Las Vegas has the jitters as casino revenues fall

The summer hasn’t been all it’s cracked up to be for Las Vegas as, to quote Forbes magazine, “the summer has turned into a bit of a bummer”, with declining visitor numbers and falling revenues.

The reasons are myriad, complex and difficult to pinpoint but the facts remain the same, both MGM Resorts International and Caesars Entertainment, two Las Vegas giants, reported second quarter earnings well below analysts’ expectations.

MGM even went as far as to issue a warning for the third quarter that sent its stock plummeting in a 24% nose dive, despite the announcement of an exclusive deal with the NBA to offer sport betting at its properties nationwide after the U.S. Supreme Court open the door to legalized sports betting across the country earlier this year that will give MGM a significant lead in a nascent sports betting market estimated to be worth upwards of $150 billion.

Falling room revenue and convention numbers

Las Vegas casino operators across the board reported a notable decline in RevPaR (revenue per available room) the benchmark standard to measure market strength. RevPAR on the Las Vegas Strip was down a solid 4% with occupancy and visitor numbers also down 1% through the end of the second quarter in June. Convention attendance was a further cause for concern, down 3% year on year for the second quarter.

The fall in convention visitor numbers is of particular concern for two reasons. First, convention goers, while not necessarily major contributors to gambling revenue, do comprise a significant portion of Las Vegas casinos non-gambling revenue, which stands at around 50% of total Sin City revenues, spending more on rooms and dining than the typical Las Vegas visitor.

Secondly, the city has invested massively in expanding its existing convention center, to the tune of some $860 million. Were the downward trend to continue even a 3% drop off could have serious impact on casinos bottom lines and city tax revenues.

Wall Street panic

Earlier this week the news of the soft numbers rocked Wall Street, prompting a massive sell off in casino stocks that left no player unscathed. With more and more casinos and lavish integrated casino resorts appearing across the country, and far closer to the average gambler’s home than Las Vegas, there are fears that maybe the whirlwind of enthusiasm that has enveloped Las Vegas as the most recent recession has faded into distant memory may well be winding itself out. With consumers having ever greater choice even closer to home, travelling to the desert Strip may well be fading in attraction.

Add to that the rise in online gambling options which require no travel at all but can offer players exceptional bonuses and giveaways that brick and mortar casinos simply can’t afford, and the picture starts looking a lot less rosy for the big boys in Las Vegas.

Moreover, according to Forbes, many observers have pointed to ever increasing resort fees, from paying for parking, to steep buffet prices (the breakfast buffet at Wynn now costs $20.99, while pretty much the same breakfast buffet at the Palace Station off the Strip runs $7.99. As Historian David G. Schwartz pointed out, is that supposedly because Wynn offers $13 more of a breakfast buffet experience than Palace Station? Those must be some hashbrowns!) to outrageous convention catering prices (a single Brazilian coconut shrimp at The Mirage costs $9.50, plus an 8.25% service tax, plus a 19% gratuity and 4% service charge… that’s a whole lot of money for a single shrimp!) and a slowly rising house edge for casino games, the Strip’s new nickel and dime policy, while adding small change to casino revenues, may well be backfiring as visitors choose to gamble closer to home.

Geopolitical complications

Industry observers also point out that there is a geopolitical dimension contributing to the downturn. With international visitor numbers declining nationally in Trump’s America, so too the drop has touched Las Vegas, where much like convention goers, international visitors are known to spend significantly more on non-gaming activities, from food, to rooms and entertainment, than the average domestic visitor.

Furthermore, with Trump setting his sights on a trade war with China, there are fears in the air that Sin City could see a significant drop off in Chinese visitor numbers.
China has long been known to use its travel abroad policy as a form of soft power to influence trading partners and foreign states. When President for life Xi Jinping began his anti-corruption drive a few years ago and travel to Macau for Chinese whales was suddenly strictly monitored, and tightly controlled, the fall off in revenue numbers was so extreme for Macau, who pulls in some 50% of its revenues by catering to Chinese whales, the city is still recovering years after the Chinese government eased the restrictions. With a significant percentage of Las Vegas high rollers being Chinese, were China to restrict travel to certain destinations as a way of fighting back in the mounting trade war, Las Vegas could feel the sting.

All is not lost

profit casino revenues

That said, Las Vegas has shown itself to be fairly resilient when it comes to weathering a few storms. In the mid-1950s, over construction led to a string of casino bankruptcy’s and fears the city was in dire straits. To address the problem, Las Vegas simply shifted gears, building the Las Vegas Convention Center and focusing its marketing activities on convention goers.

Similarly, the recession in the early 80s saw Vegas shift from a focus on catering to high rollers to offerings for middle class gamblers, with excellent results. By the time the 90s came around the city had pivoted again, shifting to offering family fun packages that played down gambling, turning the desert city of a thousand lights into a sort of Disneyland with slot machines and cabaret shows. The results were impressive.

To adapt to changing times post 9/11, Sin City pivoted yet again, with the “what happens in Vegas, stays in Vegas” marketing campaign aimed at attracting party hungry millennials and nightclub goers. Again, the results speak for themselves, leading to the current air of enthusiasm that the recent numbers suddenly cast doubt on.

At the end of the day, soft numbers and a panicked Wall Street sell off may not be the death knell traders fear. Time and again Las Vegas has proved its resilience and only time will tell how Sin City adjusts this time around.

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Thomas McCoy was born in Bethesda, Maryland and studied finance at the Kogod School of Business at American University in Washington D.C. before heading to New York and a job as a forex trader on Wall Street. Successful enough to launch his own, online forex trading platform, Thomas has long had a keen interest in the places where the worlds of finance and technology meet. As a prolific blogger, Thomas considers himself an expert on cryptocurrencies, casino asset restructuring, and emerging technologies set to change the way people do business.