In Las Vegas, 'other' revenue tops winnings

Nov 11, 2008 5:09 PM
Oct. 7, 2008

By David Stratton |

As the slumping economy takes its toll on gaming revenue around the country, casino operators – especially at the higher profile resorts – are banking on non-gaming revenue to bolster their diminishing profits.

According to the American Gaming Association’s most recent Survey of Casino Entertainment, "non gaming amenities have become an important part of the industry’s bottom line.

"Over the past several years, many of the commercial casinos in Las Vegas and beyond have metamorphosed into multi-component entertainment venues offering a wide variety of non-gaming amenities and F&B options, ranging from spas, golf courses and theater-style shows to retail shopping, fine dining and more," the Survey reported. "Building and publicizing a diverse range of amenities and F&B options has been one of the key ways in which properties on the Las Vegas Strip differentiate themselves from their competitors and attract new customers.

The AGA cited operators such as Sheldon Adelson, who applied the idea of profiting from non-gaming revenue streams to The Venetian and Palazzo, where leased restaurants, night clubs, retail shops and convention services bolster revenue from the slots and tables.

Revenue reports from Nevada’s Gaming Control Board underscore the trend. For instance, non-gaming revenue for casinos in the greater Las Vegas area in fiscal 2007 accounted for 52.1 percent of total revenue, compared to just 44.3 percent 10 years ago.

Estimates are higher for the Strip resorts, where non-gaming revenue can reach as much as 60 percent of total revenue.

While the "metamorphosis" of casinos into diverse entertainment centers has expanded the range of revenue sources, it hasn’t always been well-received by casino patrons, especially those on a limited budget.

Many of the Strip’s larger resorts now ask customers to pay $300 for a guest room, $125 for show tickets, $100 for massages and $200 for a first-class dinner.

Virtually gone are the $60 a night accommodations, $5 all-you-can eat buffets, and $60 variety shows – all of which historically contributed to making Las Vegas such a popular tourist destination.

"Due to the changing revenue model … the trend to spend less time and money on gaming is offset by an increase in non-gaming expenditures," said Professor David Paster, an expert in commercial gaming with Southern Mississippi’s Business School of Tourism and Management. "The model of the dollar dinner, existing just to maintain warm bodies on property to feed the slots and drop boxes, is becoming an anachronism."

Despite the diminishing emphasis on marketing solely to gamblers, industry analysts point out the "upside" of casino operators who provide a more "holistic" resort/entertainment experience.

"The Atlantic City, Indiana and Missouri markets were off 6.4 percent, 7.1 percent and 4.5 percent on a same-store basis for the quarter, with similar weakness in the Las Vegas Strip and Las Vegas local markets," said equity analyst David Katz of Oppenheimer & Company. "The most important difference, in our view, is the magnitude of non-gaming revenue generated. In Las Vegas, slightly more than half of the revenue generated is non-gaming, compared with approximately 25 percent in Atlantic City, and five to 10 percent in the riverboat markets."

Whether or not the difference is enough to offset a slowdown in consumer spending – as well as increased competition and construction disruption – remains to be seen.