Monthly Archives: November 2009

An alternative to low room rates?

November 30, 2009 1:24 pm

Is the law of supply and demand catching up with casino hotels in Las Vegas? Binion’s hotel downtown is closing, which may be a sign of things to come if casinos aren’t able to raise their room rates and/or maintain high occupancy. From the LV Sun:

Binion’s Gambling Hall & Hotel in downtown Las Vegas will close its 365 rooms on Dec. 14 and lay off about 100 workers.Spokeswoman Lisa Robinson said the decision was made as a result of the economic downturn, which has decreased occupancy at the property and other hotels across the Las Vegas Valley.Robinson said Binion’s also will close the Binion’s Original Coffee Shop and discontinue keno. The casino, sports book, poker room and Binion’s Ranch Steakhouse on the property’s 24th floor will stay open.Robinson said the decision was made Friday. She said Binion’s hasn’t determined when the rooms might reopen.

via Binions to close all 365 rooms, lay off 100 workers – Monday, Nov. 30, 2009 | 11:14 a.m. – Las Vegas Sun.

With an impressive amount of high-end room supply due to come on the market, there will doubtless be pressure on everyone to remain competitive. If B-class properties are going for $80 a night and C-class properties are going for $30, it’s hard to justify spending $25 to stay in a D-class property. If room rates fall throughout the market as they have, at some point the cost of keeping rooms open exceeds the revenue they generate, and they will have to close.

This is a slight contraction in supply–just about equivalent to what Harmon will add when it opens–but it doesn’t bode well for the market. At least one operator is sufficiently pessimistic about the near-term future to take this extraordinary step. It wouldn’t surprise me to see more partial shut-downs like this before things turn around.

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Book Review: Conquering Fear

November 20, 2009 6:58 am

Harold S. Kushner. Conquering Fear: Living Boldly in an Uncertain World. New York: Alfred F. Knopf, 2009. 192 pages.

Humans are the only animals that fear the future–a consequence of the gift of foresight. Harold Kushner, best known as the author of WHEN BAD THINGS HAPPEN TO GOOD PEOPLE, takes on fear in this quick but thoughtful book.

The essence of CONQUERING FEAR can be found in words Rabbi Kushner shared with an ill congregant: “God’s job is not to make sick people healthy. That’s the doctor’s job. God’s job is to make sick people brave.” (18) The book reminds us that while bad things may lie ahead, being crippled by fear in the present will only make them worse. Indeed, throughout the book Kushner reminds us that God himself repeatedly urges people not to be afraid. Kushner’s deity is not about fire and brimstone but overcoming fear.

The book includes chapters on some of the things that Americans fear most these days: terrorism, natural disasters, unemployment, lovelessness, aging, and finally the ultimate terror: death. While CONQUERING FEAR will be a good read for any age group, it is profoundly an older man’s book, as Kushner writes about aging and death with a purpose that a younger author, no matter how empathetic, couldn’t achieve. What he has to say is both comforting and inspiring. In a nutshell, it is that “Your life is the story; death is only punctuation.” (157) Those words aren’t just a balm for the ailing; they are a summons to life for the healthy.

Speaking of this being an old man’s book tempered by his life’s experience, I was particularly taken by Kushner’s meditation on Ecclesiastes. As a young man, he loved it because it spoke to the hypocrisy he saw everywhere. At thirty-five, he read it as the musings of a man worried that everything he’d worked for would disappear. At fifty, after his father’s death, he understood the book as an old man’s fear of death: he’s not worried that his work will be gone, but that he will be gone. It’s this kind of nuanced analysis that makes CONQUERING FEAR such a good read. It feels like the distillation of decades of serious thought about human struggle.

At a time when fear surrounds us, this book will both sooth and stir you.

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Prescient words?

November 19, 2009 2:47 pm

I was doing some research in the 1997 time frame and happened across this quote in the July 1997 Casino Executive Magazine:

“If you’re the last person to build that last $1 billion project in Las Vegas, you might be wishing you hadn’t spent your money that way.”
–Harrah’s [then] CEO Phil Satre

From the perspective of 2009, truer words have never been spoken. You’ve got to adjust for inflation, of course; if we were only talking $1 billion projects, no one would be worrying at all.

