Las Vegas' November 2012 Has Few Bright Spots

The numbers are in for November 2012, and Las Vegas doesn't have much to be joyous about.  The first story is from the Las Vegas Review Journal, cited by CDC Gaming reports.  Nevada year over year gaming revenues dropped 11% for November, to just over $782 million for the month.  In Las Vegas, the percentage drops were worse, with the Strip down 12.8% and Downtown down 17.2%.  The November reversal countered two previous months of year over year increases.  Could it be a quick reaction to the election results?  Perhaps, but I don't think that's a key driver.  It likely shows that the economy is still weak and we indeed could be headed for another recession dip.

The second story is from the Las Vegas Review Journal that shows some good news for Las Vegas.  Visitor attendance for November 2012 was 3.1 million, up from 3 million from November 2011.  That is good news.  Some of the increase was due to a couple of conventions making reappearances and existing conventions having slightly larger attendance.

This is interesting in that in the same month, there were approximately 100,000 more visitors to Las Vegas, but Las Vegas gaming revenue was down almost 13% on the Strip and over 17% downtown.  People showed up, but were not gambling as much.  The story does talk about hotel average daily room rate (ADR) being up 0.6% to $104 for the month and occupancy rates at 79.7%, up from 78.3% in the prior November.  Again, not too bad, but the story provides enough information to dig deeper and learn more.

The story provides comparisons to the highs enjoyed by Las Vegas in 2007 before the economy soured.  During the boom, occupancy was higher at 90.4% and ADR was $146.53.  Those numbers are much better than the current 79.7% / $104.  But this isn't all the bad news in the numbers.  The story provided the number of rooms in 2012 and 2007, which allow estimation of a different metric, revenue per available room or RevPAR.  RevPAR is a better measure than ADR since revenues are measured against the total number of rooms available, as opposed to ADR, which measures revenues against the number of rooms sold.  If you had a 100 room hotel and just sold one at a rate of $1,000, the ADR would be $1,000 but RevPAR would be $10.

So the estimated RevPAR for November 2012 was $82.89 and for 2007 was $132.46, based on the occupancy rates, ADR and number of rooms in the Las Vegas market at the various times.  So, estimated RevPAR is still down about 37% from the peak.  If you look at ADR, Las Vegas is down about 30%.  But look at room revenue and you'll see just how much money that isn't coming in.  If occupancy and ADR had stayed at the 2007 levels, Las Vegas would have brought in about $155 million more in room revenue, just for the month.  That would have more than made up for the lower gaming revenues.  Las Vegas has hopeful signs, but they've still got a long way to go to where they were before the economic downturn.

Conventional Wisdom Now Figuring Out Las Vegas Needs To Do Something

The Las Vegas Sun had a recent article discussing how Las Vegas had to "reinvent the wheel" in order to adapt to the current economic and demographic reality. Here's the key quote from Bill Eadington of the University of Nevada, Reno:

“Newness, which has long driven Las Vegas growth, will not be part of the immediate future,” said Bill Eadington, director of UNR’s Institute for the Study of Gambling and Commercial Gaming. “Las Vegas may become yesterday’s news unless it can figure out a new way to reinvent itself.”

Let's take a peek at a few of the issues facing Las Vegas:

1. Beaucoup hotel rooms built during the boom added to a large existing base
2. Economic recession/depression (depending on if you have a job or not)
3. Competition for US casino patrons from tribal and other casinos closer to home
4. Competition for Asian casino patrons from newer, closer venues in Macau and Singapore
5. Vegas prices aren't all that inexpensive anymore like the old days

Other than that, what's the problem, right? We won't even mention the competition from online gambling.

With regard to the number of hotel rooms, I found this document on the Las Vegas Convention and Visitors Authority website. In Las Vegas, the current estimated number of hotel rooms is 150,732. That is a LOT of rooms. How many? Here's how many... If the hotel rooms in Las Vegas were its own city, it would be the 158th largest city in the United States, just ahead of Alexandria, Virginia (based on 2009 Census data). As another reference point, there are 276 cities in the United States with populations over 100,000. This is just assuming one person per room. Assuming 1.5 people per room, Las Vegas hotel rooms would be the 87th largest city in the US, just ahead of Lubbock, Texas. Assuming that a hotel needs 70% occupancy to break even, Las Vegas needs on average over 105,500 of those rooms to be filled every night. That is a tall order.

I've posted quite a bit on Nevada, the impact of the economic downturn and increased competition. For those interested, you can read the most recent of the related posts, here, here, here and here.

The article discusses in very general terms what Las Vegas needs to do. The aforementioned Las Vegas Convention and Visitors Authority conducted a survey. The findings? Customers want transparency, value and variety. Forgive me for being obtuse but what the heck does that mean? Quoting again from the Sun article, "research indicated Las Vegas should focus its scarce marketing dollars on people who need an excuse to travel here and those interested in the city who don’t know much about it and need more details to be persuaded..." Who doesn't know about what Las Vegas is about? Go ask people at random, "what's Las Vegas all about?" You really think they'll say, "gee, I don't know anything about Las Vegas?"

Las Vegas needs to get back to fundamentals. What is Las Vegas' nickname? Yep, Sin City. The three B's - Booze (lots of it and low or no cost), Babes (see link to post below) and Bucks (good games, low takeout/don't nickel and dime your gambling patrons). That's what Las Vegas needs to get back to in order to survive, in my opinion. Unlike the experts, I give you concrete and thought out recommendations! I posted about this type of approach with regard to how the Reno and Lake Tahoe markets could combat increased competition from tribal casinos in Northern California. It may be time Las Vegas considers something similar.