Las Vegas Sun

January 21, 2018

Currently: 52° — Complete forecast

Daily Memo::

Some seeing signs of Strip’s economic recovery

Convention planning, stabilizing of housing nationally good signs for Vegas



Many expect CityCenter to draw additional visitors to Las Vegas next year, but at least one casino consultant predicts that 70 percent to 90 percent of its revenue will come at the expense of other properties on the Strip.

Reader poll

Will Las Vegas casinos see a modest rebound in 2010?

View results

As a real-time indicator of how confident American consumers feel about spending their money, earnings of the big casino operators on the Las Vegas Strip haven’t inspired much confidence lately.

In recent weeks, the four largest Strip operators reported third-quarter profits that were lower than those in the second quarter and were even less than what they generated a year earlier, which included a month when the stock market and several investment banks collapsed.

And yet, a growing number of industry executives and analysts believes the market has bottomed and are forecasting a modest rebound in 2010, in part based on evidence that convention groups are more confident about booking rooms next year and signs that year-over-year gambling revenue declines have plateaued on the Strip.

These tentative conclusions come at an especially sensitive time for Las Vegas and the Strip, when CityCenter, the largest and most expensive resort complex in history, opens next month. CityCenter will add more than 6,000 rooms to the market, further testing the theory that new megaresorts create additional demand for Las Vegas rather than simply stealing business from neighbors.

Indeed, some believe the next few months will be better on the Strip, if only because the beginning of the year is a traditionally strong period for conventions and because CityCenter will spark additional traffic to town.

But optimism doesn’t change current reality.

The third quarter wasn’t kind to Harrah’s Entertainment. Its Las Vegas resort earnings fell 25 percent from a year ago and were 18 percent lower than in the second quarter. It wasn’t much better for MGM Mirage, though the company did better than analysts expected, in part from the company’s continued success in filling hotel rooms by keeping rates low. In Las Vegas, MGM’s resort earnings fell only 2 percent from the previous quarter but were 28 percent lower than in the same period a year earlier.

Wynn Resorts’ Las Vegas earnings were in line with the same period a year ago, even after opening its 2,034-room Encore resort in December.

And Las Vegas Sands’ earnings at Venetian and Palazzo fell 53 percent from a year ago, when the Palazzo, which opened in January 2008, had been open a few months.

The third quarter contains two of the slowest business months of the year for Las Vegas, when the summer heat keeps visitors away and prices low. A smaller year-over-year decline in Strip gaming revenue in September than previous months, and a 5 percent increase in Las Vegas visitors in September, are positive signs that the bottom could be near.

October figures, which won’t be available until early next month, may offer a clearer picture, as they will include numbers for a full month by which to compare performance against last year’s sudden collapse of the financial markets.

So far, evidence of a bottoming out trend hasn’t turned up in the form of higher room rates — a big indicator of demand.

MGM Mirage’s Las Vegas properties were among the most highly occupied on the Strip in the third quarter, though at lower rates than some of their competitors at the high end. Overall, the company’s hotel occupancy was 95 percent, same as the year-ago quarter, but at rates that were $31 less, on average.

By comparison, Wynn and Encore combined were 84 percent full compared with 96 percent last year, and at rates that were $62 less, on average. Venetian and Palazzo combined were 88 percent full compared with 93 percent last year, and rates were $46 less, on average. It’s a sign of how far the Strip’s megaresorts have fallen since the boom years, when hotels abandoned the age-old strategy of practically giving away rooms to lure gamblers and embraced a new business model of companywide profit centers.

Many analysts believe CityCenter will complicate the Strip’s recovery by capturing some of the business its resorts would have earned in an improving economy. Real estate broker and casino consultant CB Richard Ellis last week issued a mixed forecast for the Strip: Though hotel revenue will increase by 3 percent to 7 percent next year, from 70 percent to 90 percent of CityCenter’s revenue will be earned at the expense of other properties.

The report said Strip revenue likely would have grown from 2 percent to 4 percent without CityCenter, though, based on stabilizing home prices nationwide and evidence, from the firm’s own survey of meeting planners across the country, that conventions are more likely to book rooms next year.

Executives with MGM Mirage and Las Vegas Sands have recently said their companies are booking more rooms in 2010 for convention groups on the heels of a record bad year for convention business. The convention business could return to pre-recession levels by the second half of 2010 or 2011, which would allow MGM Mirage to significantly boost room rates and company profits, the company said.

On the housing front, CB Richard Ellis casino consultant Jacob Oberman believes that more than 4 percent of Strip revenue during the boom came from people tapping home equity, with an indeterminate amount of additional revenue earned from consumers who felt wealthier and spent more because of inflated home values. Oberman estimates that as much as 10 percent of the Strip’s revenue decline can be attributed to the declining housing market — a trend that, beyond Las Vegas, is playing itself out.

Industry consultant Bill Lerner of Union Gaming Group has a similarly bullish outlook based on an expected 5 percent increase in visitors to Las Vegas atop a 4 percent increase in available hotel rooms — an estimate that assumes that certain rooms won’t be available for rent until later in the year. In that category he includes the under-construction Cosmopolitan and Vdara, a condo-hotel at CityCenter where buyers may be reluctant or unable to close escrow.

“You’re seeing stabilization in the business and that’s underscored by the end of meaningful declines in visitation, smaller declines in gaming revenue and hotel rate declines that aren’t worse than previous quarters,” Lerner said.

Other analysts aren’t so sure, and point to longer-range problems such as airline capacity cuts, high unemployment and weak convention attendance.

While average Americans and their employers still suffer in the recession, Strip casinos may get some help from hard-core gamblers — including customers from China and Hong Kong, where the economy is stronger and gambling has a stronger cultural hold.

Strip revenue from baccarat — a game preferred by Asian high-rollers — has rebounded in the double digits in recent months, though it’s still down 11 percent over the past 12 months. By comparison, slot revenue fell 13 percent in September and is off 15 percent over the past year.

A recovery can’t come soon enough to help the Strip’s most debt-saddled resorts.

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy