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Best of Benjamin Spillman

Gaming Guru

Benjamin Spillman
 

Vegas casinos offering bargains all over

29 June 2009

By Benjamin Spillman

LAS VEGAS, Nevada –- Two years ago Gary Hamm and his wife gambled $200 at the Bellagio.

About two months ago it paid off.

He opened the mailbox at his Tacoma, Wash., home and found an offer from Bellagio for three free nights plus $50 in free play and food and drink credits.

"I was amazed, really," said Hamm. "Usually you expect to hear from casinos if you gamble a lot of money. We stayed there for three days and really didn't gamble much."

If it sounds like an expensive way to attract customers, that's because it is.

Las Vegas hoteliers are raking in $5.8 million per day less than they were a year ago, according to the latest figures from the convention and visitors authority.

And that is just on room rates.

It doesn't include all the free food, cheap or free booze, gambling inducements and show ticket discounts.

Properties across town -- from swank Strip retreats to humble downtown joints -- are offering more to get less than they were a year ago.

Even with room rates nearly 31 percent lower than 12 months ago as an enticement for customers, gambling revenue was down $3.8 million per day in Clark County.

"I think it is war out there right now," said Michael Crandall, director of business affairs for the Siegel Cos.

The company owns a chain of working class-oriented apartment complexes as well as the Gold Spike, a small casino-hotel one block north of the Fremont Street gambling district downtown.

Company officials recently started offering apartment tenants up to five free meals per week at the Gold Spike when they pay rent in an effort to boost foot traffic at the casino.

"We are going to do whatever we have to, to win," Crandall said.

How long this battle royal between casinos to carve up a shrinking, more frugal customer base continues remains to be seen.

Even as hospitality leaders like MGM Mirage CEO Jim Murren claim, "the worst of it is behind us," in public, Las Vegas resorts are doling out millions of dollars daily in discounts and other incentives.

For anyone who believes the path to the truth lies in following the money, the discount war suggests casino leaders are unwilling to test their optimism with aggressive pricing.

In Las Vegas, the nation's biggest and most price-flexible resort market, the level of discounts rises and falls against the broader economy.

In the most recent boom from about 2003 through 2007, room rates in Las Vegas seemed to defy gravity. By the end of 2007, the average daily rate was more than $132, a 10.3 percent increase from the end of 2006, even as the number of rooms increased.

And it wasn't just rooms.

Resort builders added luxury shopping, ultrahigh-end dining and night clubs that sought to drain customers of thousands of dollars per visit in exchange for private seating, bottles of booze and aggressive pursuit of tips by employees.

"They got so piggish in the industry in general," Las Vegas discount guru Anthony Curtis said. "They just figured the golden goose wouldn't die and they found out otherwise."

And die it did.

'IF YOU PRICE IT' FAILS

Cracks in the "if you price it, they will pay" style of business started showing in early to mid-2008 as the price of oil climbed toward $150 per barrel.

Visitation was flat for the first half of the year, going up and down a couple percentage points each month. And room rates were down by single-digit percentages.

The boom finally dropped in June, though, as the room rate fell 16 percent, suggesting that resorts were sacrificing more than they had in years to get guests.

By the time oil prices began to fall, which reduced the cost of transportation to Las Vegas, the bottom had fallen out of the entire economy and there was no doubt the good times had ended.

Hotel-casinos slashed prices drastically and, only recently, has the visitation drop begun to slow. In April, the number of Las Vegas visitors was down 2.9 percent, the smallest decrease since May 2008.

"Baloney," said Curtis, to the suggestion that rampant price-cutting by hotel-casinos will undermine the carefully cultivated, upscale marketing and branding of resorts in recent years.

"I think Vegas reacted too slowly to this," he said. "We're going to choke on this brand. You have to let it go."

Examples of the drastic steps Curtis said should have started earlier abound, with companies like MGM Mirage dipping into the locals pool and, in turn, pressing locals-oriented companies such as Station Casinos to match.

The company created a link on the MGM Mirage Web site where Southern Nevada residents can find hotel offers at The Mirage, New York-New York and the MGM Grand; show specials for "Love"; "O"; and ventriloquist Terry Fator; spa treatments at several Strip properties and meals at some of the more popular Strip eateries.

"It started out small, but we just kept creating more and more unique offers," said Mirage Executive Director of Internet Operations Lou Ragg. "We're somewhere currently over 100 different offers and we're getting (many) visits a day to the site."

Ragg said MGM Mirage plans to keep the Las Vegas locals offers program through the summer.

"It's something we will continue to evaluate," Ragg said.

