Rise in room rates, payoff of markers lift profits on Strip

By Liz Benston (contact)

Tuesday, Feb. 15, 2005 | 10:55 a.m.

A rebounding economy meant more gamblers paid their markers last year, a state official said.

The spike in gamblers paying off their gambling markers allowed the biggest Strip casinos to cut their debt expenses by more than 36 percent, an annual report from the state Gaming Control Board released this month shows.

But the biggest driver of the Strip's improving fortune was a spike in hotel room rates.

The largest Strip casinos generated earnings that were 78 percent higher than a year ago while employing fewer workers -- with most of the profit increase generated from higher room rates, according to a Sun analysis of the data.

Of the 23 Strip casinos with gambling revenue of more than $72 million a year, "bad debt" expenses fell to $47.8 million for the fiscal year ended June 2004 compared with $74.9 million a year earlier.

Bad debt is generally defined in the casino business as credit granted to high-rollers that isn't repaid and is written off.

"As the economy picked up, people paid off debt that was over a year old," said Frank Streshley, a senior research analyst with the Gaming Control Board.

The economy took a nose-dive after the Sept. 11, 2001, attacks but has since rebounded, along with tourism to Las Vegas, he said.

Earnings before federal income taxes and one-time gains and expenses at the 23 largest casinos on the Las Vegas Strip rose 78 percent for the fiscal year ended June 2004.

Revenue rose 12 percent over the same period to $10.6 million.

Of that total, gambling revenue rose 9 percent to $4.4 billion, accounting for 41 percent of total hotel and casino revenue. A year earlier, gambling revenue was 42 percent of the total.

Grants of freebies or "comps" to gamblers -- the biggest casino expense by far -- rose by 13 percent to $803.6 million.

Revenue in the hotel department rose 16 percent to $2.7 million. Hotel revenue accounted for 26 percent of total revenue, up from 25 percent a year earlier.

The rooms department experienced the greatest revenue increase of any other category at the biggest Strip resorts, outpacing expenses.

Strip properties have significantly increased their profit margins over the past year by charging more for rooms and keeping expenses down, Streshley said.

"When you get a 20 to 30 percent increase in room rates, expenses don't go up by the same amount," he said.

Food revenue rose 14 percent to $1.5 billion. Beverage revenue rose 12 percent to $557.7 million.

The largest Strip casinos also squeezed out a higher profit on less floor space, on average.

The average pit area, including bingo and keno, fell by 1,173 square feet. But revenue generated over the fiscal years ended June 2003 and 2004 in the pit rose 14 percent to $4,209 per square foot.

Slot machine floors fell by 438 square feet, on average, but revenue generated over the fiscal years ended June 2003 and 2004 grew by 11 percent to $1,392 per square foot.

Poker rooms grew by 508 square feet, on average, and revenue generated over the fiscal years ended June 2003 and 2004 rose 11 percent to $1,284 per square foot.

Sports books, which stayed about the same size in 2004, were the only casino category where revenue fell. Revenue generated over the fiscal years ended June 2003 and 2004 fell 5 percent last year to $620 per square foot.

Strip casinos achieved the profit jump on 1,176 fewer employees. The number of workers in each of the casinos, rooms, food and beverage departments increased from the last fiscal year. However, the "general and administrative" employees category had 3,510 fewer workers in fiscal year 2004.

Overhead expenses rose 6 percent to $3.7 billion at the 23 biggest resorts. Included in those costs, worker salaries and benefits -- even with fewer employees -- rose 7 percent to $663.4 million.