Since I rarely get to a movie theater (except to view the latest Disney flick with my kids), I still haven’t seen the movie The Hangover. I understand it was shot in Vegas and was very popular, so when Harrah’s Chairman and CEO Gary Loveman used it as a theme for his speech last month before a group of financial executives, I wasn’t really sure what to make of it.
Loveman’s theme for the speech was that the Las Vegas gaming industry had been partying through the 1990s and early 2000s until we took a nap and woke up with a huge headache.
“We set ourselves up for one hell of a party, and we had a lot of fun. We did a lot of fun things,” Loveman told the Financial Executives International, an association of money types, which convened at Caesars Palace. “One might argue that we did a few things to excess. And then we woke up the next morning and our heads hurt; things were a little disheveled. It was hard to find some of the folks and the things we had been with the evening before. And we now find ourselves searching for a new equilibrium in a more demanding period.”
He went on to say that the industry fell in love with the luxury end of the market while ignoring the “bread-and-butter” players. He points to the $15 billion in resorts that had been built in the early part of the 21st century-the two Wynn projects, the Palazzo, CityCenter and others-all of which were aimed at the high end of the market, without really knowing if there were enough players to fill those rooms (and suites).
Although Harrah’s has suffered along with those high-end properties, even with its mid-market emphasis, the decline in room rates on the Strip has been dramatic. It has impacted everyone on the Strip from the ultra-luxury property to the budget motel. At Encore on some days, you can get a room for $159, even less at the brand new Aria in CityCenter. Established hotels like Wynn, Bellagio and Caesars are even less.
Some hotels, like the Sahara, have closed towers because it doesn’t make sense to staff them when room rates won’t even pay for the employees who service the rooms. Last month, the Tropicana, which has undergone a remarkable makeover, posted a loss, which executives blamed on depressed room rates.
While gaming revenue declines have bottomed out, there are some questions about how soft the room rates will continue to be. In addition to the 4,000 rooms that were added to Strip inventory earlier this year with the opening of CityCenter, another 2,000 will be created when the Cosmopolitan Las Vegas opens by the end of the year. That’s a lot of inventory to absorb.
While visitation to Las Vegas has remained strong, it’s a buyer’s market for bargain hunters. With room rates at rock bottom, are the guests buying those rooms also bringing the all-important gambling budget? Hard to tell at this point.
So now that Vegas is coming down off the hangover and feeling a little better, where does the Strip go from here? The problem is that appeal of Las Vegas is that it is a big party. So it can’t run away from that image. It needs to be reinforced and the city needs to get back to the things that make it so popular.
The entertainment, the sports events, the idea that anything is possible in Las Vegas is what attracts people to the Strip. It’s the unreal. It’s the fantastic. And in the end, it’s the ultimate vacation spot, that can combine fun, business and the best life has to offer.
So while we can recover from a hangover, you know we’ll always go back to the party. It may not be the next night, but in Vegas, you’ll always know the party is going on whenever you want to go there.