BOYD HOLDS STEADY

Having MGM Mirage as competition doesn't faze Boyd Gaming Corp. Chief Operating Officer Paul Chakmak. The company has always focused on value-oriented deals and opportunities for customers visiting Sam's Town, Suncoast, Orleans and its other locals-oriented properties.

Even as customers have reduced the amount of money being spent on gaming and nongaming activities, Boyd Gaming has promoted value to ensure those dollars are spent at the company's casinos.

"For MGM to do what they are doing shows how brutal it is out there at this time," Chakmak said. "There's never been a time when a company like MGM Mirage has had to make those kind of offers. But an empty room or unused seat at a show costs money."

Chakmak is sure some Boyd Gaming customers have taken advantage of the MGM Mirage deals. He likened the idea to buying a car or a house during the current economy. Prices are so low, it gives locals an opportunity to visit the Strip.

But Boyd Gaming hasn't tossed in the towel.

The company lowered room rates at its locals casinos, signed deals with the restaurant chain T.G.I. Friday's which opened locations in the past 18 months at The Orleans, Suncoast and Gold Coast.

The company wants its customer base to know that if locals are looking for a quick getaway during the summer months, Boyd Gaming's properties have several different offers.

"We've stayed relatively consistent with the promotions we're offering our customers," Chakmak said. "We've always geared out business toward our particular consumer and that hasn't changed. We don't forget our customers in good times and bad. We always offer a constant mix of price points."

Station Casinos is also trying to give locals a reason to stay home for summer vacations.

At Red Rock Resort and Green Valley Ranch Resort, the company is offering two-night room rates starting at $199, which includes $20 in slot play and choices of restaurant credits, movie passes, spa credits, bowling and shopping certificates.

The company also has hotel room packages starting at $49 a night at its Station-themed properties that includes $10 in slot play, restaurant credit, and bowling.

REASONS FOR CAUTION

Although some resort operators have hinted that the relative stabilization in visitation numbers portends brighter days ahead, don't bet on it.

Las Vegas is still subject to broad global and national economic conditions and signs suggest recovery, particularly in consumer spending, is years away.

"My concern is that most people don't appreciate just how ephemeral the last economic up-cycle was," said Seattle-based finance columnist and fund manager Bill Fleckenstein. "The underlying economic base is far weaker than people think."

For years Las Vegas growth was driven partly by consumers' belief in overinflated home values to tell themselves they were richer than they really were.

At the boom's peak, Fleckenstein said that as many as 30 percent to 40 percent of jobs being created had some real estate component to them.

That wealth has been all but wiped out, and at a time when Las Vegas developers still have about 17,000 new rooms in development.

"The housing ATM is no longer dispensing dollars," he said.

For customers, that means big-time deals like the one Jennifer Gates of Black River Falls, Wis., recently landed at Bellagio.

Gates, a regular Las Vegas visitor who normally stays at Paris Las Vegas or other Harrah's Entertainment properties, received an offer of three free nights and $75 in free play from Bellagio.

As far as she can tell, the offer is based on just an hour or so she spent playing at the hotel months ago.

"If I can have the chance to stay at Bellagio for zero dollars, let's see if I can find a flight and be on my way," she said.

Although discounts and value are again at the forefront of the Las Vegas experience, they can backfire on an operator who isn't careful.

Recently frequent Las Vegas visitor Mitch Goldstone attended a Bette Midler performance at the Colosseum in Caesars Palace.

Goldstone said he paid $548 for the tickets in advance online.

On the night of the show, he received an offer by e-mail for the same tickets at about an 80 percent discount.

"I think when someone goes in to watch Bette Midler or some of the other performers, they don't need to see everyone paid a different price," Goldstone said.

To add insult to injury, his e-mails and calls to Caesars seeking a partial refund or some other compensation have gone unanswered.

That leaves Goldstone, who visits as often as 10 times per year for business and leisure, disappointed.

"Everyone else who paid full price is going to feel slighted," he said.

A WORKING STRATEGY

Despite problems keeping discounts consistent and the cost companies are bearing with deep discounts, expect them to continue because they work.

They induce demand where it didn't exist.

Just ask Jennifer Hughes of Detroit.

Hughes, 37, hasn't been to Las Vegas in three years. When she does visit she typically stays downtown at the Four Queens or Fitzgeralds.

Her next visit, planned for July with her husband, includes a stay at Fitzgeralds for four nights with a total cost of $112.

Although the couple hasn't started that visit, they may be planning yet another trip after getting a $99 per night offer at Encore, the luxury hotel Steve Wynn and Wynn Resorts Ltd. opened late last year on the Strip.

If history is any guide, the visit to Encore will yield more spending and prompt more offers.

And the cycle continues.

"I know when we come back, we are just going to get a ton of stuff," she said.