This week’s Las Vegas Business Press column takes a closer look at the game of baccarat, which is becoming more and more important on the Strip:

At the level of the individual casino, there are even greater swings of fortune. Unlike Nevada, New Jersey discloses separate results for each of its casinos. This allows analysts an eye into what can happen in a given month.

via Las Vegas Business Press :: David G. Schwartz : Baccarat and its wild swings crucial to Nevada.

You can read the original baccarat longitudinal microstudy here, if you want to see the numbers behind the column.

One question I sometimes get is what the value of all of these statistical studies are. The answer is that they add a very important dimension to understanding what’s happening around us, which gives us better insight into how to change it for the better. Becoming more reliant on baccarat–as its currently played in Nevada–has definite consequences for the industry and the state, some good, some bad. It’s important to talk about this as the trend is unfolding, rather than waiting until after it’sp already arrived. If everyone had been looking closer at the revenue jumps in 2005-2006, we’d probably had reacted much better in 2007 and 2008.

But numbers never tell the whole story, which is one of my issues with the “purely empirical” approach outlined by Gary Loveman in this Bloomberg profile. Gambling and tourism are hospitality industries, which start and end with customer interaction and creating an experience for the guest. Metrics are an important part of running the business, but they should support, not define, the approach. Whether you call it action, fun, or excitement, that’s what your “core message” should be.

In other words, it’s not “gamble at our casino, because we’ll offer you a competitive package of comps to get your $529 theoretical loss per trip.” It’s “come here and have fun.”

I’ve been thinking a lot about this angle because I spent much of the week at the Star Trek convention at the Hilton, where I was able to really immerse myself in fandom and talk to the people running the show. I’ll be spinning Vegas Seven and Business Press pieces out of my observations, which will also relate back to the “empiricism vs customer-centered” argument.

There were really a ton of great stories there, from both the fans and the actors.

The May numbers have been released from the Nevada Gaming Control Board, and while on the surface they seem to be not such bad news, they actually send a mixed message. Here are my thoughts, broken down by region.

Statewide
Across the state, the gaming industry continues to shrink–we’ve got about 2,500 fewer slots and 70 fewer table games, despite the addition of a major new Strip casino since last May (Aria). It’s the equivalent of the net loss of a big Strip casino.

Slot revenue increased slightly for the month (0.44%), but this isn’t a sign that slot play is picking up. On the contrary, statewide slot handle–the amount actually played by players–continues to fall. The bump in revenues was due to a higher slot hold percentage–6.06% vs. 5.58% in May 2009. The handle fell from $10,094,516 to $9,336,733. This is the lowest handle in years, and it is a sign that people are in fact gambling less in Nevada. The slot handle has been declining steadily since 2006; earlier gains in revenues came because of higher hold, not more play.

Tables told the opposite story: revenues were down because of lower-than-usual hold, particularly at blackjack (10.37%) and baccarat (8.40%). The usual hold for those games is about 12-12.5%. But handle was up–partially, but not completely, due to a rise in baccarat play. So table play doesn’t look so bad.

Las Vegas Strip
The Strip saw the same general pattern as the state, with greater extremes: the slot hold was higher (6.94%), the overall table and baccarat holds were lower (10.47% & 8.26%). The slight gain in table handle seems to indicate that higher-end play is stabilizing, but not leading a recovery. It’s worth noting that there are more tables and slightly more slots on the Strip, so overall, handle-per-unit is probably down.

Boulder Strip
My favorite barometer of local Las Vegas gambling followed the same pattern as the Strip, with even more extremes. Slot hold increased from 4.24% to 5.55% (still lower than the holds for Mays 2005-2007, and slot handle declined from $1,253,821 to $1,068,378.

Overall table hold was a catastrophic 8.02%, though the table handle was up. They got hammered at craps (9.01 hold%) and absolutely slaughtered at mini-bacc (-15.48 hold%–yes, they actually lost money!). It’s either lucky players, bad management, or something worse.

Washoe County
Up north, things were quieter and much more consistent. With a decrease in slot hold, both handle and revenues fell slightly. Table hold increased a bit, but again both revenues and handle declined. Washoe County continues to gently coast downward, with no end in sight.

So there’s really no conclusive lesson to be drawn, except that we are definitely not seeing a recovery of slot play, and any gains in revenues are coming because of higher holds, not more play.

The latest Las Vegas Business Press is on the streets, and it includes my thoughts on the April numbers:

April revenue results for Nevada’s casinos contained a not-unexpected surprise. The hands of fate, in the form of a lower-than-usual baccarat hold percentage, finally caught up with the state, proving that an over-reliance on high-end gamblers is at best a stopgap strategy and no formula for growth.This April, players bet about $693 million on baccarat. This was enough to make it the biggest April in Nevada baccarat history, with nearly 30 percent more money played than in April 2009, which was a similar advance over April 2008.

via Las Vegas Business Press :: David G. Schwartz : Gaming demand’s down, do we need new marketing?.

We’re going to see a lot more of this until someone figures out a way to get more–many more–lower-budget but higher volume gamblers back on the Strip.

This is getting predictable. In May, casino revenues in Atlantic City declined 9% from May 2009. Year to date, revenues are down 7.9%, and it doesn’t look to get much better. I don’t think that table games in Delaware and Pennsylvania are going to help.

