Las Vegas welcomes international high rollers for F1

November 11, 2023 12:29 PM
Photo: MGM Resorts International (Courtesy)
  • Buck Wargo, CDC Gaming Reports
November 11, 2023 12:29 PM
  • Buck Wargo, CDC Gaming Reports

Las Vegas is prepared to welcome international high rollers and the jet set when it hosts the Formula One circuit this week, and operators and analysts are excited about what it will mean for the bottom line on a traditionally slow weekend before Thanksgiving and for years to come.

Story continues below

Local residents and employees on and around the Strip, on the other hand, have had to endure unending disruptions from construction and interminable traffic over the last several months that have soured them on the Las Vegas Grand Prix, which is scheduled in Las Vegas through 2032.

Not surprisingly, mere days ahead of the race, Strip casino companies reached deals with unions representing hospitality employees who will receive historic pay increases and benefit from record revenues and earnings as the industry has recovered from the pandemic. That includes the revenue boost expected this weekend, with nearly $1.3 billion in economic impact projected for the city, almost double what Las Vegas will accrue for hosting the Super Bowl in February.

“It’s the equivalent of having two Super Bowls in Las Vegas every year for the next 10 years on one of the quietest weekends,” said international gaming consultant Oliver Lovat, CEO of the Denstone Group. “For the long run, it will be well worth the inconvenience that the market is suffering. Not only will the second year be better than the first, but the third will be better than the second.”

Naysayers continue to weigh in, especially on social media, after reports of falling ticket prices and dropping room rates, questioning whether the multi-million-dollar investment by Clark County and the Las Vegas Convention and Visitors Authority is worth it. The Las Vegas Review-Journal tracked four Caesars Entertainment properties over the last year and found rates fell 75% in that span.

Strip operators and Wall Street analysts, however, remain buoyed about the prospects of the event that will lure in international visitors in numbers not seen before, many willing to bet big on roulette, baccarat, and other gaming. The Review-Journal reported that airlines have added between 14,000 and 25,000 seats because of the F1 race. That includes several special international flights.

“The Formula One races attract higher rollers and that’s what Las Vegas is all about,” said Stephen Miller, an economics professor at the University of Nevada Las Vegas. “It’s become a big daddy of events.”

Miller suggested some private jets bringing high rollers will have to land at airports in Arizona or California because demand has been so strong.

All the resort CEOs and CFOs have been touting the benefits for months during earnings calls and that has continued leading up to the three-day event that will culminate with a 10 p.m. Pacific start on Saturday.

“Our expectations for F1 haven’t changed one bit. We knew from the beginning that our customer base would be at that event,” said Wynn Resorts CEO Craig Billings. “We have more front money and credit lined up than for any event in our history and we’ve had some doozies. So this is shaping up to be a great event for us.”

Brian Gullbrants, Wynn’s chief operating officer for North America, said they’ll exceed their hotel revenue record by 50% for the three days, while gaming revenue looks promising, “some of the best we’ve ever seen.”

MGM Resorts CEO Bill Hornbuckle said they’ve sold more than 10,000 tickets to F1 and have what he called a “cool experience” at the Bellagio Fountain Club. He maintains that the money invested by properties has been worth it.

MGM’s average room rate is more than $900 and the company will do more than $60 million in incremental hotel revenue for the weekend; MGM reported credit and front money at 50% more than any other event in history. “And it’s 50% above any other event we’ve had in terms of theoretical win,” Hornbuckle said. “Now, we all know what could happen to the theoretical, but there’s been nothing quite like it and to have it placed in this particular weekend is an incredible opportunity for the company and ultimately for the city long term.”

Caesars Entertainment continues to project a “lift in the fourth quarter in the neighborhood of 5%,” the same as projected a year ago for the race impact. The race could also signal the return of international visitors in greater numbers beyond F1.

“We’re seeing a really strong return of the international customer and we think that will continue to grow this quarter with F1,” said Caesars President and COO Anthony Carano. “There’s a lot of interest internationally for both F1 and the Super Bowl and anticipation for a great New Year’s and Chinese New Year’s for international (visitors).”

Executives with locals giant Red Rock Resorts, suggested expectations of the event may be lower than they were a year ago, but it’s still a big benefit to the city.

