FY 2013 Las Vegas - Inside the Numbers

Third installment of the "Inside the Numbers" series (see 2010 & 2012 for previous installments) examining the latest Nevada Gaming Abstract and highlighting 2013 developments and a comparison of the most recent year vs. years gone by.

1. Less gambing, more debt

In 2013, casinos statewide lost a net $1.348 Billion dollars.
In 2007, casinos statewide earned a net $2.297 Billion dollars.

Why did an industry with an ownership structure basically unchanged over the past several years (19 publicly held corporations, of which 8 owned 2 or more casinos controlled just over 3/4 of all casino revenue) take such a hit ($3.645B swing) since 2007?

Less Gambling: $1.6B
Gambling revenue 2007: $12.4B Gross; $6.0B Net.
Gambling revenue 2013: $10.4B Gross; $4.4B Net.

More Debt: $1.2B
Interest expense 2007: $1.7B
Interest expense 2013: $2.9B

That's a huge increase in the cost of debt during a period where revenues declined $2.0B. Then again, what do Loveman or Murran care, they haven't put a dime of their own money into the business.

2. If you build it, they won't come:

Clark County Occupancy rates:
2007: 90.14%
2013: 85.22%

Room rates actually decreased by $6 ($123.07 vs. $115.66; or a 16.1% decrease adjusted for inflation) over this period. 16% off for nicer rooms works for the guests, not so much for the shareholders. Casinos made up for this $7 loss, with a $7 increase in beverage income, but they weren't able to make up for the significant drop in average machine play ($178 vs. $146, $32 in dollars or a 27.2% inflation adjusted decrease) or table play ($87 vs. $80). Tighter machines, poorer pay tables and crapjack may churn gamblers faster, but they don't bring in more dollars or gamblers. Binion > Loveman.

3. Gambling remains king:

Gambling experienced a significant drop off over the past six years, and club/non casino revenue has increased over the same period. However, Gambling is still the bread and butter in terms of profit, even on the Las Vegas Strip, home of clubs and 6/5 blackjack/video poker.

Clark County Statistics:
2013 Gambling Profit: $3.661B (40.8% Profit Margin)
2013 Food Profit: $0.297B (9.6% PM)
2013 Beverage Profit: $0.557B (37.5% PM)
2013 Other Profit / Revenue:$1.187B (45.9% PM)

Casinos make more on shows and other misc. revenue vs. food and beverage (at a better margin).

If you backed out 100% of all comps [room ($0.882B), food ($0.568B), beverage ($0.541B) and misc ($0.116B)] comps from Gambling Profit, you'd be left with $1.554B in profit, larger than food/beverage/other combined, and not all comp dollars are spent to attract gambling.

Rooms account for a large profit ($2.543B), and casinos on average comp 1 in every 5 rooms (down from 1 in 4 in 2010) to generate their bread and butter, gambling profits.

 

Casino Revenue Comparison 2013 vs. 2012:

Statewide: Net casinos dropped 2 (265 vs. 263), while revenue increased $0.111B ($10.395B vs. $10.284B). 2012 revenue adjusted for inflation: $10.438B (or $0.43B higher than actual).

First reported amount = 2013, second = 2012.

1. Las Vegas Strip Area (43 casinos): $5.75B vs. $5.56B. (37.0% of total casino revenue, a 0.6% increase).
2. Balance of Clark County (51 Casinos): $1.44B vs. $1.47B (64.8% of total casino revenue).
3. Boulder Strip (31 Casinos): $826.3M vs. $857.1M (70.3% of casino revenue).
4. Reno / Sparks (22 Casinos): $649.0M vs. $651.7M (52.2% of casino revenue).
5. Downtown (16 Casinos): $505.9M vs. $512.5M (53.7% of casino revenue).
6. Laughlin (9 Casinos): $455.7M vs. $460.0M (64.2% of casino revenue).
7. Elko County (18 Casinos): $256.5M vs. $262.1M (65.7% of casino revenue).
8. South Shore Lake Tahoe (5 Casinos): $196.6M vs. $197.5M (56.2% of casino revenue)
9. Balance of remaining Nevada Counties (43 Casinos): $143.3M vs. $146.3M (66.0% of casino revenue).
10. Carson Valley Area (15 Casinos): $95.8M vs. $97.6M (64.5% of casino revenue).
11. Balance of Washoe County (10 Casinos): $78.7M vs. $77.1M (55.2% of casino revenue).

