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What's Up Downtown

Casino operators on Fremont Street are no strangers to competition.

What's Up Downtown

When the Downtown Las Vegas casinos were the only game in town, they battled with each other for the right to separate the tourists from their cash. As time passed and developers looked to the dusty stretch of desert highway that once marked the outskirts of town, the Downtown area found itself in a new competition with the strip of sprawling resorts along Las Vegas Boulevard.

Thomas Hull?s prescient idea to open the El Rancho on Las Vegas Boulevard in 1941 marked the beginning of the bad times for the Fremont Street operators, though this really wouldn?t be noticed for at least 30 years, as casinos continued to open on both Fremont Street and Las Vegas Boulevard.

Since 1975, when both the Gold Spike and California casinos opened Downtown, the Strip has undergone several reincarnations. New properties have come and gone; the Strip has reinvented itself three different times. Yet, only one new casino, Main Street Station in 1987, was added to the Downtown inventory.
    
The Gambling Joints
For more than a decade, things Downtown seemed to stagnate. The area fell into disrepute and certainly didn?t compare favorably to the Strip, with its luxurious resorts that became home to the stars. When you wanted some serious gaming action, you might head Downtown?perhaps to take advantage of Benny Binion?s practice of accepting wagers of any size at the Horseshoe?but when you wanted to see and be seen, to enjoy the opulence on which the desert oasis had staked its reputation, you went to the Strip resorts.

In reality, things really haven?t changed much, even today. Rarely, if ever, do the city?s public relations firms release photographs of celebrities partying at the Union, Mermaids or the Golden Nugget, and athletes aren?t spotted bellied up to the craps table at Fitzgeralds at 3 a.m. on a Saturday morning.

Instead, the people spotted drinking and throwing the dice day or night at the casinos on Fremont Street tend to come from places like Iowa, Tennessee and Minnesota. They are the middle-market crowd who see no reason to pay $59 for a steak when for $9.99 they can gorge themselves on prime rib; they do not plan to spend much time in their hotel rooms, so $200 or more seems wasteful. They consider such spendthrift ways obscene.

This is not something that has gone unnoticed by the owners and marketing executives. Since the early 1990s, the casinos have embraced the middle market, tapping into Benny Binion?s philosophy of offering good whiskey, good food and a good gamble. It wasn?t an immediate success, and everyone involved agrees there is still a lot of work to be done, but the indications are that Fremont Street is heading in the right direction.

The first step came in the early 1990s when the operators banded together to form the Fremont Street Experience, a cooperative organization that markets the area as a whole. The organization created and maintains the pedestrian mall along Fremont Street, and handles the entertainment both on the street level and overhead, with the VivaVision canopy, which features a light and sound show at night.

The recent figures released by the Nevada Gaming Control Board show an interesting trend starting in the fourth quarter of 2007: the Downtown casinos were generally posting better numbers than were the casinos on the Strip. The growth is modest, with March 2008 seeing gaming win increase from $55.3 million to $56.7 million, but it is positive.
 
This 2.47 percent increase compares favorably to the 4.82 percent drop in gaming win the casinos on the Strip experienced. Overall revenue for the fiscal year 2007 is also on pace to improve, or at least hold steady compared to 2006. The increase was about 1.6 percent through March, but a rough April all but wiped out that progress. And all this is happening without one of the larger casinos in the area, the Lady Luck, which has been shuttered since early 2006.

Part of the reason for the recent success is that operators are buying into the philosophy of working together to market their product, and they?re also believing that investing in their properties will pay off in the long run.

Boyd Gaming spent more than $10 million to remodel rooms at its three area properties, California, Fremont and Main Street Station, and the casinos received a makeover at the same time. Terry Caudill put $20 million into revitalizing the Four Queens, which is now a strong performer on Fremont Street. He has plans to do the same thing with Binion?s, which he recently acquired from MTR Gaming. Tilman Fertitta and Landry?s put more than $100 million into an expansion and renovation project at the Golden Nugget to add a nightclub, new pool area and new restaurants. The company has plans to invest $150 million to build a fourth hotel tower. CIM Group plans a $100 million project to redevelop the Lady Luck.