Of course, it’s always easy to make bold predictions on either side since the economy runs in such cycles. Someone preaching doom sounded out of touch in 2006, and someone ringing the bell for expansion sounds like a pollyanna now. When you consider that Satre was speaking before the Bellagio opened, you’ve got to admit that the bulls had a pretty good run.

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Recession evolution

November 19, 2009 7:48 am

The big talk at G2E has been the recession. Last year, it was how to fight it. This year, it’s how to survive it. Anyone else get the sense that we’re living in an age of rapidly diminishing expectations? Here’s a bit from the story from the LV Sun:

The recession is forcing Las Vegas to return to its roots as a more value-oriented destination, and that’s not a bad thing, Boyd Gaming President and Chief Executive Keith Smith said.

“The town has now evolved back to its original roots,” Smith said Wednesday at the Global Gaming Expo. “I think the industry will continue to evolve and refine itself and eventually find a norm between value and high-end.”

via Boyd chief: Recession forcing Vegas back to roots – Las Vegas Sun.

Later in the story, there’s something that must be a typpo:

But with the addition of new technology, costs have increased and operators aren’t buying. Khin said slots stay on casino floors for an average of 25 years without replacement.

That’s impossible. If that were true, most of the machines on casino floors would have been installed in 1984. Slot managers would buy one set of machines when the casino opened and then wait a quarter-century (on average) to buy more. In that case, why would they have a big annual trade show to showcase the newest slots if managers keep machines for 25 years? Is it actually 2.5 years? That seems right. Hopefully someone over at the Sun can clarify that.

Smith makes a great point. I think that perception of value–rooted in real value–is going to be the key for Las Vegas for the conceivable future. The high roller/low roller tilt in this town is definitely a cyclical phenomenon that’s rooted in supply and demand: we’ll be in a low-roller turn for a while, but once things come back room rates and ticket prices will start creeping up again.

Remember, this is an industry where casinos in a city that’s been steadily losing ground (my hometown of Atlantic City) charge people $10 and more to park just because they can. Things like this don’t bode well for the customer. I’ve really got to question the aptitude of an executive who thinks that having customers’ first experience of their resort be reaching into their wallet to pay for something they can get for free elsewhere provides the foundation of a good customer experience. Sure, they don’t do that in Las Vegas, but several casinos tack on resort fees and other add-ons that have a similar effect.

My still-in-process slot hold study indicates (if I’m reading this right, and you may read it differently) that ultimately price isn’t the major determinant for players, it’s entertainment value and convenience. As a group, players are choosing higher-hold, flashier games over lower-hold, more sedate ones. Can this insight be applied to the non-gaming dimension of casino resorts? I think so, and this may be the key.

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More about F&B and branding

November 18, 2009 11:08 am

With G2E upon us, I’ve been even busier than usual–hence no post yesterday. Here’s a preview of what I’ll be saying about food and beverage operations and casino brand identity, as covered in my LVBP column:

A property’s brand includes a great many things: the name, the architectural style, fonts used in signage and advertising, the uniforms, the entertainment, and the food and beverage offerings.To longtime casino observers, the idea of a “brand identity” for a casino may seem like a pretentious exercise in needless navel-gazing. After all, if you have loose slots and cheap eats, you wont be able to keep customers out of the place, right?

Actually, branding has been a big part of the casino game for decades. When the El Rancho Vegas, founded in 1941, decided in the early 1950s to position itself more competitively against the newer Flamingo and Sands casinos, it toned down the Stetson-and-jeans feel of the property for a more genteel French provincial ambiance. An important part of this change was transforming the Roundup Room dinner theater into the Opera House.

via Las Vegas Business Press :: David G. Schwartz : Casinos define themselves better when gaming and food pair well.

From there, I talk about the importance of selecting the right f&b mix for a property–something that most people in the business probably know but is interesting to talk about.

