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Gaming Guru

Tim O'Reiley
 

Vegas airport slot machine fees lowered

2 February 2011

By Tim O'Reiley

LAS VEGAS, Nevada -- Clark County commissioners agreed Tuesday to lower fees for McCarran International Airport's slot machine concession, meaning the airport's revenues from the airport's 1,500 slots could continue to slide in the future.

The airport's take from the 1,500 slot machines scattered throughout the concourses were down in the quarter ended Sept. 30. For three years, slot revenues have declined faster than any other airport revenue category.

Because of the revenue drop from the slot concession, the commission agreed to set a floating minimum rent that will be pegged at 85 percent of the previous year's rental rate and result in a reduction of more than $1 million paid to the airport.

Until now, concession owner Michael Gaughan was required to pay $27 million a year or 86.5 percent of the net revenues, whichever was larger.

Without the reduction, Gaughan, who also owns the South Point hotel-casino, said he would have lost money on the slot machine concession.

Clark County Aviation Department director Randall Walker said the commissioners' decision marks the end of an effort to switch all the concessionaires from prenegotiated minimum rentals to variable ones because of the recession's effects on revenues.

"A fixed MAG (minimum annual guarantee) is a good idea when revenues and the economy are going great," he said. "But it just doesn't work very well during a slowdown."

But he and Gaughan acknowledge that they have run out of ideas to try to revive what historically has been an important source of revenue for the airport, helping to hold down fees charged to airlines and to make it more financially attractive for them to schedule flights to Las Vegas.

Gaughan recalled spending about four hours one day last year walking the entire airport with Walker, trying to find spots that might support machines and others that had turned into dead zones.

"We did a zillion things over the past couple of years, and it helped some," Gaughan said. "But people just aren't playing the machines any more. They are not leaving town with as much discretionary income as they used to."

Most of the airport's slot customers are people waiting to board planes to fly home. New arrivals generally head straight for baggage claim or the exits.

Responding to complaints that many of his slots were dated, Gaughan installed new models costing more than $20,000 each. The return from more play, he and Walker agreed, did not justify the extra investment.

For the year ended June 30, the $25.7 million the airport collected in slot fees marked a 37 percent drop from the peak in 2007. During the same period, other income from retail sales, including food, liquor and gift shops, rose 7.6 percent.

During the quarter ended Sept. 30, gaming fees sank another 9.1 percent.

The trouble first surfaced about three years ago, when the indoor smoking ban at the airport drove away people who liked to puff and gamble. The sliding economy delivered another blow.

Finally, US Airways' decision to dismantle the hub it once ran at McCarran took away a source of customers that previously liked to try their luck while waiting for connecting flights.

Gaughan has had the airport concession for nearly a quarter century -- he likes to call it a five-year deal that lasted for 23 years. It was put out to bid three years ago, but he was the only one who responded with a written proposal.

"The airport is not that lucrative," he said. "There were 27 people who showed up at the information meeting (for the contract), but I submitted the only proposal. I guess they had second thoughts when they saw the numbers."

Initially, he had a $35 million minimum, but that was cut to $27 million. Without the new floating minimum, he said he was on course to lose money this past year.