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Nongaming Activities Continue to Pay the Bills for Strip Casinos

By David G. Schwartz, Green Felt Journal, Vegas Seven

January 28, 2015 at 12:32 am

Each year, the Gaming Control Board releases a massive document that charts the performance of the state’s casinos for the previous fiscal year, broken down by geographic area and income. The release of the 2014 Nevada Gaming Abstract crystallizes the trends that have shaped the local gaming industry over the past year. Not surprisingly, the 23 Las Vegas Strip casinos that made more than $72 million in gaming revenue in 2014 are a critical piece of the state’s economic infrastructure: These large Strip properties represent more than half of Nevada’s gaming revenue and nearly two-thirds of the state’s total revenue (gaming and non-gaming combined). Let’s dive into the details:

It’s no secret that gaming is becoming less important to Las Vegas casinos, and in fiscal 2014 (July 2013 to June 2014), nongaming revenues grew more than gaming revenue (a 6.6 percent increase vs. a 3.6 percent rise). The timing is critical here, because the second half of the year saw a lag in gaming revenues driven by a slowdown in baccarat, so barring a reversal of that slowdown, the 2015 numbers may tell a different story.

Looking more closely at the year-over-year figures for the big Strip casinos, beverage revenue (which includes nightclubs) grew more than 5 percent, the most of any category. Rooms earned 2 percent more thanks to higher rates, and dining grew by 1 percent, with the “other” category (chiefly retail and entertainment) posting a 3 percent decline.

The long-term trend is even clearer: From 2006-14, beverage revenues grew by 82 percent, while gaming win increased by only 16 percent. Restaurants, entertainment and retail income outpaced room revenue, which is why new projects such as the Linq and Park have plenty of places to eat, drink and be entertained but no new places to sleep. This also explains why there’s been so much investment in nightlife in the past year: It’s the revenue stream that’s seeing the most growth. As long as this trend continues, expect to see more extravagant nightclubs and big-dollar DJ contracts.

Within the casino itself, revenues from the pit (table games) were responsible for more than 50 percent of casino win, again reflecting the stronger influence of VIP play. Looking back over the past decade at the race-and-sports industry, horse-racing win has fallen by nearly two-thirds, while the sports side is holding steady. Slot win actually fell from fiscal 2013 and is shrinking further from its 2007 high (more than $3 billion), while table win was at its highest level ever in fiscal 2014. This speaks to the post-recession reality in Las Vegas, in which high-end play has supplemented decreases in “retail” gambling (which accounts for most slot play).

The abstract also analyzes casino expenses, shedding some light on what goes on in the back of the house. Casinos on the whole did a better job of managing their expenses in fiscal 2014. Bad debt, which had been at or above 2.4 percent of total revenue since the start of the recession, fell to 1.4 percent, the lowest it’s been since 2006. The explanation: Either high-rollers have more money to pay off their markers, or Strip casinos have tightened up their credit; the growth in table play suggests it may be the former. Meanwhile, payroll and comps as a share of gaming win fell slightly, reflecting what analysts call “increased operational efficiencies”—or, as most of us would put it, getting more bang for your buck.

The path forward for the Strip seems clear: Rather than bet on a substantial increase in gambling revenue, casino executives—always mindful of the bottom line—will continue to roll the dice on restaurants, clubs and entertainment venues, at least until our 40 million-plus visitors tell them to do otherwise.

– See more at: http://vegasseven.com/2015/01/27/nongaming-activities-continue-pay-bills-strip-casinos/#sthash.8ErW7A8w.dpuf

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