Nevada Casinos Down, But Turnabout Due
Gaming revenue dipped 3 percent statewide in November, the second straight month of declines, as a year-long slump in baccarat play continued to plague the Las Vegas Strip (l.). But good things are on the way, say analysts who are bullish on the market for 2020.
Despite a record month for sports betting, Nevada gaming revenue declined 3 percent in November compared to November 2018.
With most markets falling shy of last year’s performance, the statewide haul of $937.4 million represented the second consecutive month of year-on-year declines, according to totals released by the state Gaming Control Board.
Table game revenue was down 3.5 percent, mostly on weakness in high-end baccarat play on the Las Vegas Strip, which generates more than half the state’s total win.
A good sign was that machine gaming handle increased 1.3 percent, although it didn’t translate into win, which dipped 2.9 percent.
Baccarat play has been soft all year and is down 14.9 percent statewide through the first 11 months. It plummeted more than 30 percent on the Strip in November, with the result that revenue was down 22.7 percent. It was enough to offset a healthy 4.48 percent increase in blackjack play, and for the month the Strip came in 3.1 percent below last November, booking $517.0 million in win overall.
In Southern Nevada, only the outlying areas of Clark County saw revenue increases. Downtown Las Vegas was down 6 percent to $52.1 million.
In the north, Sparks was the only market in Washoe County to show an increase. Reno was down 1.3 percent to $50.3 million. South Lake Tahoe declined 19 percent to $13.8 million.
However, there was a highlight in November, and it was sports betting.
With the NFL, NBA and NHL all in full swing, bettors across the state put down $614.1 million to beat the bookies. It was a year-on-year increase of 5.5 percent, handily eclipsing March’s $596.7 million to set a new monthly record. Through the first 11 months, the books have taken bets worth $4.7 billion. That’s 6.7 percent better than the same period in 2018 and would appear to belie concerns that the spread of legal betting nationwide would hurt Nevada.
The books won $31 million in November, beating November 2018’s revenue by 14.3 percent and adding to a total through the first 11 months of $292.8 million, a year-on-year increase of 14.2 percent.
Analysts, meanwhile, expect the Strip to finish stronger in December and are anticipating a vibrant 2020, with the giant ConAgg tradeshow, the NFL Draft and the opening of the $2 billion Allegiant Stadium all on the horizon.
“Operators remain optimistic around the non-VIP side of the business,” said Macquarie Securities’ Chad Beynon, “with strong convention schedules already in the books and additional non-supply capacity coming online later in the year.”
Visitation to Las Vegas was up nearly 1 percent in November to 3.51 million, and though convention attendance was down, occupancy stood healthy at 88.2 percent, average daily room rate was up 5.2 percent, and revenue per available room was up 5.4 percent.
“I’m more optimistic about 2020 than I was when I talked about 2017, 2018 and 2019,” Schreck, of Brownstein Hyatt Farber Schreck, told the Las Vegas Business Press. “It seems like 2017 was starting to come back to normal, 2018 improved some more and 2019 was back to the 2007 level. It’s a bright outlook for 2020 as we will continue on from 2019, but that’s as long as the economy stays healthy. All the momentum is going in the right direction as we see construction and expansion. The population is growing and when you make billions in investments that creates jobs that will have a multiplier effect on the local economy. That means more housing and more construction workers and more liquidity for local casinos.”
McCarran International Airport set a record when it recently surpassed its 50 millionth passenger for the year. Las Vegas visitor volume rose 0.5 percent for the year and convention attendance inched up 0.2 percent. Strip hotel occupancy finished at almost 91 percent, up 0.5 percent and
downtown occupancy is up 1 percent.
The average daily room rate at $143 on the Strip grew 3 percent and revenue per available room jumped 3.7 percent to $130. Slot revenue on the Strip surged 3.5 percent through November, according to Brent Pirosch, director of gaming consulting for CBRE. Gaming revenue in downtown leapt 6.8 percent over the last 12 months, while the Las Vegas local’s casino market increased 2.9 percent, during the same period, Pirosch said.
The wrinkle relates to baccarat, which caters to VIPs from Asia. “Baccarat has been in a serious decline this year,” Pirosch said. “The mass market—the regular folks and middle America and non-VIP folks—is doing fine.”
Pirosch said the political unrest in Hong Kong has impacted the VIP market in Las Vegas, and there’s additional competition globally that impacts Nevada as well. That customer, however, goes to a handful of properties on the Strip and is a small portion of visitation.
