Macau casino tycoon Stanley Ho, said they supported the government's cap on commission rates. Other casino operators declined to comment. Major promoters -- known in Macau as junket operators -- didn't return calls.

Macau's casinos generated US$3.71 billion in gambling revenue in the first three months of this year, more than their counterparts in the Las Vegas Strip and Atlantic City, New Jersey, combined. But the share prices of casino operators such as Wynn, MGM Mirage and Las Vegas Sands Corp. have been battered in recent months, in part because of increasing challenges they face doing business in Macau.

Officials in Macau are concerned that the commissions casinos pay junket operators are escalating too fast and might squeeze profits severely for the six companies licensed to run casinos there. Casinos are a major source of employment in the former Portuguese colony, an hour boat ride west of Hong Kong.

Macau Secretary for Economy and Finance Francis Tam Pak Yuen said the Macau government would limit promoters' commissions to 1.25% of the wagers they generate for casinos. Junket operators currently earn commissions as high as 1.35%. The new cap will take effect in August, after Macau's Executive Council approves it. Violators will face unspecified fines, Mr. Tam said.

The measure is part of a broader campaign by the government to stabilize its gambling industry. Macau Chief Executive Edmund Ho in April announced a freeze on new casino licenses and limits on the number of gaming tables. Unlike casinos in Vegas, where operators have direct relationships with high rollers, Macau's casinos rely on junket operators to bring them most of their VIP business, which currently contributes about 70% of the territory's total gaming revenue.

Because casinos are leery of lending money directly to China-based gamblers, they use junket operators as intermediaries.

Some analysts expressed doubt the government would be able to ensure casinos comply with the maximum 1.25% commission, and they questioned whether the measure would achieve the aim of cooling competition among Macau's proliferating casinos. One possible result, they said: Casinos may compete more vigorously for business from junket operators by lending them more money, possibly on easier terms.



Corrections & Amplifications

Macau's casinos generated $3.71 billion in gambling revenue during the first three months of this year, more than their counterparts in the Las Vegas Strip and Atlantic City, New Jersey, combined. An article Wednesday incorrectly said its casinos generate more gambling revenue than Las Vegas and Atlantic City combined.

Write to Bruce Stanley at bruce.stanley@wsj.com1

Source: http://online.wsj.com/article/SB121561013945839133.html

[BTinSF]

Originally Posted by dimondpark

I think Vegas has evolved past its dependancy on gambling income as the only major source of revenue. This is evident by LV successfully morphing itself into a place for singles to have fun and party, but also a place where families can do all sorts of activities that are not gambling-related but still cost a pretty penny.

That said, weakening revenue is bad for any industry so who knows whatll happen. Maybe gas prices are keeping the weekend gamblers from SoCal away?

I think your last sentence is the point. It isn't just casino revenues that are down. Hotel REVPAR (revenue per available room) is down nationally and Las Vegas may be especially vulnerable because the means of getting there--car and air--are getting much more expensive and not just for those who go there to gamble. I would think the cost would affect those who go there to "party" even more than those who gamble since you can party elsewhere--like in LA where a lot of the partyers come from. The most likely segment of Las Vegas business to hold up for a while is probably conventions, but even that may decline as attending a convention gets pricier, especially if the national economy goes into recession.

So I'm back where I started. If there are less visitors in town, what does that mean for the smaller businesses like restaurants (and other "
party" venues like clubs). Can they/will they weather the storm or are they too fragile?

[tablemtn]

Some will certainly fold if the revenue numbers remain depressed for more than nine months to a year or so, which seems to be the point at which smaller businesses trying to "ride it out" run into serious cash flow and supply purchase problems. That also depends on the ability or willingness of local banks to extend lines of credit.

One thing about conventions is that convention revenue can decline even if the number of conventions increases. That sounds counterintuitive, but conventions bring in money through attending registrants, and if there are fewer such people - or if they spend substantially less - the economy still takes a hit.

[Chicago3rd]

Since I have been going annually since 2003 I can say it has gotten a lot more expensive to go and stay and eat...so we gamble less. Which to me seems to be crazy. Doesn't LV make more money off of me if I drop a $1 in a machine verses dropping $1 at a meal?

[Gordo]

Originally Posted by Chicago3rd

Since I have been going annually since 2003 I can say it has gotten a lot more expensive to go and stay and eat...so we gamble less. Which to me seems to be crazy. Doesn't LV make more money off of me if I drop a $1 in a machine verses dropping $1 at a meal?

