Las Vegas Sun

May 26, 2024

Report: Don’t bet on Las Vegas Strip comeback in 2011


Justin M. Bowen

A report released Wednesday indicates trends show the Las Vegas Strip won’t recover in 2011 from the economic downturn.

While some industry observers point to recent increases in gambling revenue, tourism traffic and room rates as a sign that a recovery is under way, analysts at CB Richard Ellis in Las Vegas are popping that balloon, calling such figures a temporary aberration and forecasting earnings declines for most Strip’s casinos next year.

Lackluster home prices, rising airfares and a declining sweet spot for Las Vegas customers – visitors in their 40s and 50s with money to burn – will result in revenue and earnings declines for most casinos on the Las Vegas Strip in 2011, according to a report released today by CB Richard Ellis’ Global Gaming Group.

The 100-page document – which relies in part on third-party research on such topics as home prices, home equity and consumer spending – is the latest testimonial to the recession-era reality that new Strip resorts have diluted earnings for competitors instead of boosting results. The casino industry has adjusted accordingly, and no new resorts are planned on the Strip for years after the 2,995-room Cosmopolitan Las Vegas resort, the last holdover from boom-era development, opens for business Dec. 15.

Demand could once again outstrip supply in 2012, the report said. That might only be in the cards, however, if home prices – a major source of Baby Boomer wealth – increase more than expected next year.

A bright spot in the report is revenue from baccarat – a game favored by high-rollers from Asia and especially China, where low interest rates and a growing economy is encouraging spending. The report forecasts a 10 to 20 percent increase in baccarat and mini-baccarat revenue on the Strip next year.

Excluding baccarat, which only benefits the handful of high-end casinos on the Strip that offer it, gaming revenue on the Strip is projected to decline from 2 percent to 4 percent next year, the report said. That estimate also excludes revenue from the Cosmopolitan.

Overall, Las Vegas Strip gambling revenue – including results from Cosmopolitan and baccarat – is expected to decline by as much as 1 percent or increase by as much as 4 percent next year compared with 2010, the report said. The inherent volatility of baccarat, given the large wagers concentrated among a select few gamblers, accounts for most of the disparity in results.

Visitors who come to Las Vegas for pleasure rather than business represent at least 80 percent of the market. Leisure travel trends don’t look good for the Strip, however.

Nearly half of Las Vegas visitors get here by plane, yet analysts project flat to declining airline capacity at McCarran Airport next year in spite of an increase in travel demand – a sign that airfares will continue to rise in 2011, the report said.

“That means less money in people’s pockets once they get here,” which will hurt budget properties most because their clientele can least afford such increases, said report co-author Jacob Oberman, senior director of gaming research and analysis for CB Richard Ellis and a former financial analyst for the Bellagio resort.

In addition, Baby Boomers are exiting their peak spending years as they retire, while the population of potential visitors in their peak spending years ages 44 to 52 is declining.

Housing prices nationwide aren’t expected to increase significantly enough next year, Oberman said, for retirees to feel wealthier and thus, spend more. If home prices rise more than experts predict next year, or by 5 percent or more, people may start to feel more confident about their ability to spend, he said.

“Either a lack of material home price appreciation or outright home price declines, as projected by some economists, will not provide the increase in household equity that we believe would be necessary for leisure spending growth on the Strip,” the report said.

Before the recession, about half of “pre-retiree” wealth was tied up in real estate, said co-author Brent Pirosch, director of gaming consulting services for CB Richard Ellis and a former financial analyst for MGM Resorts, then called MGM Mirage. Homeowners are now forced to save to make up for wealth lost from 2007 through 2009, he said.

Many consumers are still struggling to pay down credit card debt or have had their credit lines cut off completely, he added.

And employment is expected to remain weak in 2011, pressuring consumers to save and hold off on spending “in highly discretionary areas” such as casino resorts, the report said.

The Strip could benefit somewhat by an increase in international visitors, a small but growing segment for Las Vegas, as it receives new international flights from Great Britain and France.

A larger positive for the Strip is an expected uptick in convention customers in town on business.

Based on discussions with meeting planners, the report forecasts a 15.5 percent increase in convention and meeting demand, outstripping the 3.1 percent increase in room nights that will be available next year with the opening of Cosmopolitan and additional rooms at CityCenter, the report said.

This means Strip casinos, the report said, won’t need to rely as much on tourists to fill rooms. Also, overall competition for customers, though fierce, isn’t expected to intensify for Strip casinos in 2011 as compared with 2010, when they slashed prices to attract business.

Since hitting bottom in early 2009, a rising stock market has helped increase corporate confidence in booking meetings and other events for their businesses, the report said. It said a declining market could short-circuit convention growth, however.

The forecast marks the second of its kind for CB Richard Ellis, which released an 85-page report a year ago correctly concluding that 2010 revenue would decline for Strip casinos that were operating prior to CityCenter, which opened in December 2009.

At the time, analysts were divided on how CityCenter would affect the Strip, with many expecting it would boost revenue for competitors like major resort openings did years ago.

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