It was an across-the-board decline. Every casino posted lower revenues that the year before. Here is the ranked list, with monthly revenues and the overall gaming win change from the year before:

You can get a sense of the (relative) winners and losers here. Borgata’s clearly the top of the market, while Harrah’s is weathering the storm fairly well: three of their four properties declined less than the industry average. Trump, whose Plaza did surprisingly un-bad, is in the next tier, along with the Tropicana, followed the present and former Colony Capital properties at the bottom. Resorts, in a complete shock, actually increased its table game revenues, but since they were already pretty anemic (2nd-lowest in the market), it’s hard to say whether this was because of volatility or a real increase in demand. Judging from the slot performance (nearly a 20% decline), it’s the former, but it’s impossible to say for sure.

No bones about it, this was another bad month for Atlantic City. There’s something of a silver lining for Borgata and the Harrah’s properties (though Caesars should be doing better), but not much solace for anyone else.

Year to date, Harrah’s, Caesars, and Showboat are doing the best (Harrah’s revenues are actually up .5%), followed by Borgata, then the Trop and Bally’s–these casinos are all seeing their revenues drop less than the industry average (7.9%). Below that line, you’ve got the Trump casinos in a solid blocks (YTD declines of 10-15%), followed by Resorts (16%), with the Hilton in freefall (more than 20% decline in revenues).

Two things are going to happen: either the market will miraculously turn around, or someone’s going to close. Those casinos at the bottom can’t continue to see revenue declines like this and keep their doors open.

The Gaming Control Board has released Nevada’s April 2010 gaming revenue numbers.

To give everyone some perspective on the month, I’ve put together a new report: Nevada Gaming Statistics: April Comparison. This four-pager charts the performance of Nevada casinos over the past 7 Aprils. This month, we’ve got four reporting areas: Statewide, Las Vegas Strip, Boulder Strip, and Washoe County. This gives us the overall state situation, as well as foci for tourism (LV Strip), locals (Boulder Strip) and northern Nevada (Washoe County).

Metrics include:

* Total, slot, and table revenues
* Slot and table hold percentages
* Slot handles and table handles
* Numbers of tables
* Baccarat revenue, handle, hold data (statewide and Strip only)

You can find the report here: http://gaming.unlv.edu/reports/NV_april.pdf

So what do the numbers mean? Continuation of the trends that have been dominating since the fall, and something of a warning shot.

Overall, revenues for the state are down slightly. There’s a clear divergence between tables and slots: slot revenue declined by about 8%, while table revenues increased slightly. The divergence is clearer when you look at handle, the total amount played. Slot handle for the state declined by more than 6 percent–the lower hold explains the higher revenue decline. Table handle, though, was up by a little more than 1 percent. If not for bad luck at the bacc tables, table win would have increased.

Nevada April Gaming Stats--statewide

Ahh, baccarat. In April the chickens finally came home to roost. Since the January numbers came out, I’ve been warning people that since A) the state is relying more on baccarat win and b) baccarat has a great deal of volatility, eventually the odds will turn against the house. That happened in April. In recent years, the average baccarat hold has been about 11.5 percent. This April, it was only 8.48 percent statewide–about a 26 percent drop.

This is significant. If the state’s bacc tables had held 11.5 percent, the state’s bacc revenues would have been abuot $80 million instead of $59 million– more than $20 million more in money to pay salaries, and more than $5 million in tax revenues that the state could surely use. Baccarat can be lucrative, but it’s not a great base to build your tax structure on.

Looking more closely at the Strip, it’s clear that Aria’s just not giving the bump that people had hoped it would.

Nevada Gaming Statistics--April, LV Strip

Both slot revenue and handle posted small declines, even as the number of slots went up. Table revenues increased by about 5 percent, which didn’t quite offset the slot decline. Baccarat handle increased by about 23 percent, which is good, since the number of bacc tables increased by 16 percent. So as far as baccarat goes, at least, supply is keeping up with demand. April 2010 was the biggest April for baccarat play in history. But outside of baccarat, there really isn’t much recovery on the Strip.

Another noteworthy area was the Boulder Strip, which saw slot revenue fall by more than 23 percent, though a much lower hold (4.63% vs 5.15%) had much to do with it. Still, overall play continues to decline in the Las Vegas locals market.

Someone got hammered at the tables–table hold percentage fell from 12.93% in April 2009 to 6.63% in April 2010–a decline of nearly 50%. Handle was actually up by about 10 percent, but the dice just didn’t fall the house’s way this April.

So the theme of the month was volatility is not always your friend. With bacc win representing more than 7 percent of gaming revenues this month, it’s clear that the gaming business is becoming more of a gamble for everyone.

The Nevada gaming revenue numbers for March are out. From the LVRJ:

Nevada casino revenues fell by less than 1 percent during March following February's double-digit increase.

State casino operators collected $912.2 million during the month, a decline of 0.66 percent compared with $918.2 million collected from gamblers in March 2009.

via Nevada gaming revenues decline 0.66 percent in March – Business – ReviewJournal.com.

