June Numbers Show a Strip Limping Along

It would be nice to believe that the Las Vegas Strip is back. The Nevada casino industry suffered a few bad years (2008 and 2009) and posted modest growth in 2010 and 2011, with some deceleration in 2012. Right now, there are two possibilities: that the 2012 slowdown is just a speed bump on the way to a more prosperous future, or that 2013 will be another year in which Las Vegas just limps along.

The June numbers make the second scenario, unfortunately, seem more probable. Although slot win is up in some reporting areas, for the most part those gains are driven by higher hold percentages rather than stronger levels of play. In other words, people aren’t gambling more in Las Vegas; for the most part, casinos are just keeping more of their money. In the short term, this is good news for casinos, as they have a stronger bottom line. In the long term, however, it erodes any lingering perceptions of gambling value visitors may have.

June also highlighted the Strip’s Achilles heel, its over-reliance on baccarat. The game is notoriously fickle; the house’s win percentage (the portion of money bet that it keeps) can range from 3.55 percent to 19.53 percent, with an overall average of around 12 percent. Long-term, casinos can profit handsomely from baccarat, if they can remained disciplined enough to keep marketing expenses (i.e., inducements for whales to come gamble) and loss-discounting (settling past-due accounts for a percentage of the total owed) in check. But month-to-month, there’s a lot of variation, which gives the market a rollercoaster-like appearance that doesn’t accurately show the real trend.

So far in 2013, as in every year since 2010, baccarat—and the Asian high rollers the game brings in—has sustained the Strip. Without the increase in baccarat win, just about every month for the past three years would have looked a great deal like June. When put in that perspective, Las Vegas’s debt to Asia is much clearer, as is the potential for disaster. Not even considering the possibility that Asian high rollers might prefer to gamble elsewhere, there are a range of problems, from a SARS-like medical crisis to national security emergencies, that can dislodge Las Vegas’s Asian lifeline. While there are few other options for growth domestically given the lagging economy, at the very least the industry needs to consider contingencies in the event that the baccarat cards stop flipping, even temporarily.