 

Thanks for the number crunching! Good info, thanks!

 

Good post. This would be a really important dose of reality for some of the press and every TV talking head I've seen who suggest gambling is no longer important to Vegas. A dollar spent on gambling is still more important to their bottom line than a dollar spent anywhere else. If gambling died Vegas really would be dead, all the strip hotels would go bankrupt. If the club scene died they'd survive. But to watch someone talk about Vegas on TV you'd think they live and breathe on nightlife revenue and gambling is just an afterthought, a relic of the past. But I guess when you want to make things sensational everything has to either be booming or dead, anything in the middle makes for boring headlines.

 

There are a great many of us on this board that have always believed this formula to be accurate...

 

One thing I feel the nightlife/daylife scene does do is give a place a sense of revival in terms of which place is "the spot" for the casual mainstream vegas-goer - especially amongst the younger crowd. The theory is that this translates to getting them hooked on other products/services that the hotel offers.

For example, prior to Hakkasan and Light opening at MGM and Mandalay Bay respectively, other than cheap rooms, there wasn't much of a reason for the 20-30 year-old party-goer to visit the south end of the strip. The only thing there was Wet Republic at MGM, but even then it was considered older and not as nice as the newer dayclubs at Cosmo and Encore.

Although I will agree that Gambling will still be the most important factor in generating revenue at the bottom line. Cosmo knows this all too well, since it's doing well in pretty much everything other than the gambling department.

 

Thanks for putting together all this info. Must have taken some doing.

If the largest profit margin is on gambling, and the percentage of gross revenue from gambling has dropped by 50% since 1998 or so (saw a graph of that somewhere...)

then that explains why so many companies are struggling and why CET is a dick.

They need to start training some new gamblers, not offering more and more non-gambling experiences.

Obviously I don't run CET...

 

Unlike Steve and Sheldon, who have substantial skin in the game, Murren and Loveman had the incentive to jack up debt to increase revenue (net income be damned). Murren may survive by pawning off a few more assets (after selling TI, a portion of CC and likely a few other properties) as the Saudis are on the hook for a good portion of CC, whereas Loveman will let pensioners, banks and other investors eat his losses by repaying pennies on the dollar for their debt, and playing a shell game like the Fertittas.

What has happened in Vegas over the past 15 years?

1. Healthy Competition turned to Duopoly.

1998 Publicly owned casinos - 1 + Strip Location
1. Aztac: (1)Tropicana.
2. Boyd: (7) California, Fremont, Main Street Station, Sam's Town, Stardust.
3. Circus Circus: (5) Circus Circus, Excalibur, Luxor, Monte Carlo, Slots-O-Fun.
4. Coast Resorts: (3) Barbary Coast, Gold Coast, Orleans.
5. Harrah's Entertainment: (1) Harrah's.
6. Hilton Hotels Corp: (3) Bally's, Flamingo, Las Vegas Hilton.
7. MGM Grand: (2): MGM Grand, New York New York.
8. Mirage Resorts: (5) Golden Nugget, HI Boardwalk, The Mirage, Monte Carlo, Treasure Island.
9. Riviera Holdings: (1) Riviera.
10. Starwood: (2) Caesar's Palace, Desert Inn.
11. Stratosphere : (1) Stratosphere.

2013 Publicly owned casinos - 1 + Strip Location
1. CET: (9) Bally's, Bill's, Caesars Palace, Flamingo, Harrah's, Paris, Planet Hollywood, The Quad, Rio.
2. LV Sands: (2) Palazzo, Venetian.
3. MGM Resorts: (10) Aria, Bellagio, Circus Circus, Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, Monte Carlo, New York New York.
4. Nevada Bankrupt Corp: (1) Cosmopolitan.
5. Riviera Holdings: (1) Riviera.
6. Tropicana: (1) Tropicana.
7. Wynn: (2) Wynn/Encore.

Has consolidation benefited the average Vegas visitor?

Has it benefited the average stockholder?

