What does slowing Nevada gaming revenue mean going forward?

July 1, 2023 1:43 PM

What does slowing Nevada gaming revenue mean going forward?

Photo: Shutterstock
  • Buck Wargo, CDC Gaming Reports
July 1, 2023 1:43 PM
  • Buck Wargo, CDC Gaming Reports

From a surge coming out of the pandemic and despite Las Vegas visitation continuing to grow, Nevada gaming revenue has started to show slight year-over-year decreases, which raises the question: Is the boom over?

In May, Nevada’s gaming revenue at $1.28 billion was down just under 1% from a year ago, marking declines in two of the last three months. June may follow that trendline and thus far, the reasons can range from a slower economy and people’s eating into their savings to the pent-up demand from the pandemic dissipating.

Even with the overall dip in May, the Strip’s gaming revenue in 2023 is running 1.2% ahead of the first five
months of 2022. Nevada’s is 4.9% higher.

Deutsche Bank analyst Carlo Santarelli forecast a year-over-year decline of gaming revenue on the Las Vegas Strip in June of 8.1%, with about 5% related to baccarat, which faces difficult hold comparisons, for example 22.1% in June 2022. If that forecast holds true, that would be a significant drop after May Strip revenue fell only 2.1% to $715.9 million. Downtown Las Vegas dropped 6.6% to $73.6 million.

Analysts and executives aren’t hitting any panic buttons, however, based on what’s transpired since the pandemic. May gaming revenue on the Strip was 38% higher than May 2019. Despite their forecast dip, Deutsche Bank still expects June to be about 10% higher than June 2019.

Nevada, in the midst of 27 consecutive months of $1 billion and higher in gaming revenue, recorded a May revenue increase of 31.3% or $307.3 million over May 2019.

Michael Lawton, senior economic analyst with the Nevada Gaming Control Board, has warned people to be prepared for year-over-year declines over the next 12 months, but no one should see that as a concern.

“I don’t think you can look at $1.3 billion in gaming win this month and believe that demand is softening, considering this is the seventh highest total in state history,” Lawton said. “Our contacts have indicated that gaming budgets remain historically high and customer behavior has remained consistent. The main reason that the trajectory of gaming win totals are starting to flatten is due to the comparisons we’re facing.”

Brendan Bussmann, managing partner of B Global and a casino-industry consultant, said it’s been expected that the second and third quarter of 2023 would “probably have some bumps,” without as many big events and conventions to bring people to Las Vegas. Second, “macroeconomic forces” with higher interest rates and inflation continue to be at play.

“You’ll see that until you get to the fourth quarter when you start having these major events again. Then you’ll get a good bump,” Bussmann said. “I don’t think there’s anything to worry about. We’ve weathered a lot. But some of these other issues are out there. You finally have gas prices stabilizing to where they were 18 months ago, even though they’re up significantly over the last couple of years.”

Stabilizing gaming revenue, meanwhile, is coming at a time when Las Vegas hasn’t fully recovered to its visitor volume in 2019 and has room to grow, which could lead to another boom down the road.

The Las Vegas Convention and Visitors Authority reported May visitation of 3.49 million was up 1.5% from May 2022, but down 5.2% from May 2019. Citywide hotel occupancy was 84.% compared to 90.8% in May 2019 when there were 2% more rooms, according to J.P. Morgan analyst Joseph Greff. While convention attendance was 453,900 in May, a 16% increase over May 2022, it was down 13% over 2019.

“There is room to grow,” Bussmann said. “There’s still a ton of growth on the international side. We’re trying to get back some of the customers we haven’t seen return yet and new ones coming for events such as football and F1.”

The strong gaming numbers since the pandemic have meant Las Vegas visitors can spend more than their counterparts in the past.

In 2022, the average Las Vegas visitor spent a record $1,156 to boost visitor spending to an all-time high of $44.9 billion, despite the city falling 3.7 million short of 2019 visitation prior to the pandemic.

On a per-visitor basis, the $1,156 in 2022 is 3.3% higher than 2021 but 33.3% higher than the $867 per visitor in 2019. That breaks down to $1,106 for leisure travels and $1,495 for convention goers per visit.

“The visitor today is spending more and doing more with their dollar across the board, but in some cases, you’ve brought a new customer to the market,” Bussmann said.

As for the revenue, Deutsche Bank reported Strip slot handle rose 1.2% year over year in May, while table volumes fell 11%, excluding baccarat. Baccarat volumes were up 0.7% year over year, while revenue was down 0.5% year over year, as baccarat hold of 16.9% was down for the month. The 16.9% baccarat hold compares to the full-year 2022 hold of 14.7%.

Barry Jonas, an analyst with Truist Securities, said while Strip gaming fell 2% in May, mostly due to lower table drop, the data showed revenue per room rose 6.6% in May to $155, while average daily room rates rose 4.3% to $183. Room revenue is 21% higher than 2019.

“Net-net, we think results were generally in line to positive, with strong hotel performance offsetting modest Strip gaming softness,” said Jonas, who added that the room survey shows stability, with Caesars Entertainment’s room rates accelerating. “Questions around macro headwinds and tougher comps linger, though this is balanced by a very strong event calendar into the fourth quarter of 2023 (with Formula One on the Strip) and first quarter of 2024 (with the Super Bowl at Allegiant Stadium).”

John DeCree, an analyst with CBRE Equity Research, saw May in a more positive light. The 15% gaming-revenue increase on the Strip from April was in line with pre-pandemic levels. In addition, the 38.4% increase in May gaming revenue compared to May 2019 is the best monthly performance so far in 2023 when compared to pre-pandemic, he said.

“Visitation was 5.2% below May 2019. However, convention attendance was still 12.8% below May 2019, leaving plenty more room to recover,” DeCree said. “Occupancy on the Strip rose to 87%, but is still below the same month in 2019, likely due to the gap in convention attendance.”