Revival Not Fueled By Gaming

Here's a quick read, which includes some of the prophetic thoughts of former MGM Chairman, Terry Lanni. I know some of you folks think people like Lanni, Murren and Loveman are "idiots" (from some posts overs of the years), but I actually knew Terry a little bit and trust me... heads of corporations like these are NOT dumb people by any stretch.

http://www.reviewjournal.com/columns-blogs/business/casinos-gaming/inside-gaming-revival-not-fueled-gaming

 

Out Of Touch

Loveman and Murren are out-of-touch with the upscale, middle-aged gambler that has been Las Vegas' bread and butter forever. Visitors who are tired of bad table rules, tight slots, and lack of food values.

Neither Loveman nor Murren have gaming backgrounds, and it shows.

 

They may not be paying as much attention to the upscale, middle-aged gambler as the middle-aged gambler would prefer, but they seem to be having success as they are pulling away from the formerly targeted demographic. The article says “The amenities, which used to be complimentaries for gamblers, have become the highest growing and most profitable segment of the business,”. The hotel/casinos seem to have replaced what they have lost from them.

“The most important economic data points are all trending in the right direction. The only place we’re not seeing it is in gaming revenue.” It seems gambling isn't among the most important economic data points any more. Which seems to make sense, as more and more casinos are popping up all over the country. Gambling was their bread and butter forever because gambling was only legal in two states. Now it's legal EVERYWHERE. So they have to replace the gambling revenue, and they are doing it well.

Las Vegas is reloading their customer base. I think they are doing a great job of attracting twenty- and thirtysomethings, which will take it through the middle of the century. Of course Las Vegas will continue to evolve to keep their customer base and generate new business.

 

Did they ever consider that the upscale middle-aged gambler has gotten much smarter over the years, and doesnt bring his gambling money into establishments that have a high house vig? Of course gambling revenue is down at the properties where 5-10-15 Black jack is 6-5 with crap rules...start bring back the tables we play at and stop with the crap VP pay tables and maybe you would see gambling revenue go back up? Maybe we would come back to your casinos and stay and eat at your restaurants, shop in your shops? Just a thought...

The internet age has made information on how to gamble and gamble well much more accessible than in the past, so the average gabler is gettting smarter. Just my theory, probably not accurate but its a thought.

We have always wondered how you can pay 5 blackjack dealers at Bellagio to stand at 5 empty $50 tables and not offer one more or two more $10 tables, never mind at least on $5...how do you make any money on an empty table? You must make less on a ful $5 table with good rules I guess...this is why I am not a CEO of a major Casino chain.

 

Smart of not... who knows.

But if they are moving away from gambling because most states have it, and moving to dining and drinking and clubs. Pretty sure most large cities have lots of restaurants and clubs and...

Just sayin.

 

It's all speculation and no one can predict the impact of today's choices on tomorrow results.....but......that said......I think the current success sprouting out into different income streams is at its very core capitalizing on a difficult to measure "energy" that Vegas has over other cities.

I think that special atmosphere was built over time, primarily on the back of gambling. The existence of the relatively high-margin gambling profits allowed Vegas to create an atmosphere where luxury and superior service became affordable. Case in point---try to find a Vegas-quality hotel room in NYC or Chicago. If you can find it the price will be many multiples of the Vegas rates.

I think as they de-emphasize the gambling, the "energy" will dissipate. The effect of gambling on the brain is basically the same as a stimulant drug like cocaine. When you remove that drug from the party, and remove the subsidy on all the high-end finishes and services, eventually you are left with what is primarily an over-priced club scene with a side of show-based entertainment and an appetizer of foodie heaven.

In the end I think all those other activities are great, but they must be complementary to the core gambling to maximize the synergy.

From a scientific, wall street quarterly-results, accounting-based, investor-driven perspective the current moves appear to make a lot of sense.

But I'm just not sure over a longer-term they aren't killing the magic.

 

I agree that all large cities have a lot of restaurants and clubs. Most small cities don't. Another part of the reason I go to Las Vegas is because of the wonderful weather.

I also agree with what Beeejay says. Not only about the luxury, service, and quality of the hotels, but the absolute spectacle of the architecture. Comparing gambling to cocaine is kind of funny.

Expanding on the final thought, one of the attractive things about Vegas is that there is no long-term. As soon as something isn't working, it's gone.

 

Because if someone wants to quickly hit and run and play say 5 hands at a $50 Table that's worth 50 hands at a $5 Table. Bellagio would probably lose money just by comping drinks at a $5 table.

 

We'll said BeeJay.
Agree 100%!!