Red Rock Board Vice Chairman Lorenzo Fertitta said from the room rates they’re seeing, it seems as though “some steam has been coming out of people’s expectations from a year ago. That said, it’s still going to be a great weekend and a positive event. We’re not leading the charge from an F1 standpoint, but we’re getting the benefit of all the people coming into town.”

Red Rock Board Chairman Frank Fertitta said his expectations are that the F1 weekend will be fantastic.
“It’s going to be great for the guys on the Strip,” Fertitta said, “a huge success. Expectations and where people were hanging rates in the early days happen all the time in Vegas.”

Barry Jonas, an analyst with Truist Securities, said F1 room rates have shown resilience at higher-end properties, while lower-end ones are seeing some deceleration. Many properties were sold out on online booking channels and their recent research showed that rates were elevated by 90% year over year for MGM and Caesars properties.

A 5% boost to Caesars EBITDA relating to the event would translate to $25 million of upside, Jonas said.
“There are questions as to whether this will be pulling forward players who come in for New Year’s Eve or the Super Bowl. Our sense is that a large chunk of the F1 fan base aren’t necessarily folks who come in for those events.”

Even if prices for tickets and rooms are falling, a lot of casino earnings from F1 will be based on high-end play rather than lower tiers, Jonas said. “Wealthy people from Europe probably want to spend on luxury properties and a better view as opposed to a mass-market event,” Jonas said. “For CES, rooms at Excalibur go for multiples of what they normally go for and I don’t think F1 is going to feel that same way. It’s going to be more of the high-end luxury properties driving the bus here.”

Jefferies analyst David Katz said casino companies have long suggested F1 should be bigger than the Super Bowl. Room rates rose 30% to 40% in cities that have hosted over the last three years.

Jefferies is modeling gaming revenue and room revenue for the fourth quarter to be 10% to 15% higher year over year and Katz called it a “very positive revenue driver” for everybody. “Ultimately, the citywide economic impact is commensurate with an event like the Super Bowl and that includes gaming, hotel, and food and beverage. But it’s a more affluent crowd. Also, the Super Bowl is confined to a seat in the stadium, while F1 has a much larger viewing audience in person and a more affluent and international crowd than you get for a Super Bowl.”

Brendan Bussmann, a casino consultant and managing partner of B Global, said since F1 has an international audience, this race exposes the city to those who hadn’t thought about attending, but now have a reason to.

“Revenues for both gaming and non-gaming will be good, thanks to the influx of people who haven’t necessarily come to Vegas,” Bussmann said. “F1 has continued to grow in popularity is making its mark in the world for auto racing, and it’s great Vegas can be a part of that.”

The long-term effect of having F1 in Las Vegas helps turn it into one of the major cities of the world with its profile and sports, joining Monte Carlo, London, and Singapore, Lovat said. “It elevates Las Vegas into a new stratosphere,” Lovat said. “We used to call ourselves the Entertainment Capital of the world, but in truth we were hyping ourselves, whereas Las Vegas stands today as the truly dominant entertainment capital of the world.”

Josh Swissman, founding partner of GMA Consulting, said well-heeled international visitors expect a high level of service and that’s why any strike had to be averted. It’s in the interest of operators and the unions to make sure F1 is done right the first time. It’s not a surprise the labor deals were struck just before F1 and at the end of earning’s season.

“You get only one chance to make a first impression and I think both the unions and hotel operators are aware of the positive impact on the city this would have,” Swissman said. “There’s not much that goes on in Las Vegas that attracts that number of high-end customers all at once. All of the big operators on the Strip are sharpening their skills and tightening up their game when it comes to servicing those high-end guests. Not only will they have to be great in terms of service delivery, but they have to do it on a whole new scale. That’s a pretty important piece of the equation, particular for a long-term success for the city.”

The arrival of F1 continues the diversification of the city, with sports driving the advancement beyond traditional gaming, Jonas said.

“We’re bullish on F1,” Jonas said. “This event will be repeated for a number of years and each year there will be improvements and a better understanding of how to maximize profitability and efficiency and make it a better experience. It’s an exciting event and probably only gets better with time.”