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August 1, 2015

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Nightclubs are the new cash registers at Strip casinos

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Seth Browarnik/Star Traks

Pure at Caesars Palace on April 19, 2011.

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Bow Wow at Rain in the Palms on Friday, Jan. 27, 2012. Launch slideshow »

In a town built on gambling, megaclubs have created a business model that has sustained investors even during a recession.

The trend started quietly, then began exploding with the likes of Rain at the Palms, Pure at Caesars Palace and Tao at Venetian. Together, they sated young revelers on the hunt for a new sort of Vegas debauchery. Where their parents and grandparents enjoyed a different sort of nightclub — where booze, food and entertainment came cheap because the real casino payoff would come later at the gaming tables — this new generation of Vegas visitors came with pockets full of cash and plastic, ready to spends hundreds, if not thousands, of dollars on liquor and the chance to listen to famous DJs play their house mixes.

Casino bosses, skeptical at first, couldn’t help but notice the trend, and in time they were tearing out slot machines and felt tables in favor of nightclubs. (Among them: MGM Grand removed Family Feud slot machines to make room for Tabu Ultra Lounge.) The numbers showed they were making more money per square foot than gambling devices, upending previous formulas for maximizing casino revenue. Even casino visionary Steve Wynn, who launched the redefining of Las Vegas in 1989 when he opened Mirage (where dancing meant dolphins and entertainment meant big stage productions such as Siegfried & Roy), now trumpets nightclubs as the prevailing source of entertainment in a city filled with all sorts of it.

Wynn took megaclubs to another level when he opened Encore in 2008 with XS.

Money from gambling had been maybe “the best cash register in the building until the clubs came along,” Wynn said when opening Encore.

What happened?

“It’s a sign in the change of tastes of the younger generation that wants to be part of the show, not in the audience,” he said. “They want to be the actors.”

His XS was a phenomenon. Less than two years later, he added the $68 million Surrender nightclub and Encore Beach Club.

Cosmopolitan opened Marquee — its megaclub — in 2010.

Over the years, megaclubs have become more mega: Rain opened in 2001 with 26,000 square feet, then Pure in 2004 at 36,000 square feet, followed by XS at 40,000 square feet and Marquee at 60,000 square feet.

Marquee generated more than $70 million in revenue, a record-breaking figure, in 2011, according to Nightclub & Bar magazine. Of the trade publication’s top 10 nightclubs in the country in terms of revenue, the Strip boasted eight, including XS at number two, the Tao in third and Pure in the fourth spot.

And they weren’t even working at it full time.

“What’s interesting about those figures is that a lot of the clubs mentioned in the top 10 that aren’t in Vegas operate five nights a week,” said Jason Strauss, a partner at v. “Tao and Marquee are really only two nights a week when you talk about the overall facility being open, and three days a week when you add the smaller events. These clubs are still generating that kind of revenue in just a few days a week.”

But during those few days, they’re getting the full attention of younger Vegas visitors.

“These are customers who make nightlife a priority of their visit,” said Bryan Bass, executive director of marketing for Las Vegas Nightlife Group, which operates Encore Beach Club and Surrender. “Someone might stay in a three-star room over a four-star room, or eat a $25 meal as opposed to a $100 meal. Then, what they are doing with the rest of their money is coming to nightclubs.”

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