Question of the Day - 13 July 2018

Actually, you're right to ask for clarification. We misspoke a bit when we wrote that celebrity chefs "ended" using food as a loss-leader. It would have been more accurate to say it continued the process that, as you point out, began with the advent of the corporations. 

We also agree with your contention that gambling was the first, foremost, and perhaps only priority during the era when the Las Vegas casinos were owned and managed by mobsters and gambling operators from around the country, where casinos were uniformly illegal. In those days, nearly everything, from $1 chuckwagons to on-the-house hookers, was a loss leader for the joints. Even rooms were an afterthought. A story we've always liked is one told to Deke Castleman for Whale Hunt in the Desert by an old-timer who was comped for his honeymoon into a "suite" -- with twin beds.

The corporations took over in 1970, after Howard Hughes forced state legislatures to abandon the policy of licensing casino shareholders individually. Hilton and Holiday Inn entered the market immediately, though Hughes' own bean-counters began turning non-gambling departments into profit centers, though it was a long and slow process.  

Indeed, when Barry Sternlicht took over Caesars Palace in 1998, he had to insist that his Starwood corporation would see that the room product became profitable. We remember that he was considered an outlier, possibly misguided. In retrospect, he was merely ahead of his time.

The numbers on Nevada casino restaurant revenues also prove the point. 

in the early '80s, 10 years after the advent of corporate ownership of casinos, food represented only $581 million out of nearly $7.5 billion in total hotel-casino revenue (7.7%). It grew by small increments until the advent of the themed-resort era in 1991 ($1 billion out of $9 billion, a little more than 10%), increasing steadily, though certainly not precipitously, year over year. It broke the $2 billion mark ($2.4 billion) in 2001, a year that casino revenues overall catapulted to $18 billion (13.3%). Food revenues peaked temporarily at $3.5 billion out of $25 billion in 2008 (14%).

The Recession caused a five-year swoon, but record visitation numbers in recent years have also been reflected in restaurant revenues, which set successive records from 2014 to 2017 and at the current rate will hit 20% of the total in a few years. However, that string might be broken this year, in which business has been a bit slower in Las Vegas, especially the Strip, home of those high-end celebrity-chef restaurants. The prices charged at many of those restaurants are partially, though certainly not entirely, responsible for the long trend in which food has become less and less of a casino loss leader.