Here’s a further breakdown (you can visit the Gaming Revenue Index to see the numbers for yourself):

- Craps, roulette, and pai gow had major declines (20-30% or so, each)
- Baccarat win was up 59%, but the hold percentage was well below average
- Win from sports betting more than doubled, even though the hold percentage (4.87%) is below the theoretical win percentage for a perfectly balanced book. Smart bettors out there.
- Overall slot win is down, though hold percentage is up (6.70% vs. 6.46%)
- Pennies were up by 7.75%. Inventory is up about 5%.
- Big jump in 100 dollar slot win (211.08%), but that’s due to volatility: in March 09, the Franklins held under 3%; this March, they held nearly 9%. In the big picture, it doesn’t mean anything.

Here’s a nifty chart that gives you the context of this March:

As you can see, there is some cause for concern. If it wasn’t for the increase in baccarat, we’d be looking at another decline%. Yet again, high-end play has rescued the state. The good news is that the hold percentage was below average, and that the bigger handle shows a real demand. The bad news is that slot handle continues to fall–by about 25% since 2007–which indicates a decreasing demand for broader-based play. This is a problem, since its this kind of play that sustains most casinos and most markets. It’s great that a dozen or so casinos are drawing in the bacc players, but it’s clearly a struggle for everyone else.

Something else of note: table game hold continues to decline. Since these are mostly games of pure chance operating under the same rules, I think this shows that players are pressing their bets less; when they win, they might be taking the money home instead of putting it back into play. A sign of a changed consumer psychology? If so, it suggests that casinos will have to get used to players gambling less per capita, which means they somehow have to find more of them.

If you want a pdf of that chart, it’s from a new report I’ve posted at the Center for Gaming Research: Nevada Gaming Statistics: March Comparison. Check it out.

The trend of the past six months–higher bacc spend, lower for just about everything else–continues to hold. One thing is clear: there is no “V-shaped recovery” in Nevada gaming. The best we can hope for is a “U-shaped” one, with a pretty long bottom. The worst case scenario is the “L-shaped recovery” where things just stay where they are now, with no real growth.

The AGA’s 2010 State of the States is out, and to no one’s surprise 2010 was another off year for gambling. From the LVRJ:

According to figures released this morning by the Washington D.C.-based American Gaming Association, commercial casinos in 13 states collected $30.74 billion from gamblers, compared to $32.54 billion collected in 2008.

via Gaming revenues decline for second year – Business – ReviewJournal.com.

From page 8 of the report, here are how the top five markets did:

1. Las Vegas Strip, Nev. $5.550 billion
2. Atlantic City, N.J. $3.943 billion
3. Chicagoland, Ill./Ind. $2.092 billion
4. Connecticut $1.448 billion
5. Detroit, Mich. $1.339 billion

Atlantic City’s hanging in there, isn’t it?

Here’s a useless, but quite interesting nonetheless, fact: Americans spent a little more at commercial casinos ($30.74 billion) than they did on candy ($29.3 billion). I don’t know how candy that’s bought at a casino is tabulated.

I might pull some of the data from the reports into a single chart that makes it easier to see the trend, but that’s third on my list of table-making. First, I’m working on the March numbers. So we have some context for the March 2010 numbers, I’m looking at the numbers for each March back to 2004. It’s an interesting demonstration of volatility, for one, because the baccarat hold percentage has ranged from 7.15% to 14.32% (March 2004 through March 2009).

The second is an idea that grows out of volatility and table game hold. Since theoretically there shouldn’t be any trend, as there is in slot hold, I’m going to get the average for annual table game holds for an extended period, as well as the extremes on each side. Depending on how far back I go, I might do this monthly or annually.

Back to the March numbers: looking at last month, I predict a big increase in baccarat win. I would be surprised if I saw a major increase in anything else, but I hope I’m surprised.

Las Vegas Strip casinos had a strong February. From the LVRJ:

When combining the first two months of 2010, gaming revenues are up 5 percent statewide and 13.4 percent on the Strip.

“February turned out to be the perfect storm,” Control Board Tax and License Division Chief Frank Streshley said. “It was a record for any Chinese New Year. There was a high volume of wagering on baccarat and the hold percentage was well above normal amounts.”

via Gaming revenues jump 13.9 percent – Business – ReviewJournal.com.

Let’s put the month into perspective. Here are the last 4 Februaries’ baccarat numbers for the Strip:

month——–# of games———-win———–% change*———hold %———-handle
Feb 2010_____290_____$205,035,000____255.28%____17.04%____$1,203,257,042
Feb 2009_____214______$57,710,000____-50.57%____11.12%_____$518,974,820
Feb 2008_____198_____$116,637,000_____-0.02%____11.18%____$1,043,264,758
Feb 2007_____171_____$116,384,000_____46.88%____11.36%____$1,024,507,042
* From previous February
Source: Nevada Gaming Revenue Reports for Feb 2010, Feb 2009, Feb 2008, Feb 2007

The increase in baccarat revenue is part of the larger trend that’s charted in the Evolution of Nevada Baccarat, 1992‐2009 report (pdf).

This February, baccarat accounted for 21.76% of all Nevada gaming revenues–an astronomically high number, when you consider that in 2005, baccarat accounted for only 5.71% of the states total gaming revenue. The 21.76% total is likely the highest in Nevada history.