“But it’s more important to focus on the mass market,” Pirosch said. “That’s our bread-and-butter regular visitors and where most of our customers are coming from. That market should do pretty well next year and be positive based on the economy. Overall, the Strip is doing well.” To wit:
- Construction continues on the 3,400-room $4.3 billion Resorts World Las Vegas, which will open in the summer 2021 on the north end of the Strip
- Construction on 67-story, 3,700-room, $3.1 billion Drew near the Las Vegas Convention Center is expected to restart this year for a 2022 opening
- The $980 million convention center expansion will be completed by the end of 2020 in anticipation of the 2021 Consumer Electronics Show
- Caesars Palace is opening 300,000 square feet of convention space valued at $375 million in 2020
- Construction continues on the MSG Sphere concert venue that will open in 2021
- The 44-story, $1 billion Circa Las Vegas in downtown is on track to open by the end of 2020
- The $2 billion Allegiant Stadium, home of the Las Vegas Raiders, will open in time for exhibition games in August ahead of the team’s first NFL season in Las Vegas. The Raiders will host the NFL draft in Las Vegas in April
Michael Lawton, a senior research analyst at the Nevada Gaming Control Board, said they expect growth in gaming wins in Clark County in 2020 +between 1 and 1.5 percent, driven by slots and sports wagering.
Baccarat is another story, Lawton said.
“Baccarat on the Strip is being impacted by the economic outlook in China being cloudy. Additionally, it has been reported that some of Asia’s wealthiest customers are concerned about the trade war in addition to significant competition and options across Asia, making it more difficult for Las Vegas to convince Asian customers to make the long trip. As a result, this could have a negative impact on the baccarat business for the Las Vegas Strip in the future.”
Gaming attorney Frank Schreck expects ownership changes in Las Vegas this year. The merger of Eldorado Resorts and Caesars Entertainment, the surprise announcement of 2019, could result in the sale of one to two properties in Las Vegas as a way for Eldorado to pay down debt, he said. Speculation has centered on Caesars Palace, but Schreck said he doesn’t expect that to be sold. “I know people are looking at the Linq and Flamingo, but Planet Hollywood is the most likely to be sold,” he said.
Recent transactions tell an interesting tale. MGM Resorts International sold Circus Circus to Phil Ruffin and the Bellagio to the Blackstone Group and leased back the resort property. In addition, Caesars Entertainment sold the Rio to a group of investors who leased it back to Caesars.
“We could possibly go back to a decent consolidation to a certain degree where companies will own fewer properties but be able to focus on those properties more intensively than they have,” Schreck said.
Schreck represented Treasure Island owner Ruffin in buying Circus Circus from MGM Resorts International for $825 million in December and the New York real estate group that bought the Rio from Caesars Entertainment for $516 million.
“They leased it back to Caesars for two years because they didn’t have time to get licensed,” Schreck said. “It is their intention to get licensed and during this two-year period they will be looking at ways to improve the property.”
Schreck said it would be good to have a new owner who spends money refurbishing it.
“It needs to be refreshed, and they have two years to put together a marketing plan and make the Rio a more popular destination resort,” Schreck said. “They will work with marketing people to increase the traffic flow and are looking at different agreements with hospitality companies. They have a large hotel company involved in the equity that will have a reservation system that provides patrons they currently don’t have access to.”
He said no decision has been made what to do with the additional undeveloped land on the 90-acre site. There are many potential options on the table, including adding convention space and other expansions, he said. “There was such a concerted effort to get the deal done that most of the focus was completing the transaction, and now they are starting to refine some of the ideas they have to see if it works.”
At the Circus Circus property of more than 100 acres, Schreck said Ruffin will “put some new life” into the property” that will include refurbishing rooms and installing a 2,000-seat theater. He doesn’t know what will be done to the undeveloped 37 acres on the site. “Circus Circus will still concentrate on lower-cost rooms because Phil thinks there’s a need for that,” Schreck said. “He is not trying to compete with Treasure Island.”
He added that Ruffin will upgrade the Slots-A-Fun casino adjacent to Circus Circus “and get it back to making a substantial amount of money like it did in the past. He will probably gut that and put in all types of participation machines and make it a nice addition.”
Between the upgrades to Circus Circus, opening of Resorts World and expansion of the convention center that’s next store to the Drew, that will transform the north end of the Strip that’s lacked business for a long time, Schreck said.
“You will have Resorts World, the Drew and convention center revitalization that will be huge and generate a lot of traffic flow.”
Schreck said the licensing process of Steven Witkoff, Drew’s developer, will move forward in January with a preliminary finding of suitability hearing as a step to enable construction to move forward more smoothly. Two months ago, gaming executive Bobby Baldwin was named CEO.
The former Fontainebleau will have 3,780 rooms, a casino, restaurants, shops, pools, nightlife options, spa and wellness offerings and more than 550,000 square feet of convention and meeting space. “They remain a year behind because when they got into what they wanted to do the design people said it will take a little bit longer,” Schreck said. “It’s going to be a fantastic property.”
Schreck said the Drew will have the biggest ballroom in the world with no support beams and convention space that can be serviced and changed over within a day instead of the normal three days.
The construction cost will be $800,000 per key for the Drew; across the street at Resorts World it will be $1.3 million to $1.4 million, Schreck said. “It’s difficult to build from the ground up and make any money. (Witkoff) picked up a $1.4 billion property for $600 million,” he said.
Marriott is an equity owner and will run the hotel rt, which Schreck compared to the Bellagio and Wynn Las Vegas. There also will be a pedestrian bridge to the convention center to capitalize on that built-in customer base.