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View of the Las Vegas Strip from the first floor living area in the Emperor’s Suite in the Caesars Palace Forum Tower.
Monday, Dec. 1, 2008 | 2 a.m.
Throughout this downturn, big Strip casinos have kept hotel occupancy high by cutting room rates and offering discounts and other promotions.
But this volume-driven strategy has a key weakness.
In recent months, the profits of several big casino operators have fallen faster than revenue, or total sales before expenses. It’s a sign that the companies have not cut costs deeply enough to offset the decline in their business.
On the Strip in the third quarter, MGM Mirage’s revenue fell 9 percent, and earnings declined more than 15 percent over the same period in 2007; Harrah’s Entertainment’s revenue declined 12 percent, and earnings fell 17 percent over the same year-ago period.
Typically, businesses with declining revenue cut expenses by a similar percentage. But that’s difficult for big hotels attempting to fill their rooms. They still need armies of thousands to staff and maintain their properties even if customers are spending less.
A big part of ongoing cost-cutting efforts at MGM Mirage and Harrah’s involves eliminating middle management positions rather than the rank-and-file jobs of employees who interact with customers. Both companies are also attempting to operate more efficiently at every level of their businesses by negotiating more favorable contracts and consolidating departments, among other things — efforts that weren’t a priority when times were good.
Laying off rank-and-file workers is the quickest and easiest way to cut costs. That’s been a last resort, however, because Strip casinos are having a difficult time predicting how well their discounts, special events and other offers will do at luring fickle customers during these troubled economic times.
As an alternative, more casinos are turning to technology, such as kiosks and marketing software, to reduce labor costs. It’s a strategy manufacturers have used for years.
Some casinos have reduced entertainment schedules and closed or reduced hours at restaurants.
A worst-case scenario would involve taking underused rooms and gambling areas out of service if they become too expensive to maintain. That is happening at Buffalo Bill’s, a casino in Primm where hotel rooms are unavailable Mondays through Thursdays through December.
Experts at last month’s Global Gaming Expo trade show and conference said casinos could be forced to take more drastic actions to cut costs as the economy worsens.
At the conference, New Jersey-based gaming consultant Cory Morowitz recommended contingency plans such as more flexibility in staffing ratios and union contracts.
Some cost-cutting options might be obvious yet overlooked, he said. At one major casino, a manager investigating the source of a vendor’s fruit basket discovered a copy machine in every office, he said.
Casinos are bracing for some tough weeks ahead as they await New Year’s Eve, the biggest event of the year in Las Vegas. In recent months, some indicators such as gambling revenue have fallen more dramatically than after 9/11, which posed more of a transportation problem than a demand problem for Las Vegas casinos.
This broad consumer recession has made Americans cautious about spending. Tourism volume and spending are down despite falling gas prices.
As executives try to balance cost cutting with providing service, they are wary of creating an earnings free fall like the one at the Tropicana Atlantic City, where staff cuts went too deep based on a faulty analysis of the resort hotel’s needs, Morowitz said. The Tropicana had expanded over the years, requiring more staff than neighboring, more efficiently designed properties.
The message is clear, Morowitz said.
“Companies must design operating and capital flexibility into their strategies in order to react to the next 100-year event,” he said.
Customer service is a thing of the past - saved only for those who can AFFORD to be catered to LOL
Amen to that! Customer service is good at the table games. but forget the slots! you will file for medicare before ya get a drink at of the casinos. They should have a black Friday like the stores but make it a weekend. Perhaps mark downs at their malls and mark down on the meals to draw customers into the casinos?
i fly in from virginia beach 4 times a year i used stay at ceasars or the mgm until they started charging for drinks in the sportsbooks $1000 for 3 nights and plane fare was no big deal but when i went to the sports books and placed $300 on a ballgame i got 1 free drink wow how nice of them. like most people when i watch a game with money on it i can drink 5 or 6 beers . ($6 for a bottle of bud light) so now when i go out there i stay at harrah's it cheaper and casino royal has $1.50 bud light jsut 50 feet away , so note to vegas give out free drinks more often get us drunk and we'll spend money and enjoy ourselves.
Customer service in Las Vegas no longer exists...everyone thinks they are doing you a favor.
Might be part of the reason everyone has negative views on all casinos..besides the fact they are thieves.
I'm surprised they are down....seems that they tighten the machines so much no one has won anything........usually i can do something but since about a month ago, NOTHING....NOTHING.....I believe they can lower the payout on all machines.........
That's why they ARE down - because people aren't gambling nearly as much because of the tight machines. The casino's may think that by tightening the machines they can make more money but it's coming back to bite them - they can only make the money people spend....when people stop spending the casino's make zilch. Perhaps a better, wiser way, loosen up the machines and let people get some bang for their buck - the old saying 'it takes money to make money' never rang truer.
Truth is..the severity of this econocrash we're all enduring is a huge wake-up call. Tourists and gamblers don't have as much disposable income and the gaming properties don't either. The casinos aren't weathering this recession as well as they have in the past because of it's depth ; historically their best weapon has been to offer more free or significantly discounted room deals to entice us to darken their doors, yet visitor counts
and occupancy rates have been on a justifiably steady decline. In October, the overall Strip gaming revenue dipped a whopping 25% (the worst October in 25 years!); wouldn't we expect the casinos to tighten slot payback percentages (increase their hold percentage) ? I think so ; all of them are in fact scrambling to economically survive by suspending most all expansion projects, refinancing their loan and debt structures, trim employee jobs, and meanwhile continue to advertise and promote their businesses for continued patronage and customer service. The buying public is in pain as well... unemployment rates nationwide and recent job loss indexes are indicative of the situation on our side of the fence. It shouldn't be surprising that these times force both buyers and sellers to tighten their cumulative belts. Common sense and sound money management have to be utilized by us all presently. It will be interesting to see how many gaming properties actually avoid bankruptcy . The current economic state we're in
morphs many of the fantasy elements of Las Vegas into reality for all involved. Whining
won't fix it. Cheers...