This is the real story here. It’s fantastic that the casinos had a good month, but we should be mindful that there are hazards inherent in a bacc-heavy approach. As I said three weeks ago in Vegas Seven:

The increasing importance of baccarat marks a step back from the way the industry had been moving since the 1980s, relying heavily on a small pool of players instead of generating profits on volume. This may be a concern, since the universe of people who can bet $10,000 and up a hand is much smaller than those who play quarter slots. With competition intense for this small group, casinos may pay too much in comps and incentives to players.

Second, with fewer players betting more money per hand, casinos will face greater volatility. Some months, they’ll have record hauls; in others, the players might come out ahead. This can impact both the financial health of individual companies and the state’s tax collections.

In times like these, casinos are happy to get revenue wherever they can. But it’s worth considering that the high-end basket is a perilous place to store gaming revenue eggs.

This month’s results are a textbook case of volatility. If the casinos had only held 11.20%, closer to the usual bacc hold, they would have won $134,764,788–about $70 million less than they actually did. That would have dropped the total state gaming win to about $876 million–still better than the previous year’s total of about $830 million, but not the stuff of a turnaround.

To me the most interesting thing about the slot numbers is that the average hold fell from 6.13% to 5.84%, with just about every denomination reporting a decline in hold. A sign that machines are getting looser? Perhaps. But let’s look at the February slot hold numbers in perspective (average, statewide):

2010: 5.84%
2009: 6.13%
2008: 5.76%
2007: 5.79%

For further reference, check out the tables and data sets in my 1992-2009 slot hold study or the 2007-2009 short report.

As far as bacc play helping other games, I don’t see it. Slots won about $40 million less in Feb 2010 than in Feb 2009, blackjack won less, craps won slightly more, and roulette tables won about $18 million more–a big proportional increase from the previous February, but well below the 2008 and 2007 totals. Make no mistake–it was bacc play, not a broad-based boost in gambling–that is responsible for the gains.

In short, any gain is positive, but we’re not out of the woods yet. I agree with Frank Streshley that this isn’t a sign of the coming of another golden age of prosperity.

New Green Felt Journal in Vegas Seven:

Baccarat first came to Las Vegas in the 1950s, but didn’t make much headway until the growth of high-end, international play in the 1970s. Caesars Palace and the Hilton led the way, and soon most casinos with any pretension to catering to high-rollers added the game.

The game has had an up-and-down ride over the past two decades. In the 1980s, when mass marketing to small-budget players replaced a reliance on a select group of high-rollers, many casinos junked their baccarat tables. In 1992, there were only 59 baccarat tables in the state, and the game accounted for about $291 million in winnings, less than 5 percent of total gaming revenues.

via Baccarat to the future | Vegas Seven.

Yes, I came up with that title. It’s because you’ve got to make sure the flux capacitor is in good shape before you start a serious game of bacc.

The good folks at the Nevada Gaming Control Board have released the January 2010 Nevada casino gaming stats. Here is my summary:

Statewide
1. Baccarat continues to power the state’s card games, with its win increasing by about 12% over last year. This game has actually seen a net gain in the past 3 years–Nevada casinos won about $28 million more from bacc players in Jan. 10 than in Jan. 07, on lower hold. Despite the recession, people are playing more bacc than they did before. The bacc boom seems to be slowing, as this is a smaller increase than from the previous few months, but I’d expect to see it jump again in February (Chinese New Year)
2. Roulette made a surprise comeback, though, winning almost 11% more this January than it did last January. This might just be an aberration, though, since the general trend hasn’t been positive for roulette, and the game still earned about $3 million less than it did in Jan. 07. Also, since roulette makes about 1/4 of what bacc makes, this increase isn’t as significant to the bottom line.
3. All other table games are down statewide, in the double digits. Overall, table revenues were just about flat, with a 0.32% decrease.
4. Sports books nearly doubled their win, but since last January their win fell by more than 50%, this is more a sign of regaining lost ground than the beginning of a sports betting boom.
5. Slot machine revenues were down by almost 5%, with the only real gain coming in the pennies (2.92%). But the number of penny slots on the floor increased by almost 9%, which means that on average each penny machine earned less than it did a year ago.
6. Much of this gain came at the expense of nickel machines, whose inventory decline by about 24%, while revenues sagged by 30%.
7. $100 machines boasted an impressive-seeming 50% gain in win, but as with any high-end play, there’s a great deal of volatility, so this doesn’t necessarily mark the start of a trend. The actual win was just about flat with the Jan. 07 numbers, so there hasn’t been the same kind of systematic increase here as there’s been with baccarat.
8. Overall gaming win was down by 3.22%–not a good sign for the overall health of the state’s gaming economy.

Las Vegas Strip
1. Pretty much the same pattern for table games as for statewide, with bacc, roulette, and the sports book the only bright spots.
2.The roulette win was higher than the state average, more evidence that this wasn’t a broad-based jump in popularity for the game, but just a statistical hiccup.
3. All but $500,000 or so of the statewide baccarat win came from the 17 Strip casinos that offer the game. This is incredible: the economic fortunes of the state of Nevada are becoming increasingly dependent on the high-roller action at 17 casinos. Remember that this is a game with a great deal of volatility, so it’s almost inevitable that there will be months where the win is down despite heavy play.
4. Another way to look at it: 238 baccarat tables on the Strip won more money in January than 1,877 blackjack, craps, and roulette tables. Back in 2007, baccarat won about $4 million more than blackjack alone.
5. The same trends hold for slot play–more penny slots winning more in total, with a lower win-per-machine.

