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Don't bet on Vegas Strip comeback in 2011, though recovery signs grow

By Liz Benston

Las Vegas Sun

POSTED:
LAST UPDATED: 08:27 a.m. HST, Nov 01, 2010



 

LAS VEGAS — While some industry observers point to recent increases in gambling revenue, tourism traffic and room rates as a sign that a recovery is under way, other analysts call such figures a temporary aberration and forecast earnings declines for most of the Strip's casinos next year.

Lackluster home prices, rising airfares and a declining sweet spot for Las Vegas customers -- visitors in their 40s and 50s with money to burn -- will result in revenue and earnings declines for most casinos on the Las Vegas Strip in 2011, according to a recent report by analysts at CB Richard Ellis' Global Gaming Group in Las Vegas.

The 100-page document -- which relies in part on third-party research on such topics as home prices, home equity and consumer spending -- is the latest testimonial to the recession-era reality that new Strip resorts have diluted earnings for competitors instead of boosting results.

The casino industry has adjusted accordingly, and no new resorts are planned on the Strip for years after the 2,995-room Cosmopolitan Las Vegas resort, the last holdover from boom-era development, opens for business Dec. 15.

Demand could once again outstrip supply in 2012, the report said. That might only be in the cards, however, if home prices -- a major source of Baby Boomer wealth -- increase more than expected next year.

A bright spot in the report is revenue from baccarat -- a game favored by high-rollers from Asia and especially China, where low interest rates and a growing economy is encouraging spending. The report forecasts a 10 to 20 percent increase in baccarat and mini-baccarat revenue on the Strip next year.

Excluding baccarat, which only benefits the handful of high-end casinos on the Strip that offer it, gaming revenue on the Strip is projected to decline from 2 percent to 4 percent next year, the report said. That estimate also excludes revenue from the Cosmopolitan.

Overall, Las Vegas Strip gambling revenue -- including results from Cosmopolitan and baccarat - is expected to decline by as much as 1 percent or increase by as much as 4 percent next year compared with 2010, the report said. The inherent volatility of baccarat, given the large wagers concentrated among a select few gamblers, accounts for most of the disparity in results.

Visitors who come to Las Vegas for pleasure rather than business represent at least 80 percent of the market. Leisure travel trends don't look good for the Strip, however.

Nearly half of Las Vegas visitors get here by plane, yet analysts project flat to declining airline capacity at McCarran Airport next year in spite of an increase in travel demand -- a sign that airfares will continue to rise in 2011, the report said.

"That means less money in people's pockets once they get here," which will hurt budget properties most because their clientele can least afford such increases, said report co-author Jacob Oberman, senior director of gaming research and analysis for CB Richard Ellis and a former financial analyst for the Bellagio resort.

In addition, Baby Boomers are exiting their peak spending years as they retire, while the population of potential visitors in their peak spending years ages 44 to 52 is declining.

Housing prices nationwide aren't expected to increase significantly enough next year, Oberman said, for retirees to feel wealthier and thus, spend more. If home prices rise more than experts predict next year, or by 5 percent or more, people may start to feel more confident about their ability to spend, he said.

"Either a lack of material home price appreciation or outright home price declines, as projected by some economists, will not provide the increase in household equity that we believe would be necessary for leisure spending growth on the Strip," the report said.

The Strip could benefit somewhat by an increase in international visitors, a small but growing segment for Las Vegas, as it receives new international flights from Great Britain and France.

A larger positive for the Strip is an expected uptick in convention customers in town on business.

Based on discussions with meeting planners, the report forecasts a 15.5 percent increase in convention and meeting demand, outstripping the 3.1 percent increase in room nights that will be available next year with the opening of Cosmopolitan and additional rooms at CityCenter, the report said.

This means Strip casinos, the report said, won't need to rely as much on tourists to fill rooms. Also, overall competition for customers, though fierce, isn't expected to intensify for Strip casinos in 2011 as compared with 2010, when they slashed prices to attract business.






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