What Is the Current Economic Model for Las Vegas?

My curiosity is about Vegas’ economic model. I’ve been coming to Vegas since 1978 and have seen the different evolutions of expansion— entertainment versus gambling, family friendly, nightclub culture, luxury and property spectacle (such as pirate fights). Is there a way to generally gauge what the economic model for Vegas is now - hopefully post pandemic—and what if any new categories are opening? (I predict art and Vegas history by the way as new focus)

[Editor's Note: This answer is provided by David McKee, a long-time Las Vegas business writer and our Stiffs & Georges blogger.]

Earlier this month, economist John Restrepo bucked conventional wisdom and offered the following sentiment. “As the technology improves and convention and trade show attendants get younger, meaning they’re very comfortable doing business remotely, we expect the industry to fundamentally change. Anyone who thinks Las Vegas will return to a pre-COVID convention and trade industry is not being realistic.”

Restrepo isn’t alone. According to the Wall Street Journal, the prospect for renewed business travel "looks scary. While tourism is making a timid comeback, business travelers are still nowhere to be seen. In the last week of July, itineraries purchased by corporations were down 97% from a year earlier.”

“It’s probably a permanent 10%-to-15% impact in the medium- to longer-term,” Sébastien Bazin, CEO of Accor hotel group said.

But as the WSJ notes, business travelers are the high-profit ones for both hotels and airlines. "Corporate fliers make up only 15% of passengers, but 40% of revenues and as much as three-quarters of airline profits on some flights."

And Bazin is, if anything, an optimist. Others are predicting an even deeper falloff in business travel. "In the past three months, 81 earnings calls have referenced a fall in travel expenses and none mentioned an increase, according to transcripts compiled by FactSet."

The point is, to a large degree, as the business traveler/conventioneer goes, so goes Las Vegas.

Conventions and trade shows are the bread and butter of midweek Las Vegas. They’re what put heads in beds and bolster room rates, to say nothing of all the covers they account for at restaurants. Any sizable and longer-than-temporary drop-off in the convention/trade-show segment would not only be calamitous in itself, it would put more pressure on weekend Las Vegas business to take up the slack.

The problem there is that with gaming down to 34 percent of overall casino revenue, greater and greater emphasis has been placed on shows and nightclubs.

It's no secret that those two line items on the P&Ls are down for the count, probably until a COVID-19 vaccine can be successfully tested, manufactured in mass, and distributed throughout the world, a long-term process to be sure.

As for gamblers, the Great Shutdown has changed their playing habits. They’re staying and playing closer to home. First, igaming revenues in New Jersey has been smashing records every month since March, even in July when the Atlantic City casinos were open most of the month. Pennsylvania's online-casinos' bandwidth has also been crowded.

Second, while Las Vegas has struggled to emerge from the shutdown shadow, regional jurisdictions are either back near pre-March levels of business or even, in a few cases like Ohio, actually doing better than before. Since gambling is no longer a Las Vegas novelty, trade shows are thin on the ground, and entertainment nonexistent, the question must be asked: Has Las Vegas jumped the shark?

Just think: On his last conference call with Wall Street analysts, CEO Frank Fertitta III let it slip that it was a case of “if or when” (emphasis added) the Palms, Texas Station, Fiesta Rancho, and Fiesta Henderson would reopen. When was the last time a casino executive publicly mused about permanently closing four casinos? Never. That’s how dire the situation is, even if Fertitta’s constituency (locals) is more reliable than tourists. And with the hourglass running on Caesars Entertainment’s lease at the Rio, there's speculation that it might not reopen. Casino owners are getting so spooked that Sahara owner Alex Meruelo sued Vital Vegas author Scott Roeben for reporting that “industry sources” told him the venerable casino would close next month.

Doomsday scenarios aside, it's worth remembering that two and a half Caesars Entertainment casinos (Planet Hollywood, Cromwell, and the LINQ hotel) and one MGM Resorts property (Park MGM; the Mirage reopens on Thursday) on the Strip remain shuttered, while Palazzo books only weekend guests. What we may be seeing here is a realignment of the business, in which Las Vegas perhaps reinvents itself again -- this time going back to its roots as a true bargain destination (though recent evidence argues against that possibility) or simply tries to get by on fewer resorts.

If there’s any upside, it’s that Strip real estate is falling in price. The much-hyped Skyvue auction was supposed to draw hundreds of bidders, but the land ended up going for less than $4 million per acre … and for a credit bid (essentially a promissory note) at that.