That’s my preliminary look at the statewide and Strip numbers. In general, it’s more of the same, as baccarat continues to be the only real bright spot. The structure of Nevada gaming is changing before our eyes, with penny slots and baccarat proving the be the real winners for casino.

While doing some research last week, I saw a headline from one of the industry magazines, circa November 2001: “Is baccarat play dead?” Things have really changed, and it’s ironic that a recession is leading to a renaissance of the highest of the high-end games.

Here’s my latest from the Las Vegas Business Press, in which I continue to deconstruct the popularity of pennies:

When the year-end Nevada gaming revenue figures came out, two trends dominated the news: Gambling in general was down again in 2009, while baccarat play toward the end of the year showed a surprising spike. But one historic change went all but unnoticed — for slot machines, 2009 was the year of the penny.

Penny slots have been on the rise for several years, making an unforeseen comeback. Never plentiful in Nevada casinos, their numbers dipped so low in 1995 that Nevada regulators stopped including them as a separate category in their gaming revenue reports. In 2004, they reappeared on the revenue reports, with more than 12,000 of the machines in casinos statewide. Since then, they've added to their numbers every year, which is all the more impressive given that the overall number of slots has fallen. Last year, just less than one out of every four casino slots was a penny machine.

via Las Vegas Business Press :: David G. Schwartz : Pennywise or slot foolish? Casinos must decide.

At the end of the article, I hint at some of the possible downside of the increasing popularity of pennies–I might expand this into another article.

The 2009 Nevada gaming numbers are in, and they are not exactly encouraging. From the LVRJ:

Gaming revenues in Nevada fell 10.4 percent in 2009, the largest single year decline in state history.

Casinos statewide collected almost $10.392 billion from gamblers during the year, the lowest one-year total since 2003 according to figures released this morning by the Gaming Control Board.

via Nevada gaming revenues fall by biggest percentage ever – News – ReviewJournal.com.

The December numbers have confirmed the pattern that we’ve seen since November: continued weakness in slot play, a big gain in bacc play. In December, bacc win more than doubled. For the year, it was up 26.6%. This is significant: the only games not to have double-digit declines were roulette and let it ride poker, which really shows how off games play has been.

Statewide, slot hold fell slightly for the year–from 6.16% to 6.10%. Slot handle–the total amount played–fell too, from about $125.8 billion to $111.8 billion. In other words, gamblers put $14 billion less into Nevada slot machine in 2009 than they did in 2008.

On the Strip, things were as dire as they were statewide. Given that the Strip has about 98.2% of all of Nevada’s bacc play, the doubling of baccarat revenues basically helped the Strip post its second straight month of revenue gains and essentially avoid catastrophe. Without those high rollers cutting loose in the bacc pits of the Strip, we’d be having a much different conversation.

I could continue crunching these numbers for hours, but the day is short, the work is hard, and 99% of readers want the executive summary. So here it is:

1. Gambling revenue for most of Nevada outside the Strip continues to decline. It’s not as sharp a decline as we’ve seen in Atlantic City (although in some markets it is), but it’s still significant. Many markets that used to have regional monopolies no longer do, thanks to the growth of Indian gaming in California, Arizona, and the Northwest. This is a systemic decline that wasn’t caused by the recession, though the recession has exacerbated it. In other words, there is no easy fix.

2. The Strip was a bright spot. Thanks to a year-ending surge in high-end play, the Strip posted a smaller decline than it did in 2008. The Strip, at least, seems to have rounded the corner.

3. This recovery is unlike the past two major post-recession comebacks. In the mid-1980s, casinos shifted to the mass market–lots of quarter slot players, as opposed to a few international high rollers. In the early 2000s, they shifted to a wealthy traveler who spent more on food, rooms, and entertainment than gambling. The pattern that’s emerging now is paradoxical–there’s more of an effort to get value-driven customers in to fill the hotel, but they aren’t gambling nearly as much as they have historically, so most of the money is actually being made from the high rollers. In some senses, we’ve gone back to the 1970s [insert polyester leisure suit/shag carpet joke here].

4. Looking at the LVCVA’s numbers, it’s easy to see this “split-level” strategy playing out: air traffic is down, while car traffic is up, which would indicate a renaissance for regional feeder markets. This might be the substitution effect: just like some gamblers are staying home instead of driving to Lake Tahoe (down 25.6%) or Laughlin (down 13.4%), others might be cutting out trips to Hawaii or the Caribbean and driving to Las Vegas instead. The good news is that they’re coming; the bad news is that they’re looking for bargains, and probably don’t have the kind of money to spend that they did three years ago due to declining personal wealth.

That’s the executive summary. Now for another point, CityCenter and the dreaded c-word–cannibalization. Here’s the thing: if casinos are shifting back to a 1970s model, where the hotel is essentially a loss leader for a thriving high-end market, it doesn’t really matter if the hotel is full or not. Let’s say you can book every room at Aria at an average of $200 per night. In one night, you’ll make about $800,000. That’s a pretty good haul, but a single baccarat player, laying down $20,000 a hand, can lose more than that in a hour. Of course, it would have to be a pretty catastrophic hour for him, but it makes the point: a casino could invite an unlucky high roller with 4,000 of his closest friends and comp all of their rooms, and if things went against him at the table could still make a profit.