 

While Vegas has been refocusing their brand as a destination and I agree with BeeeJay on the hotel product. I will say however the service portion of the equation is not that high enough to
say it is raising the value proposition against other areas of the country. I just had great service at 4 star hotel in Indy, that far outclassed the crap CET delivered 5 months ago. While pricing on a weekday or non event weekend, keeps prices competitive to make it an attractive value vacation destination, even more so if the rooms are free. I don't see the value proposition on high volume days such as conventions, etc to draw people, no matter how much energy the place has.

When the value factor is played into the equation, the value prop decreases since Vegas aligns with room prices in other markets. Case in point this weekend with high convention attendance vs last memorial day weekend in Chicago. I saw 3 1/2 star rooms going for within a $70 per night rate. That's hardly a motivate me to come to vegas factor. Like BeeeJay said the roots in gambling does influence a large portion of the revenue. Even if other spend outpaces gaming. Vegas without gaming, or unattractive gaming will eventually kill the business model.

Now if your vacation focus is a 3 day drunkfest then sure, Vegas is hard to compete with, however long term I think the business model will still need to evolve to support a long term strategy.
The same demographic they are catering to today, are shrinking by US census numbers and will in fact be carrying new mortgages, having kids, or kids going to college in 8 to 10 years, that will dry up the club and shopping revenue.

They will not be able to maintain a growth trajectory long term with the existing model, myself and others like me will find other locations to spend our vacation dollar as the squeeze out good gaming when we have it in our backyards.

 

Well said!

I respect that management and executives at these companies see a lot more information than we see and have to consider a lot of things we aren't thinking about, but I don't think that just because they are who they are that they are good at making decisions. I see how decisions are made at big organizations with my own eyes and I'm sure many of you do too or are involved in those decisions. Everyone has career ambitions, wants to get their name on projects, feels they need to be actively doing new things versus just maintaining and refining their existing product, and are driven by short-term expectations. They're temporary custodians, these casinos aren't their babies like Wynn's casinos may be to him.

I'm reminded of an article someone posted here a while back where an MGM exec (maybe Murren) was talking about how the younger generation is fixated on their phones, so to attract younger gamblers to the machines they wanted to incorporate apps into their slot machines so people could check their Facebook. Its the kind of idiotic idea you can easily see being pitched by someone with a vested interest in simply having an idea to pitch instead of asking and analyzing the bigger question of what type of gaming might attract younger gamblers. Its trying to fit a square peg into a round hole instead of carving out a new hole.

Like nostresshere points out, on one hand they argue that they can't compete in gambling because gambling is everywhere, but so are all these new options they are offering. You have to wonder how much they are examining the question of whether they can have one without the other and still be competitive. Its easy to assume they do think about that type of big picture but in reality they aren't incentivized to do that, they're incentives are short term and driven by an institutional and individual career needs to be actively doing something new. Otherwise a bunch of their jobs would be pretty useless.

 

Recently the exec's had a forum in which they complained about losing money because they were comping whales and their entire entourage's. You can decide yourself
if they are wise or foolish. As they detheme and become a shopping center will people still want to come to see the "iconic" city? They can go to NYC to shop. They are smart to expand their demographic, they should still maintain and cater to their base. As far as the old business model, it was alive and well at the Gold Coast the Wed. before Memorial Weekend the tables were full at 1 oclock in the afternoon and the entire casino was buzzing. On the other hand I had to wait an hour at Carlos Bakery in the Venetian twice to get some cannolis. But it was Memorial Weekend.

 

A few of our posters need to watch Undercover Boss you need to know the business operation to make wise decisions that affect overall and long term prosperity.

 

Upscale gamblers can still find good rules. It's the lower end of the market that's getting squeezed.

 

You nailed it BeeJay.

 

I've said it before and I've said it again: The other stuff Vegas is moving into is stuff other cities are already doing and in many cases doing better. Is it smart to pursue other revenue streams? Yes! Definitely! Where they are F-in up is making a mockery of the gaming floor. There is no reason why every slot machine has to be a vacuum and every other game has to have crappy rules. If I am coming with the expectation of potentially losing X dollars on my trip, at least let those dollars last through the whole trip instead of snatching them up in 5 minutes. Let people play and enjoy it, for pete's sake. If I can't come to Vegas with even a slight illusion of winning, then I may as well stay home. On the comp thing, I won't ever buy that they lose money on them if they are rebating you what you lost. I appreciate that they want hard cold cash for those high end restaurants but for a low roller, little things go a long way.

Million Dollar Quartet and Blue Man Group have been playing here for a lot longer than Vegas. Jersey Boys will be a movie at the end of the month. CDS tours. There is no better place to see a Broadway show than Broadway itself and on tour, those shows are cheaper to see locally than in Vegas. Even most of the headliners in residence go on tour between stands so I don't have to go to Vegas to see them. As for shopping, there is nothing I have to go to Vegas to get. They do have some neat mall concepts but they don't have an exclusive on much of anything. As for dining, until the casinos have some top chefs who are devoted to Vegas restaurants and not just franchising a concept to Vegas, they are going to have stiff competition for that dollar. Rooms are cheap but when I am in other places paying more, I notice how much more service I am getting because usually the hotels are smaller and can provide more without charging a resort fee. People always key in on the low cost but always seem to forget there are tradeoffs.