?Downtown Las Vegas is moving in the right direction,? says Rob Stillwell, vice president of corporate communications for Boyd Gaming. ?We?re seeing our neighbors investing aggressively in their properties, giving new visitors new reasons to leave the Strip and come to Downtown Las Vegas.?

One Foot in the Past
Rotarians and city boosters are quick to point out the rich history of Fremont Street, although it can be a difficult sell in a city where new automatically means good, and big automatically means better. In an era of billion-dollar metaresorts, a $100 million expansion project like the one slated for the Lady Luck doesn?t attract as much attention, either from the media or the general public.

In a city where legendary casinos like the Sands, Desert Inn, New Frontier and Stardust are razed with small fireworks displays and a few kind words from casino owners, workers and longtime guests, they are erased from the collective public consciousness as quickly as their replacement rises from the rubble.

Fremont Street is the most historically significant gaming area in Las Vegas?it actually is the only gaming area in Las Vegas, with the Strip, Boulder Highway and North Las Vegas actually being outside of city limits and under the jurisdiction of Clark County. It lays claim to a number of notable firsts?beyond starting the obsession with neon that has become the city?s contribution to the architecture industry?including:

    • First hotel in Las Vegas in 1906 (the Hotel Nevada, now the Golden Gate)
    • First Nevada gaming license issued to the Northern Club in 1931
    • First elevator at the Apache Hotel in 1932
    • First high-rise tower at the Fremont Hotel in 1956
    • First casino to install carpeting at the Horseshoe

These are all things that the owners and operators Downtown feel add to the character of the area. Mark Brandenburg, who took full ownership of the Golden Gate in 1991, says the sense of history, and the willingness to embrace and build on it, helps the casinos on Fremont Street stand out.

?An aspect largely overlooked in this era of the multibillion-dollar megaresort is authenticity,? he says. ?This is the place where Las Vegas started, and people can get a sense of what it might have been like back then. They enjoy that authenticity. It?s a Vegas authenticity with neon signs and girls in feathers and dice rolling down a table, but it?s a different environment from what you see on the Strip.

?People enjoy the authenticity and they enjoy that juxtaposition of having one foot in the past and one foot in the future.?

The idea that the Fremont Street area is the real Las Vegas is something that is not lost on those marketing the area. Jeff Victor, president of the Fremont Street Experience since 1996, says it?s something that has been incorporated into attempts to promote the area, and something that attracts a lot of visitors.

?As a local to Las Vegas, I am aware that those who live in the valley see Downtown in perhaps a less favorable light than the Strip because it?s not new,? Victor says. ?The visitors who come here don?t have that preconceived notion.

?In Las Vegas we tend to celebrate the new more than the old, where a lot of cities celebrate the old as well as the new. As visitors come from outside the area, they?re happy to see the original Las Vegas as well as the new Vegas.?

Figures from the Las Vegas Convention and Visitors Authority show that roughly half of all visitors to Las Vegas make a trip Downtown?something like 18 million people a year. It?s an impressive figure given that the area accounts for only about 5 percent of the total room inventory in the metropolitan area.

?I think there is a misconception that Downtown needs to apologize for not being the Strip,? says Victor. ?Downtown is not the Strip; Downtown is Downtown. It is a flavor of Las Vegas that an enormous amount of people who visit the area want to include as part of their visit.?

Our Own Volcano
The Fremont Street Experience could very well be the single most important development in Downtown Las Vegas since that first gaming license was issued in 1931. There isn?t a single operator in the area who doesn?t benefit from what the FSE offers, be it the overhead entertainment, the clean and safe street scene and entertainment or the simple marketing economy of scale it produces.

?There was an advantage to having size,? says Brandenburg, one of the original members when the FSE was formed in the early 1990s. Brandenburg sat alongside legendary operators including Bill Boyd, Steve Wynn, Jackie Gaughan and Jack Binion as they discussed a way to fend off the continued encroachment of the Strip casinos on their revenues. ?At Golden Gate, with 106 rooms, I?m not going to go to the Los Angeles Times and pay $5,000 for a small ad to run one time where I won?t even make back my money. But as a group, if we worked together and marketed together, we could get the word out and bring people to Fremont Street.?