This “split-level” strategy–reaching out to value-hunters and high rollers–is a necessary adaptation, but it has its own inherent weaknesses. For one, there is a much smaller universe of people who can bet $20,000 a hand than there is of those who will pay $300 for a quiet dinner for two, let alone those who have a trip gambling budget of $300. So attracting and keeping them is more difficult, and more costly. Second, there might be less investment in upper-mid-level amenities–the big shows, the celebrity chef restaurants–since they are predicated on a broad upper-middle class of visitors that is being replaced by bargain-hunters.

The end result of the “split-level” strategy may take us to places that no one can predict. But that’s why we play the games.

UPDATE: I”ll be talking about this on KLAS-TV and KVVU-TV tonight.

Things are looking up in Nevada for the first time in a long time. The state’s casinos won more money from gamblers this November than they did last November. Yet there may be another story that isn’t as positive lurking beneath the numbers. From the LVRJ:

For the first time in 23 months, Nevada gaming revenues increased with casinos statewide collecting $873.2 million in November, a 4.35 percent climb compared to the same month a year ago.On the Strip, gaming revenues were also up for the first time in almost two years. Strip casinos collected $473.8 million, an 8.3 percent jump compared with the figures from November 2008.

In the locals market, November gaming revenues were up 19 percent on the Boulder Strip, almost 21 percent in North Las Vegas and 2.6 percent in the balance of the Clark County.

via Nevada gaming revenues increase for the first time in 23 months – News – ReviewJournal.com.

There are some very interesting patterns here. The big winners statewide were baccarat and pai gow, which increased 136.9% and 26.12% respectively. Slot machines actually did a little worse (down 1.58%), and since they account for the bulk of the state’s gaming, it’s very fortunate that bacc win more than doubled.

Does this mean that we’re out of the woods? Handle, rather than win, is probably a better gauge of consumer interest. Let’s look at the total money played on baccarat in the past two Novembers:

Month Win Hold% Handle
Nov 2008: $39,780,000 10.45% $380,669,856
Nov 2009: $94,237,000 13.54% $695,989,660

So while the casinos got much luckier in November 2009, the total amount played increased by about 83%. Even if they had won at the same rate that they did in November 2008 (10.4%), they still would have made about $73 million from baccarat–a definite step up.

Let’s look at slot handle:

Month Win Hold% Handle
Nov 2008: $558,114,000 5.73% $9,740,209,424
Nov 2009: $549,340,000 6.28% $8,747,452,229

So if you’re a glass-half-full kind of person, you can say that slot play decreased by about a billion dollars from year to year–not the stuff of a major comeback, and certainly nothing to pat yourself on the back about. The hold percentage increased by about a half-point. Could this have something to do with the decline in handle? It’s worth considering. While most of the increase in hold has been driven by players migrating to higher-hold denominations rather than managers tightening up existing machines, the decline in slot machine handle is cause for concern.

It’s paradoxical because players are voting with their feet in two separate directions. On one hand they are playing the high-hold denoms more: statewide win on pennies rose by about 10%, on multi-denom by 4%, and dropped off considerably for everything else, including massive declines in every denom over a dollar (though the $100 drop is complicated by a miniscule ,069% hold percentage). On the other hand, they are playing less, almost exactly 10% less than the year before.

Looking at hold is only part of the picture–looking at handle says a great deal more.

How about the Strip? Here are some highlights from November 2009: Bacc win, up 136%, pai gow, up 58%, and bingo, with total revenues of $212,000, up over 800%.
The lowlights? Craps was off by 32%, due in part to a lower than usual hold percentage; slots were down by about 4%, and sports books won much less in football betting than they did the year before, though the hold (5.23%) was a bit on the low side.

With slot handle down and bacc handle up considerably, the lesson seems to be that the high end is doing better than the low end. From that perspective, it’s good news for City Center and bad news for the lower-tier operators on the Strip and statewide. There appears to be some room for growth in the high-end market that will justify the increase in supply, but it looks like demand for slots continues to weaken.

In a nutshell: good news for some, but I’d keep the champagne on ice, at least until someone figures out how to get slot players to come back en masse.

The November 2009 visitor numbers are positive, with the caveat the the increase in visitation (2.9%) was slightly outdistanced by the increase in room supply (3%). People are coming back to Las Vegas, but they are spending less on their rooms (room rates are down 23% year-to-date) and less at the machines.

The Nevada gaming revenue figures for October have been released, and they don’t look promising. From the LVRJ:

Nevada gaming revenues hit a new low in October. Statewide gaming revenues were $800.3 million, the lowest monthly figure in almost six years. The decline was 11.6 percent compared with $904.9 million reported a year ago.

October marked the 22nd straight month of declining gaming revenues.

On the Strip, gaming revenues were $426.3 million, a 10.3 percent decline compared with $475 million reported a year ago.

All but two areas of Clark County reported double-digit gaming declines; the Boulder Strip was down 6.3 percent while North Las Vegas casinos were up 3.3 percent.

