Recently, the Las Vegas Review-Journal published a story by McKenna Ross with the headline: “How can some Vegas hotel rooms be so cheap?” The article cited room rates on the Las Vegas Strip ranging from $20 to $30 midweek in January and February. It listed Caesars, Excalibur, Flamingo, and the Rio as advertising very low rates.
Ross recounted some of the history of bargains in Las Vegas intended to draw gamblers to town. It was a winter strategy once, but the city has replaced it with events: the Formula 1 Race, the National Finals Rodeo, New Year’s Eve, and Consumer Electronics Show. Each brought hundreds of thousands of free-spending tourists to town, and the Super Bowl is coming up. The events strategy works. The average room rate in Las Vegas in November was a record $249 with an occupancy of 82 percent; there were 3.7 million occupied rooms during the month.
Ross wondered how the low hotel rates fit into overall pricing strategies. She wrote that the average meal in a restaurant in those hotels costs more than the room rate, not to mention the resort fees that can be as high as $50 per night. It is not easy to understand the underlying thinking. None of the hotels in question stepped in to explain the prices, nor to defend the other prices and fees a visitor would have to pay.
Seeking an answer, Ross interviewed a professor from the University of Nevada Las Vegas, Mehmet Erden. The professor said, “We look at the total revenue generated per guest,” Erden said. “Maybe a customer is paying only $18 a night plus resort fees, but then he’s dropping $1,000 at the tables.” That is an interesting comment in the context of the 21st century. It has a 20th century ring to it, mid-century at that.
In the summer of 1978, five new hotel-casinos opened in Reno, adding several thousand rooms to the market. By winter, it was clear that there were more rooms than people wanting to sleep in them. Enter a price war. Circus Circus started it, its business model built on 95 percent occupancy. As long as the rate kept the hotel full, the price did not matter. It was a Las Vegas model, but all the new properties knew that they needed people in their rooms to fuel casino revenues. When the war began, room rates were around $25, but by December, the rate had dropped and several properties were advertising $8 rooms.
Casino and hotel management in 1978 was not as sophisticated as it is in 2024. CFOs with advanced degrees in business administration were unknown. However, the phrase that one player dropping a $1,000 will pay for everything was well known. In the late 1970s and early ’80s, it was used to justify $3 steaks, unlimited buffets for $5, free parking, drinks, and cigarettes. Late at night when business had fallen off completely, pit bosses were fond of saying, “Keep those tables open. One player could come along and drop a grand.”
It could happen, only not happen often enough to justify the pricing or staffing strategies of the time. Eventually, accountants began to get a hold on management and establish some sound policies. But even before the green eye shades and accounting ledgers conquered the industry, the Neanderthal managers had learned a very important lessons: There is a direct ratio between the price people pay for a meal or a room and the amount they are willing to wager in the casinos.
Bargain-basement shoppers are equally cautious with their gambling dollars. The Comstock Hotel, or the Starlight as William Douglass calls it in a novel by the same name, discovered that fact early in the game. In that first winter when its room rates hit $8, casino management discovered, by accident, that cheap rooms bring cheap customers. An observant employee noticed that some of its customers rode skateboards to the hotel. One of the skateboarders checked into an $8 room. Later, other skateboarders arrived and went straight up to the room. Dozens and dozens of them partied late into the night before skateboarding home.
None of the skateboarders lost $1,000, or even $1, at the blackjack tables. The Starlight managers learned that it took at least a $20 room to generate any casino play. That was 1978. Today, that number is considerably higher. Eventually, the Starlighters also accepted the fact that a $3 steak was the same as an $8 room. A $6 steak, however, functioned just like the $20 room, bringing in more and more gaming revenue. In fact, over time, it became apparent that there was a direct correlation between room rates and gaming revenue: The higher the rate the greater the gaming revenue.
That was a long time ago and I have not been in casino management for many years. But I would hazard a guess that some things have not changed all that much. A very cheap room may be too cheap. Very few gamblers willing to lose a $1,000 in the casino are tempted to come by an $18 room.
