If there’s a proven moneymaker on the Las Vegas Strip today, it’s a top-flight nightclub. With tremendous margins on bottle service and measureless lines of customers waiting to get in, clubs have been casinos’ best bet during the recession years. Once a niche amenity, clubs are now everywhere—and few expect the proliferation to slow any time soon.
But are we on the verge of overbuilding? Some recent Strip history might be instructive.
Let’s travel back in time a few years. It’s 2006. Las Vegas Strip casinos have just about forgotten the 2001-2003 recession, and they’ve got one thing on their mind: making hotel rooms, once a loss leader, a profit center. Since 2002, room revenues have increased by 61 percent, driving the 51 percent bump in total resort revenues. Gaming profits have grown, but they lag behind room revenues. The smart money says that, if you want to profit on the Strip, build something to better capture the growing share of visitor dollars that are going into accommodations. So: more rooms!
That’s the kind of analysis that seemed smart at the time, but in hindsight wasn’t. The recession hit rooms the hardest: from 2007 to 2010, room revenues declined by 23 percent. Room revenues led the Strip in gains during the boom, but they shrank the most during the subsequent bust.
This isn’t just academic fussing with numbers. The belief that the Strip needed more and more upscale hotel rooms led to the implosions of the Stardust and New Frontier. It also fueled the condo-hotel boomlet. Even if the recession hadn’t intervened, could the Strip have supported 22,000 or so additional hotel rooms and condo units that were on the drawing board in 2006? Running some very conservative calculations that I won’t bore you with, I found that to maintain occupancy levels, Las Vegas would have had to draw about 4.8 million more visitors a year to fill the planned rooms. In short, they were conceived for a market that isn’t there.
Now let’s return to today. In those the gloom years of 2008-10, when overall Strip revenues fell by more than 16 percent, nightclubs actually made even more money than before. And in fiscal 2011, for the first time, Strip beverage departments reported more than $1 billion in earnings.
That’s why Steve Wynn hastily remixed his then-new Encore resort to make room for Encore Beach Club and those who drop big bucks on bottle service in the Wynncore complex’s nightspots. The U.S. gaming market seems to be at its limits, room rates have increased but remain below their historic highs, but the public’s appetite for DJs seems to know no bounds. We’ve even seen club culture expand from its dance-floor roots into “vibe dining” and restaurant/supperclub/nightclub complexes like MGM Grand’s pending Hakkasan.
It’s hard to argue against betting the future on nightlife; its growth over the past five years has been extraordinary, and, along with high-end baccarat play, has probably kept more than one Strip operator out of bankruptcy court.
But just as the market for high-end hotel rooms (or at least premium room rates) in Las Vegas proved to be finite, it’s no stretch to say that there are a limited number of potential clubgoers with the means and desire to pay for high-end nightlife.
People who say any aspect of Las Vegas is overbuilt are always right, and they’re always wrong. As far back as 1955, some were saying that we had too many hotel rooms in the city. Even optimistic analysts feared that the 1998-99 wave of casino openings (Bellagio, Mandalay Bay, Paris, and the Venetian) might be too much. But it wasn’t.
Could those pouring multimillions into nightspots be falling victim to the same mentality that called for more 34,000 more luxury hotel rooms on the Strip in 2006? Even with only 12,000 of those rooms actually added, the Strip still struggled—and it doesn’t seem likely to grow much in the next five years. All of the signs should have been there, but no one saw them. Until it was too late.
One positive note: when the nightclub boom does peter out, it won’t have nearly the negative aesthetic impact on Las Vegas as the hotel boom; failed nightclub projects, after all, can be quietly repositioned as bars, restaurants, or even bingo parlors. They won’t mar the skyline for years to come, their decay a testament to false hopes.