Why Las Vegas’ Gaming Revenue Decrease Is Not a Bad Thing

Last year’s rare decline in gaming revenue hardly drove Strip casinos to the poorhouse

Over the past decade, the gap between the amount of money Las Vegas Strip visitors spend on  gaming (blue)  vs.  nongaming (yellow) activities has widened considerably, as this graph shows. | Data courtesy of Las Vegas Convention and Visitors Authority and UNLV Center for Gaming Research.

Once upon a time, an annual drop in Nevada’s gaming revenue was greeted with the same reaction of denial, fear and panic that might accompany the diagnosis of a terminal disease. In the natural order of the past several decades, Nevada casinos are supposed to win more every year than the last—and that’s usually how it went. So it’s noteworthy that Nevada’s casinos won less in 2014 than they did in 2013. But here’s what’s more telling: Nobody seems to care, and for good reason.

Let’s go back to fiscal 2006, a banner year in which Las Vegas casinos raked in a then-record $15 billion in gaming and nongaming revenue. Room rates and occupancy were rising along with gaming win, prompting CEOs to green light a half-dozen resort projects that included thousands of rooms.

In 2006, each visitor to the Strip spent an average of about $156 on gambling and $230 on all of the nongaming attractions that resorts offer—meaning about 40 cents of each dollar spent on the Strip was slid into slot machines or tucked into drop boxes.

Then the Great Recession hit, a wave that considerably altered the Strip even after it passed. Future historians will debate whether the changes we have seen in Las Vegas since 2007 were the result of the recession or other factors (shifting visitor demographics, changing patterns of wealth, etc.), but even now we can sense that things are different—and that there probably won’t be a U-turn anytime soon.

From 2010 to 2014, the Strip was settling into a “new normal” in which international high-rollers picked up the slack left by smaller domestic gambling budgets. High-rollers were largely responsible for the Strip’s gaming-revenue profits from 2010 to 2013, and a softening of Asian high-end play is a major factor in the 2 percent revenue decrease from 2013 to 2014.

In hindsight, though, gaming was becoming less important to Strip casinos before the recession or the recent reversal. Since 2005, the average gambling spend per Strip visitor has increased 6 percent—better than a loss, particularly considering 3.5 million more people visited Las Vegas in 2014 than in 2005, but 6 percent doesn’t inspire substantial investment.

What does inspire investment? You can guess by looking at what has been built and what’s on the drawing board: new restaurants, nightclubs and entertainment venues.

But do the profit margins from these nongaming ventures justify Strip casinos spending millions to add more inventory? They do. Over the past decade, average per-visitor spend on dining on the Strip has grown by 29 percent—nearly five times the gambling increase. Spending on shows and shopping is up 26 percent. And, if the slew of megaclub openings and six- and seven-figure DJ contracts didn’t make it obvious, the biggest revenue winner over the past decade has been nightclubs: The average spend per visitor is up by a whopping 60 percent.

So while gaming profits still reckon in the billions on the Strip, and they have shown modest growth (recent slowdowns notwithstanding), they haven’t grown nearly as rapidly as earnings from restaurants, shows and (particularly) nightclubs and dayclubs. Gaming numbers are not, it appears, returning to prerecession levels. But nongaming spend, both in total and per capita, is booming like never before.

This trend explains why the nonchalance over last year’s drop in gaming win should be classified as non-concern rather than denial. Because there’s another interesting fact about 2014: While the gaming numbers declined in the second half of the year, the fiscal year saw Strip casinos earn more money than ever. Despite gaming receipts being more than a half-billion dollars below their prerecession high, Strip resorts made about a half-billion dollars more in fiscal 2014 than in 2007, the previous high-water mark.

Las Vegas isn’t back to where it was before the recession, as the 2014 gaming-win drop indicates. But, as the overall increase in visitor spending shows, that’s not necessarily a bad thing.

David G. Schwartz is the director of UNLV’s Center for Gaming Research.