Possibly. I'm not sure what the margin is for the average restaurant in Vegas, but slot payback rate hovers around 93% on the Strip:

http://www.insidervlv.com/slotspayouts.html

So, for every dollar that someone plops into a machine, the casino will keep 7 cents. It seems fairly likely that they may make more on your dollar at the restaurant, especially net. I'm sure it feels to you like they must be making more off the gambling - because you're not expecting to win - but many people do win money every day, and casinos do have pretty high overhead (surveillance, security, etc).

[lfc4life]

it ain't as bad as reported

Originally Posted by RJ

JPMorgan gaming analyst Joe Greff said Strip revenues were hurt by a reporting method where slot machine revenues from May 30 and May 31 (Friday and Saturday) will be reported in June because the month ended on a weekend

every day i read a las vegas scare story in the press, every scare story helps lower stock price, its getting boring at this stage

casino revenues are down across the country, its always the same during a recession budget travellers don't gamble, slot revenue is badly hit, rince and repeat
Colorado http://www.denverpost.com/breakingnews/ci_9508673
Conn. http://www.norwichbulletin.com/casinos/x1870705808
Illinois http://www.detnews.com/apps/pbcs.dll...ON03/807020449
reno http://www.lvrj.com/business/23786099.html
atlantic city http://www.pressofatlanticcity.com/1...ry/203174.html

to answer your question; i expect far more celeb chefs to head to vegas over the coming months with echelon, city center, fontainebleau, m, encore and cosmo all opening within the next 18 months. 24 of the most profitable independent restaurants in the US in 2007 were located on the strip. Food revenue in strip hotels in 2006 amounted to $2.2 billion, the strip is a goldmine for that market, i doubt many who spend $200 for a meal at joels or picasso are that worried by gas prices or air fares

[Top Of The Park]

They could offer more reasonable shows, rooms, buffets.....to compensate the traveler who will have to spend so much to get there. They used to have huge 50 cent shrimp cocktails for instance. Most people wont spend $250 to see the Vegas version of the Blue Man Group, when they can see the travelling version in their home town for $75....

[lfc4life]

Originally Posted by Top Of The Park

They could offer more reasonable shows, rooms, buffets.....to compensate the traveler who will have to spend so much to get there. They used to have huge 50 cent shrimp cocktails for instance. Most people wont spend $250 to see the Vegas version of the Blue Man Group, when they can see the travelling version in their home town for $75....

it was 99 cent shrimp cocktail in the smallest hotel in downtown (golden gate) and they were losing millions on that, something like 300k a year, you can't make money on 99 cent shrimp

the most expensive seat for Blue man at the venetian is $132 and some seats go for $71. you can get great offers at the ticket discount booths for most shows now. some vegas shows are very expensive but then i don't care because i am never going to pay to watch "O"

i don't believe prices are putting people off because reno is doing far worse and that place is dirt cheap. there is still a ton of bargains in vegas if you look hard, fremont and california hotels have four course prime rib dinners for $6.99, gold coast and orleans lunch buffets are $7.99, macking is like $17 for two people plus two drinks when you sign up for a harrahs playersclub, big elvis is free everyday, there are number of places on the strip where beer is a $1.

compared to cities like NY, paris or london (in fact any decent sized city in western europe or canada/us), accommodation in vegas is stupidly cheap, most visitors fly to those locations and spend alot of money doing so i don't see any of those places slashing room prices to entice travellers and none of those cities mentioned have occupancy rates anywhere close to that of strip hotels; try and find a 800sq foot suite in paris for about $200 a night Rooms that go for under $40 a night at places like gold coast would cost at least 5 times+ that in london

last time in san antonio my run down hotel near the riverwalk cost more than a room at the bellagio

[BTinSF]

Originally Posted by dimondpark

The casino developers probably dont care since many of them have casinos in Macau too that sometimes look just like their LV hotels.

Yup.

Macau Lifts Wynn as Las Vegas Falters
By KATHY SHWIFF
July 11, 2008; Page B4

Wynn Resorts Ltd. said preliminary second-quarter data show earnings at its Las Vegas casino fell in a range of 65% to 72% but its profit in the Chinese gambling mecca of Macau almost doubled.

The casino-resort operator also authorized an increase of as much as $500 million to its previously announced $1.2 billion share-buyback program.

Investors latched onto the Macau news, and Wynn's shares jumped to $79.94 in after-hours trading. The stock had fallen 9.8% to $69.94 in 4 p.m. Nasdaq trading.