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Sayre says sports betting to grow

November 16, 2009 2:05 pm

Here’s the word from a member of Nevada’s Gaming Control Board: look for competition in legal sports betting. From the LV Sun:

Nevada will face competition for race and sports books, a state gaming regulator predicts.“The most pent-up demand is for sports wagering,” state Gaming Control Board member Randall Sayre told more than 60 lawyers at the 2009 Gaming Law Conference sponsored by the State Bar of Nevada.Sayre made his remarks Nov. 6 at the Rio. The event included a keynote presentation by American Gaming Association President and CEO Frank Fahrenkopf and several panels on legal and regulatory issues in the gaming industry.Sayre said as more states struggle to develop revenue sources, some will look to race and sports books as a solution.“It’s about competition, competition and more competition,” Sayre said in response to a question about which issues will be prominent in the future. “There will be intense revenue pressures, more than we’ve ever seen before. The profound impact of competition on the state is not going to go away.”Nevada, the only state to offer legal wagering on sports, nearly got its first competition this year when Delaware proposed allowing sports bets at racinos. The move was blocked by 3rd U.S. Circuit Court of Appeals when the National Football League, Major League Baseball, National Basketball Association and NCAA filed a motion in opposition.Delaware was one of four states — the others are Oregon, Montana and New Jersey — that were exempt from legislation banning sports wagering in the United States, one of the last bills sponsored by former New Jersey Sen. Bill Bradley, who played professional basketball before getting into politics.The four states had an exemption because they had lottery games tied to professional football results.Sports betting accounts for just 1 percent of the total gaming win in Nevada every year.

via Get ready for sports book competition, regulator says – Las Vegas Sun.

Before I opine, I’d like to point out that under PASPA New Jersey is not allowed to offer sports betting. That’s why NJ state senator Ray Lesniak is working to challenge PASPA.

Also, as the article notes, Delaware is not able to offer straight-up point spread betting on single games, thanks to the 3rd Circuit Court decision.

But where there’s a political will there’s usually a legal way, and the large illegal sports betting market is too tempting a target for state governments to hold off for long. I’d look for continued challenges to PASPA that will eventually succeed.

If Nevadans should learn one thing from the history of gambling, it’s that they shouldn’t be complacent or secure with a legal monopoly on sports betting. Once the casino monopoly seemed even more secure, and that’s long gone.

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Total American poker revenue guestimate

November 13, 2009 2:52 pm

I’ve heard many projections out there about the potential size of an American online poker market. I’ve yet to see a peer-review study that addresses the question, and most of them are mysterious when it comes to their methodology. Earlier this week while talking to a reporter, I gave my own attempt at finding the potential size of the national market for poker. I’ll run through my calculations here with complete transparency. I don’t have an ideological axe to grind either way–I’m just curious to see if it’s possible to arrive at a credible estimate using publicly-available figures.

First, I’m going to make a big assumption: that people nationwide will play poker in roughly the same proportion as Nevada gamblers. Nevada doesn’t have legal online poker, but it does have 915 poker tables, about enough for anyone who’s looking for a game. This is going to be a conservative estimate that assumes that legalizing online poker wouldn’t exponentially increase the number of poker players, but would instead attract players in the same ratio to the overall number of gamblers as Nevada casinos. That’s a big leap, and it may be completely wrong.

To find what percentage of Nevada gaming revenues are poker-derived, I divide the 2008 Nevada poker win, $115.7 million, by the total 2008 Nevada gambling win, $11.6 billion. I get .99655%, which I’ll around up to 1%.

That gives me the working hypothesis that we can expect legal poker to generate about 1 percent of the total revenue of legal casino gaming.

According to the American Gaming Association’s State of the States 2009 (pdf), commercial casinos brought in $32.54 billion in revenues in 2008 (this includes the Nevada totals).

According to Casino City Press’s 2008-09 Indian Gaming Industry Report (this isn’t available online), Class III (Vegas-style) Indian gaming facilities brought in $24.72 billion in revenue in 2007 (the latest year I can get my hands on).

Add them up and you get a total casino estimated annual American casino win of $57.26 billion.

One percent of that is $572.6 million.