Art and history, led by the Neon Museum and Mob Museum, respectively, could and do draw tourists, but not enough to replace the ones Las Vegas is losing at the moment. Mind you, Sin City has been counted out before. During the Great Recession, it was (wrongly) predicted that business would never return to 2007 levels. It did, finally, just before coronavirus struck.

Communications mogul Barry Diller is one who still believes in the future of Las Vegas. On August 10, he bought 12% of MGM at $19 share, saying, "When Las Vegas fully reopens — even if it must wait until a vaccine for that to occur — we expect it to roar back. A new NFL team, a new stadium, a drivable destination, and months of pent-up demand could drive a powerful resurgence.”

In other words, at least one major investor, and no doubt plenty of others, believe Las Vegas can pick up where it left off last February -- and are prepared to put their money where their mouths are.

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Comments

Dave Aug-25-2020

Sahara RUMOR

Unlike your WOD answer, when Vital Vegas reported the rumor of Sahara closing, Scott made it very clear that he was only reporting a rumor that he had heard. 

Putting ‘industry sources’ in quotes does not imply that it was a rumor, but that the source is both reliable and anonymous. Shame on you for not mentioning the rumor part.

rokgpsman Aug-25-2020

Must get control of covid situation

Obviously this is a serious situation for Las Vegas, the biggest part of how the city makes money and provides jobs is from tourism and conventions. With forty states now having casinos and the increase in online gambling people have more choices than ever for that experience, no need to travel to Vegas just to play a slot machine. And you can travel more safely to your local casino by driving, rather that putting yourself thru the risk and hassle of airports and airplanes. It's other things about Las Vegas that make a trip desirable, things like world-class shows and attractions, lots of dining choices incl gourmet places, high-end shopping, nightclubs, endless choices of bars, etc. Just the large scale of the Strip and its mega-resorts with all the neon lights, the spectacle of it all is something not found elsewhere. The covid crisis caused this economic downturn and business won't recover like we want until the virus is better under control. People have to feel safe to visit.

Rick Sanchez Aug-25-2020

Get the clue

When is this city gonna get the clue?

This is the third time in the last twenty years that this city has been hit hard. 9/11, 2008 and now, they need to go out and find other industry to fill this city. We are very tax friendly to business but very stupid in the way we use the tax incentives.
Stop going after startups like Faraday and go after the established.
A few low paying Amazon Warehouses just ain't gonna do it.

I see a few good starts in the Google Data center and Switch expanding, now LV needs to advertise on those centers and go steal from Silicon Valley and other tech areas.

ClarkKent Aug-25-2020

Las Vegas Convention Future

Just a bit of speculation on my part, but I think that people will want to attend conventions once COVID-19 situation is under control. I believe this because I suspect that people will be looking for business community contact that is not the same as having a meeting via Zoom or some other virtual meeting software.

From things I have read regarding the future of business post COVID-19, companies will be more apt to permit working from home for a larger percentage of their employees. If that is the case, the people who will be working from home will likely want to jump at the chance to get out of their homes and see people with whom they share a business connection.

Randall Ward Aug-25-2020

conventions

hard to predict but the convention and trade shows are mostly a perk for the attendees, but that could be offset by the ability to work and stay in contact from the convention.  FYi there is no better place to attend a work meeting than Vegas!

Alan Canellis Aug-25-2020

Conventions and trade shows

Normally this week I would be at a conference.  This year I am working from home and attending the conference virtually.  The keynotes and breakout sessions are fine.  We are testing a virtual exhibit hall, not worth it.  It is like a cold call in sales, both ways.  I don't know what I don't know.  Exhibit halls are about discoveries. Can't do that now.  Exhibit halls and interacting with others are vital and make for the success of a conference.  Until we have a holographic full immersion technology that allows for total interaction from both sides in a virtual environment without clunky googles, conventions and trade shows will have a critical purpose.

Neal Greenberg Aug-25-2020

It could get much worse before it gets better and it WILL get Better

When an entity is not doing well and the outlook is dark, many will consider that entity to be on it's last legs and near death.  Take a look at NYC, you have a mayor that has made the town look like a the shithole it was back in the 70's.  All I am reading are death of NY stories.  At some point I will be a buyer in NYC real estate. (At some point, but that time is not even close.)

