Analysts confident in strong 2023 for Las Vegas

January 2, 2023 7:39 PM
Photo: Shutterstock
  • Buck Wargo, CDC Gaming Reports
January 2, 2023 7:39 PM
  • Buck Wargo, CDC Gaming Reports

It took Nevada and the Strip only 11 months in 2022 to break their 2021 records for all-time gaming win, and industry experts remain confident in a strong 2023, despite ongoing concerns of a recession and lingering inflation in the economy.

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Setting another gaming revenue record in 2023, however, will be difficult, even in a year that will benefit from a boost in conventions and international travel, along with the Las Vegas Grand Prix in November.

Through November based on numbers released Thursday by the Nevada Gaming Control Board, the state’s casinos have won $13.5 billion in 2022, already surpassing the $13.4 billion for all of 2021. It’s the same story on the Strip, with gaming revenue of $7.5 billion through November, 16.3% higher so far and already surpassing the $7.1 billion for all of last year.

Few are willing to predict that 2023 will break the 2022 record, given that monthly comparisons are getting tougher, as evidenced by November’s gaming win of $1.22 billion that continues a streak of 21 consecutive months in excess of $1 billion in revenue, but down 7.62% or $100 million year over year. Rather, analysts said a decline in gaming revenue in 2023 wouldn’t be unexpected, citing rising interest rates and a slowdown in the economy.

Michael Lawton, a senior economic analyst for the Nevada Gaming Control Board, said the Board expects that 2022 “will be the peak” for statewide gaming win and that 2023 could experience low-single-digit declines.

“As we move into the first quarter of 2023, gaming win amounts should continue to increase over 2022 driven by the Strip, which is hosting various distinctive special events and conventions throughout 2023,” Lawton said of the Board’s assumptions. “However, looking at the back half of the year, we are anticipating two conflicting variables to converge: an incredible special-events calendar; and a moderation in the current levels of gaming win, due to a possible pullback in consumer leisure spending as a consequence of inflation, rising interest rates, and volatility in the stock market.”

Brendan Bussmann, managing partner of B Global, said he expects the pattern of surpassing $1 billion in gaming revenue a month to continue into 2023, which will “become the new norm.” He said, “There’s a lot of runway for Las Vegas to start 2023 at full strength,” with the return of CES, previously known as the Consumer Electronics Show, on Jan. 5-8. CES is expecting 100,000 attendees, up from 45,000 in January 2022, but down from 180,000 in 2019 prior to the pandemic.

Travel to Las Vegas continues to pick up; the 4.6 million passengers going through Harry Reid International Airport in November set a record for the month. Through November, the airport has served 48.3 million passengers and is on pace to break its all-time record of 52.5 million passengers set in 2019. The al-time monthly record was set in October, when 5.2 million people traveled through the airport. There’s room for growth; the 237,980 international passengers were 99.4% higher than November 2021, but down from 305,297 in November 2019.

The one negative travel stat has been vehicle traffic from California amid higher gas prices. The 48,076 vehicles a day at the state line on I-15 are down 7.2% from November 2021.

For the year, hotel occupancy at 79.2% is an increase of 66.3% for the first 11 months of 2021. That has room to grow against 89.2% occupancy through 11 months of 2019, but it has been strong in recent months with room rates setting records. Hotel occupancy in October set the highest mark since November 2019 at 87.7% and October weekend occupancy at 94% hadn’t been seen since February 2020. The average daily room rate of $210 in October shattered records.

Las Vegas hosted 4.71 million conventioneers through November in 2022, more than double the 2.07 million through the first 11 months of 2021. It was 6.2 million through November 2019.

“In 2023, we will have a full calendar as it relates to meetings and conventions that we didn’t have in 2022, so to that extent it should be good,” Bussmann said.

Josh Swissman, founding partner of The Strategy Organization, said, “It’s been a gangbusters kind of year” for Las Vegas.

Some forecasters are predicting the economy will slow down; interest-rate hikes by the Federal Reserve and that could impact travel and tourism.

“I think we will see a little bit of the negative impacts in terms of the interest-rate changes, but I don’t think they’ll be so dramatic where we see a reversal,” Swissman said. “I still think we’ll see some growth with regard to 2019 and 2020 and perhaps 2021.”

As for gaming revenue surpassing 2022, Swissman said he never thought this year would surpass 2021. “I’d like to think we’ll see some records set in 2023, but what you might see is a slowdown in the percentage of growth. I don’t know if those huge double-digit-growth percentages will be as plentiful in 2023 as we saw in 2022.”

Swissmann is especially bullish on the Strip, which has yet to “feel some tailwinds” with the convention segment bouncing back and international travel returning to where it was in 2019. “Those the two market segments have the longest correction time after COVID started to die down and restrictions started to lessen,” Swissman said.

Bussmann said it’s important to keep an eye on geopolitical events and any impact from the rising COVID cases in China will have on the U.S. and the rest of the world.

“I’ve been concerned for a year about economic conditions. We’re still not back where we were with supply-chain issues, inflation is still out of control, and there’s still concern about fuel prices even though they’ve subsided,” Bussmann said, tempering some of his optimism.

