With that, we had the good fortune to have Loveman give the opening keynote address at the Southern Gaming Summit last month. With projects in Tunica, Biloxi and multiple markets in Louisiana (not to mention the much more challenged market of Atlantic City), Caesars has a front-row seat for what ails the American casino industry. But with growth stories in urban markets and a record of success in New Orleans, Caesars is also well in tune with how to develop the last unclaimed piece of American casino location opportunity: Cities.
The background, per Loveman: We saw a tremendous rise of gross gaming revenues from the $15-$20 billion range to $37 or so billion, until the financial crisis in 2008. Atlantic City has sustained a 36 percent decline from peak revenue levels; Tunica has taken a similar-sized hit.
“This has been the result largely of significant declines in visitation,” he said. “We’ve seen very substantial declines in the number of people coming into these facilities.”
Loveman sees the industry as still caught up in “a historic and now anachronistic view of its development. This was an industry that used to be illegal…from that came the view that we are always in the business of excess demand. That we always have too little supply and the next new casino will always be the next great thing. I would suggest to you that those days are over in the vast majority of markets.”
Still, people who are invested in mature, declining markets, particularly politicians and the media, won’t let go. “I have people ask me routinely in markets that are experiencing significant decline in activity like Atlantic City, ‘When’s the next big project going to open?’ By any economic principle, that is the last thing that one would imagine being productive,” said Loveman.
He used Revel as case in point: “All of its revenue came at the expense of the incumbent facilities. It weakened the industry return on invested capital terribly. Everyone who invested in the project wound up in a structured bankruptcy; hence the appetite for investors to go into Atlantic City has only worsened.”
But tremendous opportunities for growth remain, and the good news is it’s where people already live, work and play in large numbers. “We now see the emergence of something called city-integrated resorts or urban casinos,” said Loveman. “You see the arc of our industry beginning with destination casino resorts in Nevada, places where people would go from a very long distance to visit for two or three days at a time, through to economic redevelopments zones in the Midwest or suburban areas where politicians thought it best to put gaming for purposes of economic regeneration.”
The action has moved to places like Cleveland and Cincinnati, Boston, Baltimore, and potentially, Toronto, where casino gaming is coming to the urban core of great American and North American cities. “The proposition behind these facilities is fundamentally very different,” said Loveman. “Rather than a destination resort where the idea is to have everything you need to live for a very long time within the doors of the facility, these facilities exist within the context of a vibrant, dynamic city, and in that city we will be one part of what it is that attracts guests. We’ll offer one or two or three of scarce services that only we are licensed to provide, but a number of other things are available to you elsewhere.”
Caesars’ success with Harrah’s New Orleans, originally resisted by the locals and now fully partnered up with local hotels, restaurants and nightclubs, is the model. “Over a period of time, people have realized that having over 15,000 guests per day come into the facility was the best thing that could have happened,” said Loveman.
In Cleveland, Caesars built a casino with very little else inside apart from modest food offerings. The company looked to existing providers of food and beverage, parking, night clubs and hotels in the area around downtown Cleveland to be its partners. Partnerships were extended to include pro sports teams and even the Cleveland Clinic health care facility. Results: Occupancy rates in downtown Cleveland hotels have gone from 63 percent to 80 percent and RevPAR is up $24 per year and $3 billion has been spent at restaurants as Caesars has brought almost 5 million people downtown.
“In a period where returns on invested capital in the casino industry have been low, the efficiency of this model is very substantial,” said Loveman. “Our partners pit their capital and their resources to work in the area around our facility and benefit from it accordingly.”