Marketing the constituent casinos as a single unit rather than a collection of disparate interests was, and continues to be a major component to the success of the Downtown market. In addition to the benefits mentioned by Brandenburg, Terry Caudill feels it helps the area hold its own against the Strip properties in terms of what it offers.

?Marketing Downtown as a whole helps because individually we don?t have the same amenities as a Strip property,? he says. ?Collectively, we do. Anything you can find on the Strip you can find Downtown, and the Fremont Street Experience helps pull that all together.?

Brandenburg recalled the initial meetings with the other owners and some of the ideas originally thrown around as a way to attract people to the area. Those ideas included a Starship Enterprise attraction from Star Trek?which eventually ended up at the Las Vegas Hilton?and a remake of the canals of Venice, Italy, running throughout the area. They eventually decided to incorporate the Jon Jerde-designed canopy-covered pedestrian mall idea that is in place today.

?Downtown had been struggling with the growth of the megaresorts on the Strip, the neighborhood casinos and Indian gaming in California,? Brandenburg says. ?What brought everyone together was the recognition of what was happening on the Strip and what Steve Wynn was doing with the Mirage, a high-end resort with a volcano of all things as a hook.

?We decided that we needed our own volcano, and that volcano ultimately was the Fremont Street Experience.?

After working with the city and then-mayor Jan Jones, the organization won permission in 1994 to move forward with plans that started by decommissioning Fremont Street as a vehicular thoroughfare between Main Street and Las Vegas Boulevard. The pedestrian mall was covered with an LED display canopy that stands 90 feet tall and stretches for about four city blocks. Originally built with 2.1 million LEDs, a $17 million upgrade would increase that number to 12 million. A sound system with 220 speakers capable of cranking out 550,000 watts of sound was incorporated to accompany the light show.

The nightly light shows?running every hour between sundown and midnight?were a draw from the beginning, but the FSE executives were somewhat limited in the kinds of programs they were able to produce. There weren?t many people with experience in putting together a program that would run across such a large screen, and while impressive, the initial shows seemed like a slightly more advanced production of the popular flying toasters screen saver from the same time. The show has evolved considerably since its early days, and in the past two years, under the guidance of Victor, Brandenburg says it has made major progress in terms of the entertainment it offers.

?The Fremont Street Experience is all about the street scene, and our major hook is this one-of-a-kind show,? Brandenburg says. ?Victor has taken some major steps and instituted some major changes and zeroed in on doing the exciting things we need with this show.?

The change Brandenburg is talking about is the creation of the ?We Will Rock You? tribute to the band Queen. The show is set to the music of the venerable rock group, and features rare video footage of the band performing as well as album art and still photographs of the various band members.

?The Queen show has a buzz about it that none of the other films that I?ve been a part of have had,? Victor says. ?We have the sense that there are people coming down here specifically to see the movie, and that?s something that hasn?t happened in a while.?

Simple Economics?
The favorable numbers posted by the Downtown operators seem to coincide with the economic turmoil in the U.S. Between a significant credit crunch, rising unemployment rates and skyrocketing fuel prices affecting both the drive-in and fly-in visitors, it isn?t hard to figure out that more people are going to have less money to spend. And it is something that some have speculated is making the value-oriented properties along Fremont Street more attractive.

Victor does not buy that, however. He points out that progress along Fremont Street predates the current economic situation.

?I understand how that assumption gets made, but I don?t think the economy has changed the equation down here,? he says. ?I simply believe we?re doing a better job of what we had been doing. Downtown is seeing more life, and we?ve changed up the entertainment message and I think all of that is responsible for our success. This is happening regardless of the economy. We started seeing changes in gaming revenue early last summer when we started instituting these changes.?

Boyd Gaming?s Stillwell expresses a slightly different view, acknowledging that the economy might be driving some people Downtown, but concluding that ultimately more is happening than just people having less money to spend. Stillwell notes that the Strip focus on luxury travelers?marked by the closing of properties such as the New Frontier and Boyd?s Stardust and the opening of Palazzo, and the coming metaresorts like Encore, Boyd?s Echelon, CityCenter and Fontainebleau?means that ?budget-conscious visitors represent a growing opportunity for Downtown operators.?