A forecast for 2023 by economic professor Stephen Miller, director of research at the Center for Business and Economic Research at UNLV, said gaming revenue and hotel occupancy will level out in 2023 as the nation deals with rising interest rates and a slowing economy. He predicts a 1.7% decline in visitation in 2023, a 1% decline in gaming revenue, and 0.3% decline in hotel occupancy.

“Gross gaming revenue will likely return to pre-pandemic trends as savings and discretionary income return to where they were before COVID-19, adjusted for higher wages and inflation,” Miller said.

Miller said the one caveat to his prediction is the F1 race that could boost those numbers by the end of the year.
The other caveat would be some new outbreak of COVID that dampens travel and tourism, he said.

During their third-quarter earnings reports, gaming executives were optimistic about the Strip, saying they were setting records to start the fourth quarter and that bookings for the rest of 2022 and into and 2023 are strong, especially when it comes to the return of conventions and international travelers.

Executives said inflation and high gas prices haven’t impacted spending by visitors. Like others, they’re also counting on strong visitation for the Las Vegas Grand Prix to boost the fourth quarter of 2023.

Not everyone, however, shares the same level of optimism for 2023, especially after the weather-related flight delays and cancellations over the Christmas holidays that have ignited a firestorm.

Andrew Klebanow, principal at C3 Gaming, said that up until this week, the prognosis for Las Vegas in 2023 “looked great.” The city’s calendar of events, strong average daily room rates and occupancy trends had led operators to believe in a very favorable outlook.

“The Christmas meltdown of Southwest Airlines has me concerned,” Klebanow said. “It illustrates a key vulnerability to stable growth in tourism. Southwest is the primary air carrier to Las Vegas.”

As many frequent travelers may have observed over the past year, the airline “long known for its reliability has become brittle,” Klebanow said. Flight delays and cancellations had been increasing since the post-pandemic rebound.

“Its route network shattered this past week and it remains to be seen how quickly it can recover. Let’s not forget that CES starts next week,” Klebanow said “The fortunes of Southwest Airlines and Las Vegas tourism are intertwined. Let’s hope this past week’s events are an anomaly and not signs of a more systemic problem.”

No one has raised concerns about the dip in gaming revenue in November compared to November 2021, when a record was set.

Bussmann said Nevada continues its resiliency against strong economic headwinds with what he called “a solid month and solid year” of gaming revenue surpassing 2021 with a month to go.

“While there’s ebb and flow in some of these numbers, specifically sports betting and the Strip, I don’t see anything that should cause immediate concern as to longer-term trends,” Bussmann said.

Bussmann said Vegas is still viewed as the place to escape, have a great time, and do business. That’s driving the strong visitation and gaming numbers.

“The resiliency of the destination continues to be there,” Bussmann said. “What we build into place with events and other things along the way makes it very special. It’s one of the few places in the world you can do this. Allegiant Stadium has absolutely played a part. It’s become one of the true success stories as it relates to stadium development that most towns can’t pull off. You would have recovered without it, but the number of events it has brought in has helped cushion visitor returns in a much more profitable way. A year from now, we are six weeks away from hosting the Super Bowl.”

Swissman said people have had to stretch their money further because of inflation, higher gas prices, or reduced incomes. In the end, Las Vegas has “typically won in that situation,” because the room rates on average compared to other locales like New York, Chicago, San Francisco, and Los Angeles are good value.

“While people might not go to places like New York as frequently right now, they still come to Las Vegas, because there’s great deals to be had,” Bussmann said. “People still need to travel and have fun. Even if you’re being a little more frugal, the travel budget is one of the last things to get eliminated. It might be downsized, but you can still find a way to go to Vegas. And it’s easy to get to Vegas, whether you’re driving in from California or Arizona or flying in. People need to get out and blow off steam and it represents the right value to do that and not feel like you’re blowing through your budget. That’s why you’re still seeing Vegas react as strongly as it has and I don’t think that changes next year even in the case of economic pressure.”

Lori Nelson-Kraft, SVP of Communications for the Las Vegas Convention and Visitors Authority, said, “We’re entering the new year with optimism after experiencing a strong comeback for Las Vegas in 2022 that included the restart of international travel and continued recovery of the trade-show industry. Group demand continues to improve year over year and nearly all of our trade-show partners report steady growth in convention attendance. Las Vegas kicks off a strong trade-show calendar year by hosting CES, the most influential tech event in the world, with an anticipated 100,000 attendees. 2023 also marks the start of the Las Vegas Convention Center’s $600 million renovation of its legacy campus to further grow business travel to Las Vegas.”

Michael Lawton doesn’t think November being down year over year gives any insight into 2023. November declined due to a difficult comparison for the state and the Strip, which still had the third highest totals all time for both.

Lawton pointed out that the Strip’s slot win was an all-time record and slot win in several markets outside the Strip were up year over year in November.

“This month’s games win was soft compared to last November. However, the majority of that decrease for markets outside of the Strip can be attributed to low sportsbook hold,” Lawton said. “The Strip’s games-win decrease was impacted by lower sportsbook hold as well, in addition to an off baccarat month, which can be expected.”

Nevada sportsbooks won $37.7 million, down 47.7% or $34.3 million on a hold percentage of 4.1% versus 6.6%. Sportsbook wagers totaled $928.2 million, down 14.5% or $158.0 million versus November 2021 when $1.1 billion was wagered statewide which was the second highest total all-time, Lawton said.