Strip Revenue Analysis March 2010 - The Las Vegas Strip

By Derrick Andrews,2014-11-25 09:35
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Strip Revenue Analysis March 2010 - The Las Vegas Strip

March 2010 Las Vegas Strip Gaming Revenue Analysis

Jacob Oberman

    Director of Gaming Research and Analysis

    CB Richard Ellis

    T: 702.369.4923

Brent Pirosch

    Director of Gaming Consulting Services

    CB Richard Ellis

    T: 702.369.4803

    The Nevada Gaming Control Board’s gaming revenue report for March should have held no surprises as most properties have reported first quarter earnings. The major takeaway for Las Vegas stakeholders for March is that the same-store year-over-year declines (hold adjusted) are moderating.

    On a same-store basis, we estimate Strip gaming revenue decreased 4.2% y/y in March and increased 2.1% March year-to-date. Excluding bacc/mini bacc, we estimate same-store gaming revenue declined by 8.0% y/y in March and declined 9.4% March year-to-date. The gaming revenue decline ex bacc/mini bacc was reflected in the earnings for virtually every non-luxury property on the Strip in the first quarter.

    ; Las Vegas Strip gaming revenue was up 2.4% in Mar 2010, up 9.8% year-to-date, and down

    2.7% in the trailing twelve-month period compared to the twelve months that preceded it ; Table games revenue, excluding bacc/mini bacc, was down 11.3% in Mar 2010, down 5.4%

    year-to-date, and down 15.0% in the trailing twelve-month period compared to the twelve

    months that preceded it

    ; Bacc/mini bacc revenue was up 57.2% in Mar 2010, up 88.5% year-to-date, and up 52.0% in

    the trailing twelve-month period compared to the twelve months that preceded it ; Slot revenue was up 0.1% in Mar 2010, down 4.4% year-to-date, and down 10.1% in the

    trailing twelve-month period compared to the twelve months that preceded it

    Table games (excluding bacc/mini bacc) hold percentage was a weak 11.28% in Mar 2010, 164 bps below Mar 2009 and 64 bps below the trailing twelve-month average. Bacc/mini bacc hold percentage was also weak at 8.64% in Mar 2010, 138 bps above an extremely weak hold in Mar 2009 but 347 bps below the trailing twelve-month average. Slot hold percentage was slightly above average in Mar 2010.

    The calendar was neutral.

Impact of International Business on Las Vegas

    In the long run, we believe that international visitation will be the primary driver of economic growth for the Las Vegas Strip. In the short term, however, Las Vegas could be facing some headwinds in this regard, and our goal is to help investors and operators quantify the possible impacts of a slowdown.

    Over the past few years, the proportion of visitation and revenue from international visitors has been increasing. The increase has been a function of rapidly rising Asian and emerging market economies, which have grown at a much faster rate than the U.S. economy, and the Euro and Canadian Dollar that have steadily strengthened against the U.S. Dollar - increasing the spending power of those visitors.

    With the problems going on in Europe and China, which has recently instituted measures to slow down an overheating property market, we thought it made sense to quantify the amount of business that Strip resorts get from guests in foreign markets. Our thesis with regards to international business is three-pronged. First, Asia (and its baccarat play) is significantly more important to Las Vegas than Europe. Second, luxury properties have more to lose with less demand from international customers. Third, the overarching problem of a slowdown in Europe or China would be the possibility of a slowdown in the U.S. the place where Las Vegas still

    gets most of its business.

Quantifying International Business

    Based on anecdotal evidence and conversations with our industry contacts, we estimate that approximately 20% of room nights in Las Vegas are being occupied by international customers. The estimated breakdown of international customers is as follows:

    ; Canada / Mexico 50% - 60%

    ; Europe 20% - 25%

    ; Asia 15%

    ; Other 10% - 15%

    Although international visitors only make up about 20% of the occupied room nights in Las Vegas, they make up a higher proportion of the spending on the Strip for several reasons. Although non-Asian visitors tend to spend less on gambling than U.S. visitors, they spend much more on retail, food and beverage, and entertainment on a per night and per trip basis, according to the 2009 Las Vegas Visitor Profile Study commissioned by the LVCVA. In addition, since the

    average length of stay is longer than domestic visitors, their trips typically encompass nights during the midweek that are otherwise harder to fill. In addition, although the data is anecdotal, we believe that foreign visitors are more likely to stay at luxury properties, evidenced by Wynn Resorts commenting that international guests occupied 26% of their room nights during the first quarter 2008.

    In terms of gaming revenue, international visitors make up much greater than 20% of revenue. For the trailing twelve months ending March 2010, baccarat and mini baccarat comprised 21% of total gaming revenue. We estimate approximately 75% of this revenue comes from Asia. Further

    enhancing the importance of these players is that some of them may partake in games such as pai gow, blackjack or roulette, meaning they may comprise of about 20-22% of Strip revenue on their own.

    With 85% of international visitors coming from outside Asia, they make up a material amount of spending even though it is our belief they gamble less per night. We estimate about 12%-14% of Strip gaming revenue comes from the non-Asian international segment (assumes about one-third less gambling spend per room night than the overall visitor average).

    We also estimate that at least 20% of non-gaming revenue comes from international visitors. We surmise visitors from Europe comprise 5%-6% of total Strip non-gaming revenue and visitors from Asia comprise 3%-4% of non-gaming revenue.

    To summarize, we estimate 32%-36% of gaming revenue comes from international visitors. We estimate visitors from Europe comprise 3%-5% of gaming revenue and visitors from Asia comprise 20%-22% of gaming revenue.

    Asia and Europe still comprise a minority of Strip spending, and a 10%-20% drop in European spending on the Strip would only translate to a 0.5%-1.5% decline in total Strip revenue. Even before factoring in a possible slowdown in Europe, a dramatic move lower in the Euro alone could cause this type of decline in Strip spending.

    Asia has a much greater relative importance to Las Vegas than Europe. Asian stock markets that are already significantly off their highs and property markets with a less certain future could drag on Las Vegas revenue going forward. Although we would not expect either the Asian equity or property markets to materially impact Las Vegas visitation (given the growing middle class), we believe that they could certainly impact gaming revenue like these type of exogenous events that have occurred in the past (2001 and 2008). Keep in mind that a 10%-20% decline in Asian gambling spend would translate to a 2%-4% decline in total Strip gaming revenue. Also, bear in mind that the full brunt of any declines in baccarat/mini baccarat would be limited to the five or six luxury properties that compete in this market. Therefore, their gaming revenue exposure to the Asian market is much greater than the 20%-22% Strip average and can be as high as 30%-40%.

    Please feel free to contact Jacob Oberman if you have questions at 702.369.4923 or

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