he situation is that fewer people are visiting casinos and their trips are getting shorter and they’re not gambling as much. Casino construction has slowed or halted from one end of the Las Vegas Strip to the other, more than a dozen projects across the US and abroad have been modified or dropped, and more than 40,000 new rooms in Las Vegas planned by some of the industry’s biggest players are on hold.
Among other bids to entice customers in the lagging economy, casinos across the country also have slashed room rates. But executives are heralding bigger changes than two-for-one deals on rooms as a decade of rapid revenue growth based on physical expansion and easy credit has stopped short.
Most casino markets in the United States already are saturated, said Jonathan Halkyard, CFO for Harrah’s Entertainment Inc., and operators have to start thinking beyond their next construction project while the economy retrenches, he said.
MGM Mirage CEO Jim Murren said he’s seeing small signs that travelers are opening up to Las Vegas again, but not enough to predict when a recovery might happen. "We have a consumer that is not confident, that has been scared, and has every reason to be scared," said Murren, whose company has more casinos on the Las Vegas Strip than any other.
The world’s four largest casino operators - MGM Mirage, Harrah’s, Las Vegas Sands Corp. and Wynn Resorts Ltd., all based in Las Vegas - are preparing to play the hands they have. "The executives’ optimism is shaking," said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.
Gambling revenue for commercial casinos across the US dropped us$ 1.1 billion, or 3.6 %, to us$ 30.2 billion in the first 11 months of 2008 compared with the same period in 2007, according to the American Gaming Association. Many states saw much more dramatic drops, except Pennsylvania, where casino gambling began only in 2007.
Visitor volume in Las Vegas declined 3.8 % for the first 11 months of 2008 compared with 2007 - meaning 1 million fewer people showed up to gamble, shop and dine out - and revenue dropped 9.3 %, according to the Las Vegas Convention and Visitors Authority.
Wynn Resorts was the only operator among the four largest that saw growth between the first three quarters of 2007 and the same period in 2008: Its net income rose 92 % to us$ 369.8 million from us$ 192.7 million.
Las Vegas Sands and Harrah’s both lost money during the first nine months of 2008, while MGM Mirage’s profit plunged. Sands lost us$ 52.2 million from January through September 2008, after earning us$ 76.8 million for the same three quarters in 2007. Harrah’s lost us$ 415.1 million in the period in 2008 after earning us$ 667.2 million in 2007.
MGM Mirage earned us$ 292.7 million, down nearly 59 % from us$ 712.21 in the period in 2007, creating some uncertainty, especially in Las Vegas. CEO Murren said he told 2,700 casino managers during two meetings last week that he didn’t know if his company would trim more workers - it has laid off 3,200 since October 2007 -or sell other casinos. It recently sold the Treasure Island for us$ 775 million. He also told the managers that MGM Mirage may sell noncore assets.
The company must stay its course by finishing CityCenter, its us$ 8.6 billion project on the Strip, he said. But, instead of borrowing more and spending more, the company is exploring a half-dozen deals around the world in which it will lend out its name and expertise, he said.
Halkyard, CFO at Harrah’s, the world’s largest gambling company by revenue, talks about innovation. “I mean if you look at the slot machine, it’s basically the same as it was 75 years ago," he said, and added: “There has been a shocking lack of innovation around our core product in this industry when compared to virtually any other consumer entertainment product over decades."
Last week, the privately held company -which owns or manages 50 casinos in six countries, including 20,000 rooms in Las Vegas alone- said it would wait for demand to pick up before it finishes more than 600 new rooms at its flagship Caesars Palace on the Strip. Harrah’s has been restructuring its debt and in November withdrew a proposal made with partners to manage a us$ 535 million state-owned casino in Kansas.
Instead, Halkyard said the company is experimenting with ideas like sending guests same-day specials at shows, restaurants and clubs by text message. "Once people are here, it is fierce competition for their attention," Halkyard said.
Sands’ President and COO, William Weidner, said at a conference this month that his company’s strategy is not changing much, however, in the hope that it can take quick advantage when the economy rebounds. "But again, we are very mindful of the degree of difficulty," Weidner said. "We’re very mindful of how difficult ’09 is going to be, and we’re focused on operating through ’09 as we get into ’10."