Vegas should pursue the rest but if they don't protect their gambling piece, I can see multiple other cities making a run at them on dining, shopping and other entertainment. If the choice were mine on those categories, Vegas loses every time.

 

I don't think it was just the gambling or food or any one thing Vegas offers_ its the whole package which generates (or generated) " the Vegas experience." The big problem I see with today's Vegas compared to, say, that of the late 80s, is that they've narrowed their market too much. Now everything is aimed at the Sak's5th Avenue crowd, and everybody else can just dump their money into the nearest wastebasket, er, slot machine. Sure there are cheaper options, cheaper buffets. etc. but now those are garbage. You know, the buffets where you have to scrape the crust off the mashed potatoes. It used to not be that way. It used to be that everybody.. EVERYBODY... could "go to Vegas" and have a great time. I knew people who worked for near minimum wage who took their Vegas trips 2-3 times a year, had a ball and came home to Texas in their "Las Vegas" t-shirts. No more. Ordinary people are no longer included in Vegas's target market. IMHO, that's what's killing Vegas.

 

Vegas expanded rapidly when it catered to the higher end gamer.

Complex algorithm software has enabled casinos to better determine where the major source of profits come from. Typically, that's not the lower roller looking for "good gaming rules and cheap buffets". That's why the low-end market has gotten squeezed.

 

I think that's a little misleading, even though it's statistically a correlation. They started catering to the high end night club kids with the $5000 bottle service, and the 8-figure Chinese baccarat players. All of that high-end stuff was there during the 80s as well, IF you were that level of player. That was a point I was making: there used to be a Vegas for everybody. If you wanted $25 tables, etc. that was all there, but at the same time there were also $2 3/2 Blackjack tables as well. So, as I said, there was a wider target market. They're not mutually exclusive!

As far as expanding rapidly when it catered to the higher end gamer, that could be a chicken-or-egg situation. I remember Vegas "exploding" back in the late 80s and early 90s, too. Mirage, MGM, Excalibur, Luxor, etc. all on the so-called "lower end" players' patronage. I put "lower end" in quotation marks because there's a frequent connotation of "lower end player" as being some unshaven Larry the Cable Guy type rolling into town with a $25 bankroll. That's hardly the case. Now you have modern families with two working parents making over 6 figures a year, a couple of car payments, student loans, the kids' braces, a mortgage, and all the other monthly bills people have to pay, and who can't even BEGIN to afford a good time in Vegas, at least not one tenth of the good time they use to have. When these people put $50 into a slot machine and it's vanished before the sweat on their foreheads has dried, they lose interest very quickly. And next year, when they sit at the kitchen table discussing where to go on vacation, they won't forget. They're not welcome in Vegas any more: they're "low rollers."

 

Well this is an outstanding thread with some great points being made.

Beejay's point about the hotels is spot on. I can book five days at Aria or Bellagio for the price that I'm going to spend this summer in Cape May NJ for THREE nights. And the hotels in CM aren't very high end. Mainly mom and pop joints.

So The Vegas Experience is what we all seek and that's defined in many different ways. Whether it be the upscale restaurants, shows, spectacular hotels, gambling or whatever else strikes your fancy. The ability to have all of those is what draws me to Vegas.

The complete blowing up of the gaming rules and conditions is the biggest oversight on the parts of these corporations. There is a happy medium here and they've not been able to find it (or choose to ignore it).

They can still market themselves to the club going crowd while providing excellent gaming conditions. They can still go after the foodie's dollars without slashing every blackjack table under $50 to 6/5. They can take care of their core audience while attracting new visitors.

I understand them going heavy on the comps and freebies during the recession. They needed to entice people to come out and blow their disposable income. I equally understand them tightening the comps up as the economy recovered. However they fail to find that sweet spot here. Take care of the people who will visit you 3+ times a year and don't nickel and dime the piss out of them. Want to charge resort fees? Then just raise the room rates and don't be enslaved to a booking site to get your hotel at the top of the chart.

Once people feel they're being taken advantage of the animosity cranks up.

The Cosmo is the place that fascinates me the most. They could have a killer product there and yet they're failing to maximize that beautiful facility. They've got the young crowd going inside in droves! But the casino is dead with dealers standing around empty tables.

Why have three empty craps tables with $100min? What is the theory there? That they hope the kids standing in line for marquee are going to step up and buy in? Come on.

Anyways I'm on my phone so I will stop now but this thread is very good