Bill that could force resort companies to advertise hidden room costs scrutinized by gaming investors

September 30, 2019 10:00 AM
  • Howard Stutz, CDC Gaming Reports
September 30, 2019 10:00 AM
  • Howard Stutz, CDC Gaming Reports

The investment community is watching a push by Congress that would force hotel companies to advertise resort fees and other add-ons along with the daily room rate, a change that could target resort operators on the Las Vegas Strip and other gaming destination markets.

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The bill, introduced in the House by a Democratic congressman from Texas and Republican congressman from Nebraska, is in response to a hotel industry practice of adding resort fees to the room bill, which cover the use of incidentals, such as in-room Wi-Fi, room safes, and fitness centers.

In Las Vegas, resort fees have become a source of concern for the tourism industry, which worry added costs are driving up room rates on the Strip between $15 and $45 per night and could slice into visitation.

“The bill, if successful, will have an impact on the larger scale Las Vegas Strip operators, namely MGM Resorts International and Caesars Entertainment,” Deutsche Bank gaming analyst Carlo Santarelli told investors last week.

Morgan Stanley gaming analyst Thomas Allen said in a Sept. 26 research note that resort fees have been a hot topic this summer. Attorney generals in Washington D.C. and Nebraska are currently suing Hilton Hotels and Marriott International for not properly disclosing resort fees.

“The lawsuit asked for the chains to advertise the fees upfront, pay money to consumers harmed by the fees, and pay civil penalties,” Allen wrote. He said Las Vegas hotel-casino operators, lodging industry real estate investment trusts, and lodging corporations face the largest risk.

“We believe that if resort fees were put into upfront pricing, they would impact revenue somewhat,” Allen said, adding that resort fees account for roughly 3% of revenue and 10% of cash flow for Caesars and MGM Resorts.

The Federal Trade Commission proposed upfront resort fee disclosures in 2016, Allen said. At the time, he estimated lodging companies would lose 25% of resort fee earnings.

The current lawsuits asked Hilton and Marriott to advertise the fees upfront, pay money to consumers harmed by the fees, and pay civil penalties.

The Hotel Advertising Transparency Act of 2019 is sponsored by Rep. Eddie Bernice Johnson, D-Texas, and Rep. Jeff Fortenberry, R-Neb. If passed, the bill would allow the FTC and states to force hotels to advertise the resort fees.

Santarelli said it was difficult to quantify the impact of how showing the full posted rate would have on demand for hotel rooms. He said resort fees benefit hotel operators and not online travel agencies, which only earn commission from just the posted hotel room rate.

He said online travel agencies represent between 20 percent and 25 percent of the hotel rooms sold for the 18 Strip resorts operated by MGM and Caesars. The companies could see a cash flow impact of between $10 million and $15 million annually due to increased commissions if the room rate plus resort fees were posted.

“The bill, as one would expect, calls into question the fairness of the disclosure of the resort fee, given that it is a mandatory charge that is not always transparent in the advertising of the rate,” Santarelli wrote.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.