2. 1998 (All dollars adjusted for inflation $1 = $1.42 in 2013) vs. 2013
Strip Casinos w/ $1M + Revenue

Locations: 38 (1998) vs 43 (2013)
Total Fixed Assets: $11.9B Vs. $36.8B
Long Term Debt: $2.4B vs. $21.0B
Total Capital: $9.0B vs.$13.3B

Gambling Net Income: $2.0B vs. $1.9B
Room Net Income: $1.4B vs. $2.3B
Food Net Income (Loss): ($58.2M) vs. $380.2M
Beverage Income: $166.9M vs. $477.6M
Other Income: $507.2M vs. $1,121.4M
Interest Expense: $0.2B vs. $2.6B
All Other Expense: $1.9B vs. $5.1B
Net Income (Loss):: $1.139B vs. ($1.497B)

Food really was a loss leader. At the end of the day, Strip casino shareholders in the 1990s earned a decent net profit over 10% of invested capital whereas they now lose billions each and every year and pay for the privilege. A drop in inflation adjusted gambling revenue despite the tens of billions added in debt?

Non inflation adjusted net loss, past five years
2013:($1.497B)
2012:($1.720B)
2011:($2.208B)
2010:($2.571B)
2009:($4.163B)

How do you turn a profitable industry earning billions annually and nice margins into a money pit, losing billions upon billions upon billions, year after year? Massive increases of debt and the leadership of Loveman and Murran. Take a bow. They lost money the old fashioned way, they burnt it.

 

Excellent post.

I have always thought that the people who allowed this oligopoly - nay - duopoly - have doomed Vegas. They are either stupid, or on the take, or both.

Someday this is going to come home to roost. In the meantime, my hope is always that CET or MGM will have to hive off properties to other interests a la T.I.

It's also encouraging that Resorts World is coming as a player on the Echelon site.

This all is the reason there is so little decent VP on the strip. I take it personally!

 

Is this supposed to be like "there is 11 in one list and then 15 years later only 7!"

Your second list is missing:
8. Treasure Island
9. Stratosphere
10. LVH
11. Casino Royale

#12 can be saved for SLS coming next year

So the list really doesn't look that much shorter 15 years later and when you factor in how many places closed in that time the list really isn't that bad.

 

Vegas up big for March 2014:

http://www.twcc.com/articles/2014/04/29/v/vegas-breaks-record-with-3-7m-visitors-in-march

 

RF - I am also encouraged about the new Genting Property (and SLS), and I hope independent/new operators take over Cosmo and at some point Fonteblue returns from the dead and perhaps new capital is poured into the Riv to restore its former prominence. I was historically a North Strip fan (Stardust, Desert Inn, Riviera, Westward Ho, Silver Slipper) and always hoped it would return stronger than ever after the unfortunate demise of The Startdust.

The list is casinos held in publically traded stocks. The list is published each year in the Nevada Gaming Abstract, issued by the Nevada Gaming Board. I removed non strip operators from their comprehensive list of Nevada casinos.

In 1998, you had several strong operators with multiple Strip Properties (Circus Circus, Hilton, MGM Grand, Mirage, Starwood) plus a few more strong operators with only one Strip location (Boyd, Harrah's plus the Riv and Trop which were still in decent shape 15 years ago). This competition extended to competition for strip visitors. This competition resulted in several casinos offering green chip two deck S17 DAS games on the strip, whereas today you may find a couple $50 offerings at a single Operator (MGM/MILFe) at the Bellagio, Aria and/or MGM depending on day of week/time of day.

The same holds true with full pay video poker being offered throughout the Strip whereas today 7/5 or 6/5 is found in many places, with a few 9/6 games available at high denominations (or w/ zero comps - NYNY). Park Place Entertainment (created when Paris opened) ushered in 6/5 BJ in this timeframe and now it is prevalent throughout the Strip. Nickel/dime sports book lines became dime/twenty cent lines. Loss leader food options and cheap rooms are now expensive rooms/meals w/ mandatory $100+ resort fees for a 3-4 night stay, even at dumpy properties which have undergone few if any substantial improvements over the past 15 years.

A majority of Strip revenue cycles through two publically traded companies in 2014. This is not good for the consumer, and the debt incurred to reach this point of consolidation is also not good for the shareholder.