Of course, that number could assumes that online players follow the same patterns as terrestrial poker players, and that people won’t alter their gambling behaviors too much with the addition of online poker. If Americans stopped playing the lottery instead and flocked to online poker, that number would be much, much higher. But then (if you are just legalizing poker to maximize tax revenues) you have the problem of propping up state lotteries, which often are instrumental in funding education. You could divert online poker taxes to pay for education instead, but then you haven’t really created any new revenue streams, you’ve just shifted the burden from lottery players to poker players.

I’d have to guess that the actual market is bigger, perhaps as much as a single order of magnitude, although again, if that is true, the money being spent on poker would have to come from somewhere, and other gambling expenditures seems the most likely place. I doubt that it would be much smaller. There are too many variables to say for sure what the market is, such as the extent to which those playing illegally today would move to legal sites, or how many home or club poker players would move online, or how many new players legal sites would create.

So as usual I’ve started with a question, worked at finding an answer, and end up with more questions. If anyone has a better estimate, or a better idea for getting the real estimate, let’s have a conversation about it.

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Higher hold=less play?

November 12, 2009 11:07 am

As you may know, I’ve been immersed in a mammoth study of Nevada casino slots’ hold percentages. It’s driven by the question: “Does raising hold percentage actually decrease play?”

That would seem to be the intuitive answer. If people get less value for their dollar (assuming that value=time on device), then they will be less ready to play.

The revenue statistics, however, don’t seem to say so. Here’s a chart that shows the total number of slots, the win, the hold percentage, and the total amount played, or handle, for the Las Vegas Strip 2000-2008.
strip_hold1

As you can see, both handle and win steadily rise after the 2000-3 decrease. The hold percentage increased during the slump, and continued to go up as the handle and win grew.

Here’s another chart that may make more sense visually. I’ve had to multiply the hold % by 10,000 to get it to show up.
strip_hold2
It doesn’t seem that rising hold percentage has anything to do with the handle. If it did, you’d expect to see handle falling as hold percentages go up.

This is where it gets tricky. You can spin it just about any way you like. Those arguing for loose slots can say that in 2008 casinos reaped what they had sown as players finally got fed up with tighter slots. But the visitor numbers don’t bear that out: people who came to Las Vegas still played, tight-slots advocates might argue.

There doesn’t seem to be a direct correlation, and the fact that revenues grew most impressively during years with big jumps in hold suggest that something else is at work here.

It’s worth mentioning that, thanks to higher hold percentages, that in 2008 total handle fell to 2004 numbers, but slot win fell only to 2005 numbers. That’s an argument that most executives–and shareholders–would probably find persuasive.

Comparing 2008 to 2000, we see more than $800 million more in revenue and over $6 billion more in play, with an installed base that’s shrunk by about 18 percent.

This is why the slot hold study is taking a while–it seems like every time I look at a source of data that will conclusively prove a link between hold and revenue (one way or another), I’m back to square one. After analyzing revenues, I thought that hold might be a fruitful avenue, but I’m still back where I started.

It doesn’t seem possible to prove a connection between hold and handle, and higher holds have led to consistently higher revenues. It’s just possible that the bean counters are right. On the other hand, handle has been falling faster than win, so those who demand looser machines may have a point. On the third hand, a decrease in hold percentage did not figure in the 2004-2007 boom. There just doesn’t seem to be a correlation.

In the paper, I explore some theories for the climbing hold percentages that may suggest the true reasons for the increase have less to do with the dictates of slot managers than changes in technology and player preference.

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Real life vs. reel life

November 11, 2009 2:24 pm

I found this courtesy of Stiffs and Georges. Take a look at these transcripts, then tell me that this scenario wasn’t a lot funnier when Jon Favreau did it in Swingers.

John Fredericks Voicemail Transcripts – Las Vegas Now.

That’s one of the greatest single-actor scenes I’ve ever watched. The transcripts are just…awful. We don’t know the other side of the conversation in the early stages, but it’s clear once it gets to October 2nd that this is a monologue.