Nevada gaming revenues decline 11.6 percent in October

Both the Boulder Strip (M) and North Las Vegas (Aliante Station) have added major new capacity since last year, so naturally those numbers are better than last October.

I wanted to take some time and really dig into these, but it looks like that’s not going to happen today. I’ve got a Vegas Gang podcast in about 15 minutes.

What I would have done, if I had the time, was to correlate the revenues with news that visitation is up over last year’s. I don’t have the time to do a comprehensive quantatative analysis, but here’s the gist of it:

Room rates have fallen precipitously (nearly 14 percent) from last year’s. Assuming an average stay of three days, the average guest should save $48 on their hotel. Add in taxes, etc, and you can round to $50.

The problem is that they’re not spending that extra $50 on gambling. People are just spending less overall, and lowering room rates doesn’t seem to be doing the trick of increasing gaming revenue.

This suggests that there is no magic bullet solution (“cheap rooms! cheap food!”) that the operators are too clueless to figure out that will boost gaming revenue. Instead, they will just have to wait until the people who’ve been coming here have more money, or find a previously-untapped group to compensate.

There isn’t a shortcut. The only way out is delivering value and service to those who are still coming. Easier said than done, I know, but it’s better than the alternative.

Casinos in Atlantic City continue to post revenue declines, as the July number prove. From the AC Press:

Casino revenue sank to its lowest level in 12 years in July, another ominous sign that there will be no summer turnaround for the troubled gaming industry.

In what is ordinarily the biggest money-making month on the casino calendar, revenue generated by slot machines and table games fell 12.7 percent compared with July 2008, according to figures released Monday by the New Jersey Casino Control Commission.

Altogether, the 11 casinos took in $383 million in winnings, the worst July since 1997. An even more dramatic comparison is this July versus July 2005, when casinos posted an all-time record of $504.8 million in revenue. The 2005 figure is 24 percent higher than this July.

Only Trump Taj Mahal Casino Resort saved the industry from the ignominy of having every gaming hall in town suffer a decline. Boosted by a 45 percent jump in table game revenue, the Taj Mahal was up 8.7 percent overall for July.

Atlantic City has stumbled through 11 straight months of declining revenue and is heading for its third straight down year – a stunning slide considering that the first 28 years of casino gambling were consecutively higher.

Atlantic City casino revenue takes 12-year tumble, July figures show

Not good at all, and I don’t see any signs of this getting better any time soon. The institutional response seems to be “Batten down the hatches, ride out the storm.” That would be a great approach if things weren’t changing, but it’s obvious that the gaming landscape of the Northeast has changed considerably in the past two years, and will consider to do so. Further down in the article, there’s a statement that the hotel rooms are full, but day-trippers are staying away. Given that slot parlors have opened across Pennsylvania, one of the city’s primary day-tripper markets, that should be surprising. So maybe it’s time to build more hotel rooms?

Things just look bad. It doesn’t help that the UAW has put up billboards reading “EVERYONE LOSES” in giant type, with smaller type saying “At Bally’s and Caesars,” with a tiny, nearly invisible header that says “When workers are treated unfairly.” Seriously, I didn’t see that header until maybe the tenth time I saw one of those billboards. And they’re everywhere, from US 95 just north of the Philly airport to up and down the Expressway. If that’s not enough, they even had it on a banner plane, flying over the ocean for all of the beach-goers to enjoy. I’m not exaggerating at all when I say that, from a distance and at high speeds, you can only catch “EVERYONE LOSES” before you’ve driven past.

I’m not saying dealer unionization is good or bad–that’s for dealers and only dealers to decide. This just seems like the UAW is just poisoning the waters down in Atlantic City. I can’t think of too many things that are more demoralizing to potential visitors than a big sign saying EVERYONE LOSES. I guess this is the approach that’s brought prosperity and success to the American auto industry, so it should work wonders for Atlantic City casinos.

About the only bright spot for the city is the opening of Revel, which should bring in multi-day visitors who aren’t going to settle for a few hours at a Pennsylvania slot parlor instead. If it’s successful, it’s possible that other operators will finally embrace the “resort model” and join Borgata and Harrah’s. The key, I think, will be doing this in a way that’s not too upscale for the market. There are plenty of people who want to have a few days vacation and don’t mind gambling a bit, but don’t want to pay $200/night for a room or $100 for dinner. Atlantic City could position itself as a mid- to high-market destination resort, with some amenities for high rollers but the bulk of its room and f&b inventory geared at a slightly less affluent demographic. For the foreseeable future, it looks like everyone’s going to be slightly less affluent, anyway.

The March gaming and tourism numbers are out, and it doesn’t look pretty, though only time will tell whether the bottom is near or somewhere in the distance.

Statewide, all nonrestricted locations won 11.61% less this March than they in March 2008. In Las Vegas, visitor volume declined by 6.5%. Clearly, fewer people are coming to Las Vegas, and those who are, are gambling less. They aren’t spending more on hotel rooms, either; the average daily rate (ADR) fell more than 30%. Assuming a three-night stay, the average visitor saved about $130 on his room this March, money that didn’t, however, make it into the casino. Dropping room rates may have kept hotel occupancy in the respectable upper 80s, but it hasn’t translated into more spending elsewhere.

