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.