Caesars Entertainment CEO Tom Reeg believes that sporting events and entertainment are bringing in higher-end customers and displacing lower-tier players in Las Vegas, a trendline that will boost the financial performance of casino operators in the future.
Reeg made his comments Tuesday during a first-quarter earnings call in response to a question from a Wall Street analyst citing fears of investors that Las Vegas will peak in 2023; will it ever be surpassed?
Caesars reported a record first quarter for adjusted earnings in Las Vegas and near an overall record.
When Eldorado Resorts took over Caesars in 2020, the total brick-and-mortar assets were doing $2.9 billion of trailing EBITDA, Reeg said. At the end of this past first quarter, Las Vegas alone was worth a little more than $2.1 billion, while regional properties added a little less than $2 billion. Reeg said he sees total EBITDA “pushing toward” $5 billion in 2025 as they target higher-end customers.
“We all know that back in our parents’ days, it was a very different market — low value and eating steak and lobster for a couple of bucks,” Reeg said. “Now you’re talking about one of the best food and beverage scenes in the world and among the best sports and entertainment in the world, and we’re continually adding to that. MGM, Wynn, (and others) are all working to up-tier what we’re offering the customer. I have to give credit to the (Las Vegas Convention and Visitors Authority CEO Steve Hill) for bringing Formula One here. It’s going to be huge for the market. It’s foolish to bet that the 30-year cycle will all of a sudden be over a quarter from now.”
Reeg cited the Raiders, Formula 1, the return of conventiongoers and now the potential of the MLB’s Las Vegas A’s as bringing better-than-average customers.
“You’re bringing in higher-value customers and you’re already full, so you’re kicking out the lowest end,” Reeg said. “I see no reason that needs to or would stop. This market has done a great job over the 30 years I’ve been around gaming and continues to add reasons for people to come and add capacity.”
Las Vegas room rates continue to set record levels with the strong demand from higher-tier customers. The $228 average daily rate on the Strip in March was 59% higher than the $144 rate in March 2019. Gaming revenues are near their record highs despite fewer visitors.
In 2022, the average Las Vegas visitor spent a record $1,156 a trip, 33% higher than 2019, to boost visitor spending to an all-time high of $44.9 billion, despite the city still falling 3.7 million short of 2019 visitation levels prior to the pandemic.
“Looking at Vegas now, all of us are pretty full. We’re all doing well. Occupancy rates are quite high and it’s natural to ask, how do you get better? You get better by up-tiering the average customer coming to the market. That’s what you can see at Caesars with what’s happened over the last three years. It’s the expense discipline, but also the better average customer.”
Reeg addressed a question about the A’s relocating to Las Vegas, given the announcement last month of its plans to build a 35,000-seat domed stadium with a retractable roof that would be open by the 2027 season. The team has an agreement to buy 49 acres from Red Rock Resorts on the west side of I-15 along Tropicana Avenue. The concern is over the team seeking $500 million in public funds.
“It’s exciting to see the market continue to develop,” Reeg said. “We welcome the announcement. It’s similar to (what MGM Resorts CEO Bill Hornbuckle) said yesterday. It’s important to us that their coming is done in a manner that doesn’t unnecessarily tax the county or have taxes that eventually get passed on to our customers. We think there’s wood to chop there, but we’re thrilled at the idea of the A’s coming to town. It provides another reason for customers to come and visit and we’re going to get our share of those customers.”
