Secret study: Nationwide spread of gaming hurts LV

Gary Thompson

Friday, May 15, 1998 | 9:59 a.m.

Another bit of conventional wisdom may be about to bite the dust.

Las Vegas casino operators have long argued that their expansion into other markets creates new customers for Southern Nevada.

But a still-secret marketing survey by the Las Vegas Convention & Visitors Authority indicates just the opposite may be true -- casinos elsewhere are drawing customers away from Southern Nevada.

The survey, expected to be unveiled at the LVCVA's June board meeting, was discussed in a private meeting last week between convention officials and executives of The Venetian Resort hotel-casino last week.

The meeting was scheduled after Venetian owner Sheldon Adelson accused the LVCVA of failing to develop the marketing programs necessary to boost visitor volume in the midst of an unprecedented jump in hotel-room inventory.

LVCVA sources who asked not to be identified stressed that survey results are still being compiled.

"We're trying to determine specifically how Las Vegas is being affected by the spread of casinos around the United States," one convention authority official said.

Preliminary indications seem to belie arguments often advanced by Las Vegas-based casino operators in response to suggestions that their expansion into other jurisdictions might jeopardize the long-term health of Southern Nevada's tourist-based economy.

The study's results don't surprise William Eadington, director of the University of Nevada Institute for the Study of Gaming.

"There was a period of time when Las Vegas viewed itself as somewhat invulnerable to this," Eadington said Thursday.

"Through mid-1996, you had very high hotel occupancy rates and a booming local economy," he said. "The theory was that the feeder markets were contributing to the Las Vegas customer base by introducing gambling to a new generation of customers.

"But the last couple of years has seen a considerable increase in air fares and the price of hotel rooms, entertainment and other attractions," he said.

The resort-related price increases signaled a "fundamental change" in the nature of Las Vegas, Eadington said.

"Revenue from non-gaming activities is approaching 50 percent for big Las Vegas Strip casinos. The percentage for the industry everywhere else is below 20 percent and, in some cases, below 10 percent.

"The result is that Las Vegas offers a diversified entertainment product with gaming at its core. But as the prices of those other activities has increased, people whose primary interest is gambling are looking more and more at local casinos as their option."

And there are plenty of those local casinos around. In the past 10 years, more than 300 casinos have sprouted around the country, making it unnecessary to visit Nevada or Atlantic City to gamble, UNLV gaming expert William Thompson said.

"So for those whose primary motivation is to gamble," Eadington said, "riverboat or Indian casinos might offer a better bargain. The result is probably fewer repeat visits by tourists."

Fewer repeat visits and the now widely acknowledged transportation problems afflicting Las Vegas combined to cause a drop in visitor volume for the first two months of this year.

LVCVA officials, noting that airplanes flying here from some West Coast markets are often half full, want to know to what extent demand for Las Vegas visitation may be waning.

"The growth here has been so phenomenal that it's sometimes taken for granted," an LVCVA official said. "We've totally broken with convention over the years because our occupancy levels have increased even as we've added rooms.

"Our average occupancy level 10 years ago -- with about 60,000 rooms -- was about 85 percent. We finished 1996 with a citywide occupancy rate of 90.4 percent, the highest in our history. We went to 106,000 rooms in 1997 and ran at 86.4 percent. Any other city would look at our room inventory and occupancy levels and be astonished."

Demand is a critical issue now.

The openings of the Bellagio, Paris, Venetian, Mandalay Bay and Aladdin resorts over the next two years will raise room inventory to more than 120,000 units. Visitor volume, flat at 30 million annually for the past two years, would have to jump to 36 million a year to maintain current occupancy rates.

"The standards have been set so high here," the LVCVA official said, "that when the money for those new projects was borrowed, a lot of very smart people failed to realize those incredibly high standards couldn't be met forever."

"The world has changed a lot since those investment decisions were made," Eadington said. "Economists have talked for a thousand years about a phenomenon in which farmers base their decisions on how much corn to plant for next year on the price of corn this year. Next year comes, and they realize everyone has used the same strategy and oversupplied the market.

"The real hope is that the opening of the new properties will create a new wave of interest, as it did in 1993 and 1994. But that may be more of a hope than an expectation."

While LVCVA and Venetian executives described their three-hour meeting as cordial and constructive, there were also areas of disagreement. The Venetian's Adelson reiterated his criticism of the LVCVA's television ad campaign, sources said.

"Big casino companies are betting $5 billion in new construction designed to move this market upscale, and they're still using a guy in a porkpie hat to sell the market," a Venetian executive who attended the meeting said.

But an LVCVA official who participated in the talks defended the authority's TV spots, which feature an actor portraying an "average Joe" gawking at show girls and asking for comps to a Siegfried & Roy show, among other things.

"We're getting criticized for sending out the same message that major casino companies do when they advertise $30 rooms and $3 buffets in the Los Angeles Times and on billboards along I-15," the convention official said.

"We're not ignoring the high end of the market, but 80 percent or more of our visitors come here for value. And you can't ignore that 80 percent.

"There's no one all-inclusive answer or one marketing program. The key is segmentation. We advertise Las Vegas in Vanity Fair, Conde Nast, Sports Illustrated and other magazines designed to reach high-end markets. Look at the demographics of their readers."

A Venetian executive acknowledged the LVCVA is "in a difficult position."

"It's a highly politicized entity in a highly politicized environment," the executive said. "They are under pressure because visitor growth hasn't increased at a rate commensurate with their income growth."

The LVCVA is funded primarily by hotel-room taxes. It spends about $135 million a year to run the Las Vegas Convention Center and sell Las Vegas in markets throughout the world.