Why Las Vegas Won’t Follow Atlantic City
Sin City’s moves beyond gaming ensuring a better hand
By Alex Bumahzny and Colin Mansfield
Nearly half of Atlantic City’s resorts have closed in the past two years, a scene not altogether unlike the noted closures of the Las Vegas’ casinos of yesteryear like The Dunes and Sahara. Where the storyline differs, however, is in the fate awaiting that other casino resort city. In short, Sin City has a much brighter future ahead of it.
Why? Because Las Vegas has had the foresight to broaden its appeal beyond gaming. The city’s main entertainment cluster, the Strip, has positioned itself over the decades as a coveted leisure and convention destination. In contrast, Atlantic City has been too complacent being a gambling center for those living within a two-hour driving radius.
Just a decade ago, the two cities were vying for number one gaming market status in terms of gaming revenues, with both markets generating around $5 billion each in annual gaming revenues. In contrast to Las Vegas Strip, where gaming revenues managed to grow 5% in the past 10 years, Atlantic City’s gaming revenues declined by half during the same timeframe. The Strip’s other businesses are doing much better. Food and beverage sales at larger resorts grew 55% and RevPAR (the main operating metric for lodging) improved by 21%.
Gaming expansions in Pennsylvania and New York deserve a fair amount but not all of the blame for this diversion. Las Vegas, itself, was under siege from national proliferation of gaming in the 1990s and 2000s, especially the surge in Native American casinos in the neighboring states of Arizona and California. But unlike Atlantic City, the Strip persevered. In addition to Las Vegas’ 37-year head start as a gambling destination, ironically, its more remote location has proven to be its lifeline.
Location, Location, Location
Las Vegas’ more remote location drove more urgent need for hotel rooms and a major airport. By the time Atlantic City’s first casino opened in 1978, Las Vegas had 42,650 hotel rooms citywide and its airport was handling over nine million annual enplanements. The hotels supporting Atlantic City’s casinos never reached half the number of Las Vegas’ in 1978, while Las Vegas’ room count almost increased four-fold since then. The primary reason is entrepreneurs such Sheldon Adelson, Steve Wynn and Kirk Kerkorian, who successfully tested the “build it and they will come” mantra. Their visions culminated in a critical mass of “integrated” resorts loaded with shopping, star chef restaurants, entertainment venues and convention venues.
In 2005, prior to the Great Recession and a major spike in casino competition across U.S., the Strip’s resorts generated 60% of their revenues from non-gaming sources. Atlantic City’s non-gaming mix, by contrast, was 20% at the time. By the time the recession and new competition came, it was too late to diversify. Caesars Entertainment and Trump Entertainment, which together operated more than half of Atlantic City’s casinos, were highly leveraged and financially constrained. Others including Pinnacle Entertainment and Morgan Stanley abandoned their multi-billion dollar casino projects.
Even if the Atlantic City stakeholders had the foresight to build more amenities in an effort to diversify away from gaming, it’s uncertain that they would be successful. Building a world-class airport would be redundant with four major airports supporting the surrounding Philadelphia and New York City areas. Same goes for other praised amenities available in Las Vegas. Both major cities flanking Atlantic City have extensive convention facilities, hotel room inventory and nightlife options. Revel, Morgan Stanley’s project, finally opened in 2012 under different ownership after securing help from the state, but had to close two years later as its non-gaming focus proved ineffective.
With the bulk of the ramp up in regional gaming competition now a thing of the past, Las Vegas can look towards a bright future. Regional gaming markets face an adverse demographic shift and a difficult fight for millennials’ share of the wallet. The Strip is different and can make up for the millennials’ tepidness towards gambling by attracting convention and club goers as well as international gamblers and leisure seekers. In fact, while 77% of Las Vegas Strip visitors gamble, 90% are there mainly for reasons besides gambling according Las Vegas Convention and Visitor Authority’s survey.
While Atlantic City’s prospects look less bright, the worst could be behind. New competition is largely in the past. New Jersey’s referendum to allow additional casinos outside Atlantic City appears to be heading for a high margin loss, according to recent polls. The rising economy and reduced competition from the recent closures should lift revenues and margins for the survivors. The seven remaining casinos are on pace to exceed $1 billion of gross operating profit for 2016 and in 2015 Atlantic City’s slots win on average about $280 per day, a healthy level relative to other U.S. gaming markets including Las Vegas.
Meanwhile, Las Vegas continues to redefine itself with the corporations such as Caesars and MGM Resorts repurposing assets to fit millennial tastes. Caesars rebranded Bill’s Gamblin’ Saloon into a boutique hotel with a night and day club on the roof. MGM got rid of the legendary lions at MGM Grand to make room for Hakkasan, another giant club. In the last three years Las Vegas got The LINQ party district and TopGolf, a driving range equipped with bars and pools. A $2.3 billion convention expansion, a $450 million rebranding of Monte Carlo, an NFL stadium and two new major resorts are slated to open over the next several years.
Originally published at thewhyforum.com.