Downtown, casinos won about $55 million in March, a decline of less than three percent from the previous year. Table play shrank by about 15 percent, but slots posted a small gain. Poker, too, edged up a bit, lending credence to the belief that poker play, which is potentially more profitable than negative expectation casino games, is more “recession resistant” than slots and table games.

On the Strip, though, it was a different story, and a far gloomier one. Most table games saw double-digit declines, with the exception of roulette (at 21% gain), baccarat (about a 5% drop) and pai gow (which nearly doubled its win). Pai gow has a tiny installed base (only 24 games), so it may be unwise to read too much into its soaring revenues. Baccarat’s shrinking decrease, though, may indicate that the earlier trend away from high end play is slowing or even reversing.

Penny slots increased their revenues, by about 14% downtown and 12% on the Strip, but only about 2% statewide. Statewide, we’ve added about 4,000 penny slots in the last year, about a 12% increase, so win per device is down by about 10%, par for the course. Downtown, however, added only fifty penny machines, so the big gain there represents real growth, not just cannibalization of other denominations.

It is interesting to compare these numbers to those from 2004. Statewide, total gaming win for the month declined from $930 million to $912 million–a net loss of more than 1%. Table games became looser, with the win percentage declining from 14.04% to 11.60%; players were able to win more (or lose less), while gambling fewer dollars. Slots, however, tightened up less than one half of one percent.

One significant, though often over-looked fact, is that Nevada has fewer gaming positions today than the state did five years ago.

2004 2009
Slots 180,710 171,332
Tables 5,753 5,700
Total positions 215,228 205,532

That’s about a 4.5% decrease in capacity. Revenues, however, are down only about one percent, so casinos are apparently generating more win per position. But there has been a measurable decrease in the size of the Nevada casino industry, which raises all sorts of interesting questions about where we are going: will the industry continue to shrink, retrench, or reverse? With Aria and Fontainebleau coming online later this year we’ll see some positions added. I don’t know exactly how many, but I’d guess somewhere in the neighborhood of six to eight thousand–not enough to “grow” the industry.

In the near future, casino operators will have to do more with less of everything: visitors, room rates, casino spend, and games.

…but I see a silver lining. In fact, you could argue that things are getting a whole lot better. It’s just a matter of perspective. Specifically, we’re talking about July’s Nevada gaming revenues being down. From the LV Sun:

For the seventh straight month, casino winnings on the Strip slumped, falling 14.6 percent in July from the year before.

It is “the worst run for Nevada gaming casinos since the early 1980s,” said Frank Streshley, senior research specialist for the state Gaming Control Board.

It was also the seventh month of decline for casinos statewide and the third straight month they reported gross win of below $1 billion.

Casino winnings fall for seventh straight month – Las Vegas Sun

I prefer to see the positive side: why not say that gamblers lost less money in Nevada this year? That’s good, isn’t it?

I thought the breakdown was interesting but ultimately inconclusive. Mesquite got hammered, which says to me that people from Utah and Northern Arizona don’t want to waste their gas on gambling trips. But you’ve also got some major erosion at baccarat on the Strip, while penny slots there actually gained. And so did $100 slots, a whimsical idea if ever there was one.

There isn’t a nice glib soundbite to wrap around these numbers, and I think they show that gambling habits are much more complex that most people think.

Most everyone knows that gaming revenues have dipped a bit, but it’s not every day that the Economist covers Las Vegas, so here it is:

THE media had a field day recently when Charles Barkley, a retired basketball player, was forced to pay a gambling debt of $400,000 owed to Wynn Resorts, a Las Vegas casino operator. It may seem churlish to chase a star as big as the “Round Mound of Rebound” for anything less than a seven-figure sum. But after a long boom, the industry faces a rare slowdown and belts are tightening across Sin City.

Gambling has long been considered all but recession-proof. Only twice have overall revenues on the Las Vegas Strip fallen since it took over from the downtown as America’s gambling hotspot in the late 1980s—most recently after the attacks of September 11th 2001—and both dips were short and shallow. Gamblers, they say, will keep betting as the economy slows, still hoping for that big win.

But Vegas is less about gambling than it used to be. Today only 41% of its revenues come from betting, down from 58% in 1990. These days people are as likely to come for shopping, shows and fine dining as for blackjack or baccarat; the Forum Shops, at Caesar’s Palace, has the highest sales per square foot of any American mall. Today’s visitors are more likely to be worried by broader economic woes than the punters who used to flock to the city were, says Bill Lerner of Deutsche Bank.

A cut in the wages of sin

It’s always good to get an outsider’s perspective on what’s going on here. I learned a new factoid: that Las Vegas now has 7% of all the hotel rooms in America. That’s staggering.

It’s also nice to be identified as an optimist in the penultimate paragraph. I really think that it’s usually not as good as people think, or as bad as people think. And as I’ve always said, with a finite number of people in the world who are able or willing to vacation in Las Vegas, there is definitely an upper limit to the number of hotel rooms that the city can support. Ultimately, the market will determine what that limit is.

Did you like all of those helpful statistics in there? I’m about 99% sure that they came from the Center for Gaming Research’s Gaming Abstract, and this is exactly why we’ve put so much energy into assembling it. It’s refreshing to see it get some good use.