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21 and counting

November 10, 2009 12:59 pm

Gaming revenues fell about 9 percent in September, compared to the previous year’s take, as the slump continues for a 21st month. From the LVRJ:

Nevada gaming revenues fell for the 21st straight month in September.Casinos statewide collected $911.1 million during the month, an 8.99 percent decrease compared with a little more than $1 billion won from gamblers in September 2008.
On the Strip, gaming revenues were $506.4 million, a decline of 3.58 percent compared with $525.2 million a year ago.Other areas of Clark County suffered much deeper declines during September. Boulder Strip casinos were down 28 percent, and the balance of the county was down 20 percent while Mesquite and Laughlin both recorded 12 percent drops.On a whole, Clark County was down 9.3 percent.Every reporting area of Nevada was down compared to a year ago.September’s gaming revenues translated into a 14.56 decline gaming taxes collected by the state. Nevada collected $54.3 million during the month, compared with $63.5 million a year ago.

via Gaming revenues decline almost 9 percent in September – Breaking News – ReviewJournal.com.

In honor of the 21st straight month of gloom, I’m going to do one of my customary numbers breakdowns. See one man, sitting at a computer, spend enormous amounts of time and energy to look behind the numbers and see what’s really going on. In all likelihood, my conclusion will be, “Casinos didn’t do as well this year as they did last year.”

Since every area was down, I’m not going to break things down by reporting area, which admittedly adds a lot of detail but, on the other hand, takes a great deal of time, which I don’t have a lot of today. I will say that year-year declines are awful news for the Boulder Strip and North Las Vegas areas, since they both added major news casinos (M Resort and Aliante Station) since last September. Things were particularly gruesome at the craps tables on the Boulder Strip–they made only $222,000, with a paltry 2.27% win percentage. Last September, about $11 million was played at Boulder Strip-area craps tables; this September, about $9.7 million was wagered. People are playing less, and this month they got luckier.

Back to the statewide analysis. Let’s compare numbers for the past four Septembers to put this in perspective.

(Poker tables included in parenthesis)

(Poker tables included in parenthesis)

The shrinking of Nevada’s gaming industry continues. In four years, the state has lost 321 table games and 8,301 slot machines. That’s a 4.6% reduction in the total number of slots in the state and a 5.4% shrinkage in the number of tables. The problem is that since then revenues have shrunk by 7.4%. There are fewer seats for players, but they are playing less at the remaining games than they were four years ago.

Looking at slots, in September 2006 players wagered a total of about $13.9 billion on the one-armed bandits.* In September 2009, they only played about $9.1 billion. That’s a 34.5% decrease, which puts the 4.6% decrease in the installed slot base into perspective. There’s a lot less gambling going on in Nevada these days.

I find it interesting that the win percentages have run in opposite directions from September 2006 to September 2009. Table win percentage declined by about 1 percentage point, while slot win percentage increased by about 1 percentage point. I’m incorporating the new numbers into my epic 1992-2009 slot hold study, which is nearly finished and I’m looking forward to seeing what the new numbers mean for the study. Is there a trend, or just a bunch of random walking down the Boulevard?

The shrinking installed base and revenues has implications for Nevada’s tax structure. Look at it this way: In September 2009, the average Nevada casino slot machine made $115 per day. Of that, the state took $7.76 cents out in gaming taxes (there’s also a $250 annual license fee, but we’ll ignore that for now). Considering that the slot base has shrunk by 8,301 since September 2006, that means that, from slot machines alone, the state is getting $64,415.76 less per day in tax revenues from slot machines if people continued to play them at current levels. Extrapolated over a year, that’s a $23,511,752.40 shortfall. That might look small in comparison to the state’s $18.5 billion fy 2010 budget, but it’s a definite problem.

So what does all this mean for the future, particularly the impending increase in gaming supply that City Center will bring in less than a month? Table play actually improved statewide this September, so that could bode well for high-end play. Slots remain in the doldrums, however, and it is hard to see what can reverse that trend.

On the other hand, visitor volume actually increased for the month, so there is some cause for optimism. But it’s clear that the visitors aren’t gambling as much as they once did.

___________________________________
*I calculate the total handle, or amount played, by dividing the total win by the win percentage.

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