Earlier Thursday, investors reacted to a report in the South China Morning Post that Wynn is considering raising as much as $3 billion from a secondary listing in Hong Kong.

A Wynn spokeswoman said the company has enough capital to fund its development plans, but she declined to comment on whether the company is planning a secondary offering in Hong Kong.

In a release after the markets closed, Wynn said it expects earnings of $18 million to $22 million at its Las Vegas operations, down from $63.4 million in the same period a year earlier. In Macau, Wynn expects $100 million to $106 million in profit, compared with $53.2 million a year earlier.

The gambling industry has experienced significant slowdowns in all U.S. markets as consumers tighten spending in the face of a weak economy and high gas prices.

Wynn is slated to report second-quarter results July 24. Analysts' latest mean estimates were for per-share earnings of 74 cents on revenue of $767 million, according to a poll by Thomson Reuters.

In May, Wynn reported first-quarter net income fell 20% as sagging Las Vegas revenue was propped up by its burgeoning operations in Macau.

Write to Kathy Shwiff at kathy.shwiff@dowjones.com1

Source: http://online.wsj.com/article/SB121572357240643673.html

In other words, they are going to make something like 5 times as much in Macau as in Las Vegas. That's got to affect where their attention is and where they spend money of expansion.

[lfc4life]

Originally Posted by BTinSF

Yup.


Source: http://online.wsj.com/article/SB121572357240643673.html

In other words, they are going to make something like 5 times as much in Macau as in Las Vegas. That's got to affect where their attention is and where they spend money of expansion.

asians gamble 8 times that of americans but its a double edged sword, huge shopping malls in macau resorts are left empty, shows are doing poor business and gambling tax in macau is twice that of vegas.

most hotels in macau generate between 90-95% of their total revenue from gaming, gaming only accounts for 39% of total strip revenue today. visitors to macau on average spend less than 24 hrs there and many don't even stay the night but visitors to vegas while staying much longer spend far less time gambling on average than their macau counterparts

i think the likes of wynn, mgm etc are attempting to wetten the appetite of asian gamblers to come to vegas, some estimates put the number of asian visitors to vegas over the next 10 years at between 5 and 15 million

[WilliamTheArtist]

Much of the decline in Las Vegas gambling revenue is of course due to the economy in general and gas prices, however, I wonder how much of it is due to more places legalizing gambling? I dont think anyone would think of casinos in Oklahoma, but I have to tell you they are building quite a few here. I know personally because of what I do. I paint Trompe L'oeil murals, was mostly doing homes, but have recently been doing more and more casinos here in Oklahoma.

I am currently working on one that is being built right on I35 on the Texas Oklahoma border drawing in the Texas crowd. Its not just about gambling either, they are taking a cue from Vegas and making this casino an attraction. The new addition alone seems to be the size of several football fields. Each section is themed to reflect different major cities, Paris with a replica of the Arc de Triomphe, Beijing, Rome in which I am painting a mural that goes on the ceiling, that 1 mural, I am doing 5 in this casino, is over 5 stories accross. London and Madrid. I started this mural project last September and hope to finish in a couple months. There are huge hand carved, imported, stone fountains over 3 stories tall in each area, the whole thing will have a coordinated light and water show that will run the lenght of the new section. A large hotel is being built next to it. Last time I was there for an installation I had to stay the night, I had to drive almost all the way to Sherman to find an available hotel room because everything nearby was booked because of a concert that was going on at the casino. This is the 4th casino job I have had in Oklahoma in the last 2years. 2 other large casinos are expanding in my home town of Tulsa. Just the ones I know of here, and in OKC, are taking ever larger chunks of this areas, and now more of North Texas, Las Vegas market.

[lfc4life]

whatever about the recession, rising gas prices and reduction of flights into mccarran, people are still coming to vegas but they are not gambling as much as before

The number of people coming to Las Vegas in May was nearly flat, despite the fact Sin City casinos raked in 15 percent less gambling money during the month. The visitation numbers indicate people are still coming to Las Vegas, they're just spending less money.

About 3.4 million people visited Las Vegas in May, an increase of about 15,000 from the same month in 2007, according to the Las Vegas Convention and Visitors Authority.

Air traffic into Las Vegas was down 4.7 percent and auto traffic declined 6.4 percent, suggesting more people shared rides to Nevada.

http://www.lvrj.com/breaking_news/24533914.html