Vegas is vegas.  It is so much more than just a place to go and gamble or to go and see shows.  It is an experience that only a few places in the world can compare too.  Yes, things can get much worse for Vegas including some BIGLY bankruptcies.  But, this too will pass.  When?  I have no idea.  But when it does, people will come back and they will come back in droves.  

I live in NJ and I hate going to Atlantic City, I play poker online. I LOVE coming to Vegas as it gives me a chance to get away.  I really love the town because for whatever the reason, I feel relaxed.  (Part 1)

Neal Greenberg Aug-25-2020

Vegas will be back part 2

At some point, people will be itching to get out and experience their old lives.  I can't tell you how bad the economic pain will be in this country, but it could be very, very bad.  But again, it will pass and people will be back.

Vegas should be doing EVERYTHING possible to get folks coming back.  The first would be to drop the resort fees (obviously).  I can book the Rio for $10/night plus $6 in taxes and a $37/night resort fee.  That is a joke.  Keep parking free.

Vegas added these fees because they could.  They can't now, get rid of them, at least temporarily.

After 9/11 many thought places like Disney World wouldn't do well (same for Vegas on a samller scale).  However, both places flourished.  

VEGAS will BE back.  It will take time.

Jxs Aug-25-2020

Current model = continued gouge

The current economic model is to entice tourists by offering resort fees, paid parking, $9 Coors, 6:5 blackjack, triple zero roulette, 95% video poker, tight slots, higher limits, and crappy comps. I can’t  wait to get on a plane from Chicago to take advantage of all these incentives. I’m Diamond with Caesars and they have the nerve to keep emailing me $25 free play to visit. Hahahaha! Besides the pandemic this has all been going on for a long time and it’s now time for Vegas to pay the piper. Sorry Wall Street- you ruined a good thing and it looks like your day of reckoning is here.

Luis Aug-25-2020

The Bounce-back

When one door closes, one allways opens. Just remember, Vegas Hotel casino industry has everything put in place, It's just a question of puting all the pieces in place. You have Family friendly hotels, you have Historical hotels and sites, you have still convention friendly soroundings and you have experience in all fronts. Gambling will allways be a part of the atraction,for avery other place or state pales in comparison to Vegas as a gambling venue, so, take plunge, dive into all of the venues at the same time, family friendly, busines oriented, historical and the gambling capiltal of the world, there has to be variety, just like food, buffet, cheap - on the go, value sit down, midle ground value and high end, there should be something for every one. Now just promote, promote and promote!!! (if you build it they will come, well it's allready built, its great, gorgeus, it's just a question of remembering just how great and diverse Vegas realy is!

IdahoPat Aug-25-2020

Sports will bring Las Vegas back

The Raiders is just the biggest tip of that iceberg. MMA and boxing will always bring in huge out-of-town crowds. Allegiant Stadium is booked to host no fewer than two high-profile college football games over the next several years, and the expansion of sports betting will make Las Vegas an even more attractive site for NCAA postseason events -- it already was the home of four conference tournaments. Oh, and there's LVMS as well, and I haven't even mentioned the Golden Knights, who are truly Las Vegas' home team, but whom I expect to be more aggressive in going after fans in the other 30-some NHL markets as well, seeing their season ticket base is likely in line for a significant falloff in the next year or two.

Roy Furukawa Aug-25-2020

Conventions will never go away

I agree with Bazin's assessment of 10-15% drop in conventions because some businesses are finding out they can do things virtually, but I think many will still depend on face-to-face communications/networking with colleagues and for industry shows products still need to be shown.

SterlingGuy Aug-25-2020

No shows = death

Until the government allows Las Vegas's headliner and production shows to open, there really is no reason to go. Indian casino resorts provide most of what Vegas offers. What they can't offer is CdS, Celine and Aerosmith residencies and the MSG Sphere.

rokgpsman Aug-25-2020

Conventions and trade shows

Some conventions and trade shows will most likely happen next year, but they may not be held in Las Vegas. Several organizations are considering other cities to host their get-together, including nearby Canadian locations. Many cities are offering financial inducements to lure the conventions and trade shows. Organizations are polling their members to find out how they feel about visiting places like Vancouver, Denver, Austin, Montreal, Orlando, San Diego, Nashville, Boston and others.

Dave in Seattle. Aug-25-2020

Need to recover?

I'll need a great incentive to go there  now!
Masks truly suck.
WAKE UP 'VEGAS!

Question of the Day - 25 August 2020

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