- The Washington Times - Friday, August 29, 2003

LAS VEGAS — Brad Stone smiles as he walks along the shiny marble floors of the Venetian hotel-casino’s new $275 million tower. He brags about the spacious rooms that average $200 a night and the planned upscale restaurant that will draw refined palates and thick wallets.

The executive vice president of the Las Vegas Sands, which owns the Venetian, is talking about profit margins, hardly mentioning table games and slot machines.

In fact, visitors to the new hotel tower can commit what was once considered a cardinal sin in Sin City — they can check into the gleaming tower without ever passing through the casino.

This is the retooled Las Vegas, one in which casinos that rely purely on gamblers to generate the majority of their profits are dwindling. The new business paradigm focuses on hotel rooms, food, beverages and entertainment.

“You are seeing a shift,” Mr. Stone says. “This town has reinvented itself. You can come here and not gamble and have a great time.”

During the past decade, revenues for major casino companies have been moving slowly from gambling to non-gambling sources, evidence that Las Vegas is evolving into a bona fide tourist destination — a sort of Disney World with vices.

Major gambling companies compete in trying to open the hottest nightclubs and lure the finest chefs to run upscale eateries. They seek headliners such as Celine Dion or the latest Cirque du Soleil production to fill theaters.

“We have diversified within the travel and tourism business,” says Keith Schwer, a professor of economics at the University of Nevada at Las Vegas. “We have a portfolio of things to offer people coming here other than gambling.”

The revenue evolution has been gradual but definitive, Nevada Gaming Control Board data shows.

In 1992, 61 percent of the revenues generated from casinos in Nevada came from gambling. Last year, that figure was 51.5 percent.

The trend is even more pronounced on the Las Vegas Strip, where last year casinos reported just 43 percent of almost $9 billion in revenue came from gamblers. Ten years ago, the figure was 56.7 percent.

The MRC Group Research Institute found in a recent survey that the primary reason for visiting Las Vegas is entertainment. Only 17 percent of the visitors surveyed said they intended to gamble.

The top activities were sightseeing, pool lounging and shopping.

“It’s the evolution of gambling,” MRC chief executive Jim Medick says. “It now opens up to a much broader market.”

The Venetian and other gambling corporations are pouring their money into the lucrative, luxury all-suite accommodations that seasoned business travelers demand. “You now have these incredible new revenue sources, and you now have these incredible new rooms,” Mr. Medick says. “You’re able to capture the business traveler and the conventioneers.”

Las Vegas is the No. 1 convention city in the country. In 2002, 14.6 percent of the all visitors to Las Vegas were conventioneers.

Casino companies such as Park Place Entertainment, MGM Mirage and Mandalay Resort Group have diversified their business plans to cater to all types of visitors, not just gamblers. The three companies control about 75 percent of the hotel rooms on the Strip and intend to extend their dominance without acquiring more properties.

The Venetian, with its 1,013-room, 12-story tower named the Venezia, has helped lead the way in showing competitors that the money is in hotel rooms. Mr. Stone says the Venezia’s all-suite accommodations boast 70 percent profit margins.

The Mandalay Bay hotel-casino is building a $225 million hotel tower with 1,125 rooms that’s scheduled to open later this year. The Mandalay Bay’s average room rate topped $200 in the first quarter of this year, its highest-ever quarterly mark.

The Bellagio hotel-casino, which is owned by MGM Mirage, also is expanding, adding a $375 million, 925-room tower slated to open next year.

Caesars Palace is considering a 1,000-room tower that could cost $350 million.

Wally Barr, president and chief executive officer at Park Place Entertainment, says the tower makes sense given the changes in Las Vegas and customer expectations.

Mr. Barr says Las Vegas had to offer more in the way of restaurants and shows because of the proliferation of casinos. The city needed a new sales pitch.

“Vegas had to have all the trimmings,” Mr. Barr says.

Marc Falcone, a gambling analyst with Deutsche Bank in New York City, says charging for rooms carries the highest gross profit and broadens the demographic of visitors.

“The gaming revenue is flat, which parallels visitor volume growth, but spending in the non-gaming area continues to grow, which is a good thing,” says Frank Streshley, a senior analyst with the Gaming Control Board.

Still, not all the casino giants have embraced the move toward non-gambling revenue. Harrah’s Entertainment, for one, says it hasn’t strayed from its original mission.

Harrah’s spokesman Gary Thompson says 89 percent of his company’s revenues last year came from gambling. On any given day during the week, Mr. Thompson says, more than half of Harrah’s rooms are complimentary, attracting visitors who come to gamble with the lure of a free room.

“The great attractions of Las Vegas are the must-see amenities that our competitors have built,” Mr. Thompson says. “We have opted to build strong relationships with players instead of building billion-dollar edifices.”

“We are the most profitable casino company in the world,” Mr. Thompson says. “It does work.”


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