Something new that happens in Vegas: Investment

There’s a sight in Las Vegas not seen in a long time.

Construction crews.

The Las Vegas Convention and Visitors Authority reports there are $9 billion in projects either in the planning stages or underway. New money is coming in to take over what Union Gaming analyst Bill Lerner calls “the boneyard” of abandoned projects up and down the Strip.

“We’re projecting over 40 million visitors for 2014,” said Rossi Ralenkotter, president and CEO of the LVCVA. That would mark the third record year in a row.

Even so, overall spending is still only 77 percent of what it was pre-recession. “Even when parts of the economy seem to be doing better, gaming revenues continue to falter,” said Deutsche Bank analyst Andrew Zarnett.

Stuart Dee | Getty Images The Las Vegas strip.

Stuart Dee | Getty Images
The Las Vegas strip.

The latest figures through November show $5.8 billion in gambling revenue coming into Las Vegas Strip casinos for the year, a 4 percent jump, but they remain down in the rest of Nevada.

Non-gaming revenue, however, is way up. Las Vegas room rates are rising, averaging $120 a night, and no new rooms are being added in the short term.

“What we have less of these days, relative to the economic trough, are folks who are looking for a cheap visit, jamming lots of bodies into a single room, and not spending money on property,” said Union Gaming’s Lerner.

(Read moreThis 1 chart could mean big casino profits in 2014)

A trickle of new rooms will be coming on line over the next few years. A private group is building the SLS Hotel on the old Sahara site. A Malaysian gaming company, Genting, is awaiting approval to operate in Nevada, with plans to spend billions to take over the abandoned Echelon property from Boyd Gaming. Other spending includes LINQ by Caesars Entertainment, a shopping complex which will include the “High Roller,” a Ferris wheel bigger than the London Eye. And MGM Resorts plans to build an arena in a joint venture with AEG which could eventually host an NBA or NHL franchise.

“The fact that people are willing to invest again in Las Vegas I think is an affirmation that people see this recovery,” said Jim Murren, chairman and CEO of MGM Resorts, the largest operator in town. He said 2013 was “a good but not great year” when it came to spending by Americans.

“Internationally, it was another great year,” he said. Murren expects slow and steady improvements in 2014, with a strong first quarter.

(Read moreSports gambling’s major match-ups)

“We’re a profitable company in 2014,” he said. “The question will be, can we keep that momentum for the balance of the year? No one knows the answer to that, because booking windows are still pretty tight.”

Macau continues to dwarf Las Vegas in terms of revenue, but analyst Lerner believes Vegas actually benefits from that. Sin City is seeing more, not fewer, Chinese gamblers.

“As these players, especially newer players in Asia, discover Macau, they’re discovering what these brands are about,” he said.

In turn, those gamblers want to travel to Nevada. “This is an aspirational place for the Chinese gambler,” he said. “We’re like in the first or second inning of this thing still.”

That’s one reason McCarran International Airport spent $2 billion on a third terminal, and airlines are adding more international flights. “International represents about 17 percent of the market share today,” said the LCVCA’s Ralenkotter. “We want to grow that to 30 percent.”

Wait times to get visas from Brazil and China have been slashed, and the city continues to push for more countries to be exempt from needing travel visas in the first place. Since South Korea was added to the visa waiver list, Ralenkotter said the number of tourists flying in from Seoul has grown by 25 percent.

(Read moreThe next driver for Japanese stocks—casinos?)

Many challenges lie ahead. One of them is how to engage younger tourists on the casino floor. Deutsche Bank reports that slots account for about 80 percent of casino profitability, but “young people have little inclination to play slots.”

“That is true,” said MGM Resort’s Murren. While he said slot revenues were up at his company in 2013, “We have to evolve that product, and I think we will. This is a time when the gamers, the younger people who are on their smartphones, have to be addressed from a gaming perspective.”

He predicts that over the next couple of years, the industry will develop more interactive games—”games that will allow customers to be on Facebook while they gamble, while they check their fantasy sports teams, while they do games that are not the traditional slot machine games.”

Another question is whether the decade-long trend of hip clubs with ever-more-expensive DJs needs a makeover. “Will 2014 be the year for nightclub saturation?” asks a Credit Suisse report.

John Unwin wonders about that, too. He’s the CEO of The Cosmopolitan, owned by Deutsche Bank, and he said the median age of the average tourist has dropped from 50 to just under 45. “That’s a seismic shift,” he said, adding that the new Vegas visitors tend to “spend their money differently.”

This month the Cosmopolitan is opening Rose Rabbit Lie, “our grand social experiment.” The new venue is a bit of a throwback to Old Vegas, a dinner club where you can get a drink, a meal, listen to live entertainment, and dance.

“I describe it as a mashup of Club Babaloo, Ed Sullivan, Johnny Carson, the Copacabana in New York, and the Tropicana in Havana,” said Unwin. He’s aiming for what he calls “the ‘curious class'”—adventuresome tourists with money. In that vein, the Cosmopolitan is about to announce a partnership with Virgin America where members of each company’s loyalty program can earn points on the other program.

“I’d say my colleagues in Las Vegas are pretty encouraged about 2014,” said Unwin. “They’re backing that up with a lot of capital investment into the market. As are we.”

—By CNBC’s Jane Wells; Follow her on Twitter: @janewells

This entry was posted in Funny Business. Bookmark the permalink.

Leave a Reply