How Casinos Are Reacting To Revenue Trends
The UNLV Center For Gaming Research recently released a report looking at historical departmental revenue in Nevada casinos. The report shows annual revenue trends in casino-resorts from gaming, hotel rooms, food, beverage and other (shows, retail, etc.) from 1984 through 2015 by dollar and percentage of revenue.
The report notes a few specific items for statewide casino revenue:
- Statewide: The percentage of gaming revenue fell from 62% to 43%, with rooms and “other” (chiefly entertainment and retail) making the largest gains.
- Las Vegas Strip: This area saw the most dramatic change, with gaming win dropping from 59% of total revenue to slightly under 35%. Given the rise of high-ticket entertainment and retail on the Strip, it’s not surprising that the percentage of other income more than doubled.
- Downtown Las Vegas: Gaming still produces a (bare) majority of revenue here, but rooms have increased their share by nearly five times.
My takeaways are slightly different for Las Vegas:
- Las Vegas Strip: Even though these revenue trends aren’t new, we’re finally seeing their effect in casinos and hotel rooms in Las Vegas.
- Downtown Las Vegas: 2016 will be the first year that gaming revenue is less than 50% of overall revenue. Decreasing gaming revenue may be slower but it’s impacting downtown Las Vegas too.
The decrease in gaming revenue is a 30-year trend and shouldn’t come as a surprise to anyone who follows the Las Vegas casino business. If you don’t follow the business closely, you might have heard of new openings and renovations that have been partially dictated by these revenue trends.
Las Vegas casino operators were slow to adjust to these revenue trends but when they finally started to deal with the change in recent years the shift could be seen and it’s been drastic. Blame the changes on millennials all you want but the changes predate their birth. The appearance of the millennial generation name just happens to line up nicely for the marketing folks.
Today’s Las Vegas casino operators are corporations which don’t operate casinos the way the mob operated them back in the 1950s to 1970s. Every inch of land that a Las Vegas casino occupies must generate revenue. However, generating revenue isn’t enough. Corporations report quarterly revenue to shareholders and revenue is encouraged to trend higher than previous years. Some might contend that there is no time to develop ideas to see if they work and there is often a price increase around the corner for customers.
Increasing Hotel Room Revenue
Last quarter, for example, Caesars Entertainment pointed to resort fee increases as the main reason for their hotel room revenue increase. Looking ahead, Caesars cited that hotel room renovations would allow them to charge more money for Las Vegas hotel rooms. This year, Caesars Entertainment will introduce no less than 5 hotel room renovations at Caesars Palace, Harrah’s, Paris Las Vegas, Planet Hollywood and Rio.
On that same earnings call, Caesars Entertainment executives pointed to The Linq Hotel & Casino as their brightest example of change for all of their properties. The Linq has everything they could want from a Las Vegas casino-hotel including new hotel rooms, new resort fees and a new gaming model.
Changing Casino Floor
The Linq Hotel and Casino might be one of the most transformational properties on the Vegas Strip but it’s not the only one. Casinos have been looking at new ways to increase gaming revenue for years. Gaming lounges are the hot trend on the casino floor right now. Five years ago, before gaming lounges, the party pit was the new trend on the casino floor.
If The Linq has shown us anything it’s that different areas in a casino that are devoted to specific customers works. Their 3535 Lounge, Tag Bar and O’Sheas casino areas each attracts a different customer base that may be looking to gamble, hang out and drink in a certain environment or both. All three defined spaces offer a different experience for a different person and that doesn’t seem like a trend that’s going away anytime soon.
Multi-purpose gaming areas, like gaming lounges, are a way for a casino to mix decreasing gaming revenue with increasing beverage revenue for an atmosphere that is still “Vegasy.” We’re seeing this trend at Encore with the Encore Players Club, The Palazzo with Lavo Club casino and MGM Grand with Whiskey Down.
Gaming lounges aren’t just a hot trend. They’ve actually been an idea for a few years but with something else in mind. The concept of gaming lounges has been floating around since mobile gaming first emerged. Mobile gambling tourists won’t just sit in their hotel room to gamble. Mobile gamblers, like everyone, want the Vegas experience. Socializing is a part of the Las Vegas casino experience and lounges are optimized for that.
Traditional gaming, mobile gaming and lounges all work nicely together for the customer and for the casino operator. Gaming lounges are comfortable areas to play tables games, machines and apps for customers. Gaming lounges are also a way for casino operators to increase beverage revenue and reduce drink comps.
Many younger customers today are prone to opting for a better experience than just the normal experience. Which of these options says better experience? A unique $18 signature cocktail or two that can be Snapchatted and Instagrammed. A well drink that looks like a cheap drink from anywhere, USA? The first option says “Vegas Baby” a bit more than the latter. Paying $18 for a drink instead of $0 might not be the choice every time but it might be often enough.
A customer today playing video poker at Whiskey Down might be okay with a low-end whiskey as their comp drink while playing video poker but it may not be right for every occasion. The comfortable lounge at Whiskey Down encourages the customer to return with friends another time, perhaps for an after dinner drink that might turn into a few hands of blackjack. Whiskey Down is optimized for our short attention span without being overly flashy about it.
Increasing Gaming Revenue?
New gaming areas might not increase gaming revenue. They may not even be designed to increase gaming revenue. Perhaps the decrease in gaming revenue will be offset by an increase in beverage revenue. Gaming has always been a part of the Las Vegas experience and it won’t be going away anytime soon.
One might assume that the decrease in gaming revenue will continue until it’s entirely gone in 30 years. That may happen but it doesn’t seem likely. Today’s Vegas experience isn’t the same that we had or our parents had. Millennials and younger Generation Xers are looking to create a unique and memorable experience. Gaming is still a part of that experience. It’s just not the only part of the experience.
A 5-hour blackjack session might be a part of that memorable experience, a night at the club with bottle service might be a part of that experience and a combination of both might make for the best experience.