Caudill, too, sees the economy as only a small part of the equation. While some guests might choose the better values available Downtown over the opulence of the Strip, others are being priced out of the Vegas experience entirely. Ultimately, it becomes a matter of avoiding hasty reactions based on short-term economic fluctuations.

?For people looking to come to Las Vegas but who don?t want to pay the price to stay on the Strip, Downtown becomes a good-looking value,? he explains. ?We benefit from that standpoint, but at the same time, a certain segment of our customers are hurt by the current situation. The cost of gasoline and jet fuel does not benefit us.

?We don?t suffer as badly as other venues might because we don?t have the same kind of overhead. We?ve always targeted toward the value-oriented, sustainable mid-market type customer, so our philosophy doesn?t have to change when things tighten up.

?We have a long-range plan and avoid short-term, knee-jerk reactions. We have a product that is fundamentally good and the long-term outlook is good.?

Building It Up
The problem that faces the Downtown operators is a matter of getting the word out about what is there.

?There is still a lot of work to do because there are a lot of people who don?t know we?re here,? Brandenburg says.

The attention given to the Strip makes it the predominant image that pops into most heads when Las Vegas is mentioned. People know the major attractions like the canals at the Venetian, the volcano at the Mirage or the fountains at the Bellagio; Vegas Vic, the VivaVision canopy and even Binion?s, the place that made poker famous, are only afterthoughts. If successful in changing that, good things will come.

?Downtown Las Vegas is quickly becoming an exciting and unique entertainment destination in its own right,? says Stillwell. ?Our most important task is getting the word out to Las Vegas visitors. As word of mouth about Downtown spreads, we think business and traffic levels will continue to rise.?

Anticipating similar growth, Caudill thinks the long-term challenge facing operators is a lack of rooms.

?I think the Downtown experience will catch on and people will come down here looking for it,? he says. ?We will need more rooms to accommodate more people. We already fill up on the weekends.?

Caudill has identified places for room expansion projects at both the Four Queens and Binion?s, and expects those projects to begin sooner rather than later.

?It?s always a little harder when you look at our room rate versus the Strip, but the rates will justify new rooms in the next two to three years, and it takes that long to build them,? he says.

There are a number of projects that will attract additional attention to the Downtown area. The city of Las Vegas will discuss in July plans by CIM Group for a renovation and expansion of the Lady Luck casino. Not only will the existing buildings be touched up, but the project will extend across Stewart Street and partially encompass the old Post Office, which the city is converting into a museum celebrating the old mob days.

If the city approves the project, CIM Group can work to finalize designs and move toward starting construction in 2009 or 2010, according to Scott Adams, director of business development for the city of Las Vegas.

?They?ve committed to investing $100 million for the renovation on top of the $100 million investment they made to acquire the property, so it?s pretty exciting,? Adams says.

The city is also working on its own project, having finally figured out what to do with the 61 acres of land it owns west of Fremont Street. The project is called Union Park, and will be a mixed-use development featuring five distinct districts: the civic district with a performing arts center; a residential district with high-rise, town homes and condominiums; a retail district and a medical district. The fifth district will contain a gaming property in excess of 900,000 square feet and featuring a hotel with 1,000 to 1,500 rooms. The estimated cost of the project is $6 billion.

The city has also worked to attract more people to the area known as Fremont Street East. The area is east of Las Vegas Boulevard, and runs to El Cortez. It features a number of bars and nightclubs that are attracting locals to the area in numbers that haven?t been seen in recent years. At the same time, events like First Friday, a cultural celebration held each month throughout the Arts District south of the Downtown gaming corridor, and the construction of residential condominium projects are paying off for the Fremont Street casinos.

?I think you?re starting to feel a bit more of an urban vibe down here,? says Victor. ?I hear people talking about walking from their home to different places, and that the area is becoming part of an urban core. There are small businesses opening up and we?re starting to see some real organic growth happening Downtown, and that is really refreshing.?

Greg Jones was associate editor of Global Gaming Business magazine and managing editor of Casino Connection Nevada until September 2009.

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