REAL-TIME SLOTS: Self Inflicted
by John-Martin Meyer
February 2, 2009
Here's why the Las Vegas Strip is no longer recession proof
As
the post holiday Las Vegas Strip gaming statistics are being posted, the
results are falling in line with the current dismal national economic
environment. In the not so distant past, the Las Vegas Strip would have been
affected, but far shy of reaching the same levels as the “real world.”
This recent development
has the outsiders and analyst scrambling for causation. Their challenge
revolves around the manner in which they must acknowledge that they witnessed
the disintegration of the Strip’s economic foundation, and in some cases,
encouraged it. This paradigm change was out front in the open but instead of
speaking up about the king’s new clothes; the majority jumped on the bandwagon
and just called it, “Las Vegas
reinventing itself.” The foundation, to
which I’m referring, is the value proposition that once was Las Vegas.
The old; “take care of the
player and the player will take care of you” approach, or the, “never let them
leave empty handed” rewards programs, or the, “remember that we are in the
entertainment business, so make their gaming experience memorable and they’ll
keep coming back,” and the long lost, “no matter their budget, make them all
feel like high rollers.” This tradition
was quickly traded for short-term gains by those who were once
spectators.
As the resorts became more
elaborate, their corresponding debt servicing requirements increased, along
with the influence of those overseeing the finances of the operations. The turn
of the century brought the most significant change in Las Vegas management roles. The accounting
and finance executives emerged from the shadows of the very important roles of
safe guarding company assets, to dictating operational doctrine. Those who have
never sat at a table with a blackjack player, or walked the floor shaking the
hands of the slot players, or had any direct customer service contact, were now
dictating limits on what was permissable,
to those who have spent careers building relationships and the Strip’s
image. Legitimately, there was a need
for a “reining in” of the complimentaries being extended a marginal few, but
the baby went out with the bath water.
What started as
well-thought-out programs, to create full customer profiles and to award the
appropriate levels of complimentaries, was then turned against their primary
function. At first, the players were not
very vocal and grudgingly accepted the changes. And that’s when short-sighted
decisions began to be made to tighten the screws a little more.
While this experiment
was evolving into policy, those operational staff members, in the trenches with
the guests, were shooting up flares of SOS.
They were hearing the foreboding laments of guests who were spelling out
the future; if you make it too expensive to come to the Strip, we will cut
back.
In Biology 101, we are
taught that if a frog is placed in a pot of water and the temperature is
gradually turned up, the frog will not notice and will stay in the water until
it boils. But if a frog is dropped into boiling water, it will immediately jump
out.
The Strip bean-counting
types started with the water on simmer and some of the more sensitive frogs
jumped, but most enjoyed the hot tub. The problem came over the last three
years when patience was abandoned and the heat was cranked. The heat, in this
case is the ever tightening complimentary policies. Outside analysts were
heaping praise on those operators who were “increasing their margins” not
knowing the correlating heat was driving the frogs from the Las Vegas market to
those closer to homes. Now that the
operators were under the Wall Street pressure to perform like the others who
turned up the heat, in turn, started boiling their frogs. The savings were
huge, margins rose, but the market contracted.
At the same time we were
saving our way to synthetic success, another group, void of gaming operations experience,
saw a second “opportunity.” They
thought, “our price points seem low so why don’t we bring them more in line
with the rest of the country.” When the
complimentaries were drying up, the players at least felt that they had the
enticing restaurant and room price points, to which they could fall back and
rely. Unfortunately, this time frame coincided with the emergence of the new
and improved Strip with its ultralounges, branded high[end restaurants, and
all-suite hotels. All good as high-end amenities, but not as the standard to
which the more common amenities were compared for pricing purposes. These
ever-increasing benchmarks were eating up the guests’ trip budgets and reducing
their gaming portion.
For all those ranting at
this point, we need to get back to some basics. The Strip did need to make
economic adjustments to increase revenues as well as create more comprehensive
complimentary analysis programs. A
generation gap was emerging and the pendulum was not slowly moving toward equilibrium
or balance. It was stuck to the, “we
have done it like this forever, and it work so don’t change it” mode. It needed
to gradually move, but was flung past center to the other extreme. Like any extreme the approach brought both
good and bad results. In the short term,
Wall Street kudos increased the stock value of the major operators. In the long term, it caused the reduction of
up to 90 percent in the value of many of the same operators.
But Vegas will always be the only adult amusement
park in the galaxy, and it will always draw the guests. Some incredibly insightful men and women have
done an amazing job in creating a one-of-a-kind environment, which will always
have the allure. What we need to do is fulfill the promise of the city’s
mystique and remember that in business, as in life, moderation in change is the
key.
John-Martin Meyer
has held director
positions in major casino properties such as the Grand Victoria in Illinois and
the Excalibur on the Las Vegas Strip during his 20-year gaming career. His work within the Mandalay Resort Group
provided valuable experience in several majorjurisdictions. He can be reached by
e-mail at j-mmeyer@mindspring.com, or by phone
at (702) 373-7758.
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