Question of the Day - 24 June 2018

Overall spending in Las Vegas has definitely risen over the last three decades, but the percentage of visitors’ wallets devoted to gambling has shrunk. Long story short: Customers are spending more, but in different places.

In 1985, when visitor volume was just over 14 million, gambling revenue was $2.25 billion. Fast-forward 30 years and visitation has grown to a near-record 42.3 million and gaming revenue is up to $9.6 billion, having peaked at $10.9 billion in 2007 well ahead of both the average annual inflation rate of 2.62%, which has inflated prices, as interest has compounded, 123.05% since 1985.

But according to the University of Nevada-Las Vegas Center for Gaming Research, “Gaming win, as a percentage of total revenue, has declined over the past 33 years, chiefly because of the emergence of lodging, dining, and nightlife components of casino resorts as revenue centers.” In other words, gambling budgets have taken a toll as prices, and profits, for those components have risen.

Statewide, the percentage of gambling to total visitor budgets dropped from 62% to 42%, as room rates and retail made up more of the entire revenue picture. The change was more pronounced on the Strip, where gaming revenue fell from 59% to 34%.

“Given the rise of high-ticket entertainment and retail on the Strip, it’s not surprising that the percentage of [non-gaming] income more than doubled.”

Room rates as a percentage of overall revenue catapulted by a factor of five times in the downtown casinos, where gambling dollars pale by comparison to the Strip. It’s a much different story for locals casinos, which still subsist predominantly on gambling dollars, as they continue to lure players in search of good value for their betting dollars. (Reno is also a holdout, a market when gambling is still king.)

Statewide in 1985, gambling brought in $3.1 billion (61.5% of total), rooms $628.5 million (12.5%), restaurants $613 million (12%), retail (6.6%) and “other” (including entertainment) a mere $331 million. Look at 2015 and gambling has grown to $10.6 billion statewide (but just 43% of total), while rooms bring in $5.4 billion (22%), restaurants gorged themselves to the tune of $3.75 billion (15%), and “other” was now a potent $3 billion (12.5%). So that’s $10.6 billion from the casino, $14 billion (once “beverage” is added) from everywhere else.

So what happened? Several things, all mainly the influence of Steve Wynn. With the opening of The Mirage (as well as several other copycat resorts), the hotel room became a profit center, a tendency that was redoubled when Sheldon Adelson filled his Venetian with suites. Wynn’s and Adelson's courtship of leading chefs also ended the historical tendency to use food as a loss-leader to get gamblers in the door. A third inflection point was the opening of Treasure Island, with its Cirque du Soleil resident show, marking the institutionalization of big-ticket entertainment as a Strip staple. In addition, the growth of the nightclub as a resort must-have caused beverage revenues to skyrocket, thanks to the proverbial $250 bottle of vodka.

The next catalyst for change in the casino-resort industry remains to be seen. Mobile gambling didn’t move the needle, skill-based slots are in their infancy, and casinos are trying to get their arms around the e-sports craze. Sports betting will be huge, someday; that's probably the next big thing, though it'll take awhile. 

But with so much “convenience” gambling close to home in states from Maine to California, it takes a lure more powerful than a pull on a slot-machine lever to get players on planes to Vegas.