The wages of sin, or, why rich bets on Las Vegas are not paying off.
What happens in Las Vegas stays there, right? Maybe. But whatever happens today is a far cry from the Vegas experience depicted in Diamonds Are Forever, which had James Bond enjoying carnal pleasure along with a game of craps while staying at the Tropican
Visitors to the Vegas Strip now tend to keep their pants on, although plenty still lose their shirts in its 42 casinos. But even that is changing. Average gaming revenue at major strip hotels dropped to US$4.9 billion in 2015 from US$5.5 billion in 2006, even though the number of visitors jumped to 42.3 million from 39 million. Over the same period, gaming as a percentage of total income fell to 34.7% from more than 40%. Meanwhile, competition for other revenue sources increased as hotel room stock jumped to about 150,000 last year, up from 133,000 in 2006.
The declining importance of gambling in Sin City isn’t just due to a hangover of economic uncertainty triggered by the global financial crisis. Millennial mindsets are also a problem, according to a study of generational differences by researchers at Stockton University. Looking at Atlantic City spending habits, the study found consumers aged 21 to 35 spent about two-thirds less on gambling than older visitors. And a lack of wealth apparently isn’t the only issue, because just 35% of millennials surveyed would roll the dice more if money was no object, compared to 50% of the greying crowd.
As a result of these trends, plenty of casino operator wannabes are paying for bad bets. Canadian private-equity firm Onex Corp., for example, recently folded an attempt to build a gaming empire around a restored Tropicana, which it bought as a distressed asset (with former MGM head Alex Yemenidjian) for US$320 million in 2009. Last year, after spending about US$200 million on renovations, the Onex-led group unloaded the property and its anemic gaming revenue on Penn National Gaming Inc., for US$230 million. As Onex financial reporting writers put it, the investment “generated a gross multiple of invested capital of approximately 0.7x,” which is a 28% loss in straightforward language.
Casino operators everywhere, of course, are aware of the changing attitudes toward gambling. Last year, Nevada gave the green light to skill-based gaming, which is why industry watchers expect to see Vegas casinos become more like video-game arcades. And that means the first millennial actor to play James Bond might just cross wits with evil geniuses while playing Angry Birds instead of craps.