If you read the New York Times, you might have read yesterday’s edition (Sunday, 12/26/04). If you read yesterday’s edition, you might have read the business section. If you looked at the front page of the business section, you might have started reading a below-the-fold story entitled, “Is there Life After Blackjack? Ask MGM.” And if you kept reading after the jump to page 4, you might have read a few words by your humble blogger.
From the NY Times:
JAMES J. MURREN doesn’t play the tables or slot machines. But boy, does he love to gamble.About two weeks ago, Mr. Murren, the president and chief financial officer of MGM Mirage, the $4 billion hotel and gambling behemoth, was holding forth in his office here at the Bellagio, surrounded by antique slot machines and talking about his latest bet the way a high-roller might recount the story of a big hand.
The future growth of his company, he proclaimed, has little to do with gambling. So instead of developing a new megahotel and casino, he is spending some $3 billion of the house’s money on a major real estate play to transform 66 acres on the Las Vegas Strip into a mini-Manhattan. Think condominiums, boutiques, restaurants and movie theaters, all within walking distance.
“You won’t see a Wal-Mart, but you will see Whole Foods,” Mr. Murren said, briefly gazing into his hallway, where part of the movie “Ocean’s Twelve” was filmed. “The days of building the Bellagios and the Wynns are over,” he added, referring to Steve Wynn’s newest hotel and casino, which does not even open until April.
Mr. Murren, whose company is about to complete its acquisition of Mandalay Resort Group and with it control of the city’s most celebrated casinos, stands at the epicenter of the gambling universe. So why does he seem so determined to wager on virtually everything but gambling?
The answer reflects a new Las Vegas truism: The house may always win in blackjack, but the margins there aren’t nearly as good as they are for $10 glasses of Grey Goose and tonic water or a $125 ticket to a Cirque du Soleil performance. Indeed, a quick look at MGM Mirage’s revenue shows that the longtime economics of Las Vegas – give away the food and entertainment to get people gambling – have been turned on their head.
“If you were to look at our company – putting all the pieces of it together – 10 years ago about 65 percent or maybe more of our revenue would have been from gaming and 35 percent would have been everything else,” Mr. Murren said. “Today, only about 44 percent is gaming. And I bet that if you give us less than 10 years, the whole thing will have completely reversed: 35 percent will be gaming and 65 percent will be nongaming.”
That is not to say that gambling is a losing business proposition – in fact, revenue is up. It is just that nongambling revenue has risen a lot more. Consider that the average visitor to Las Vegas last year spent $193.92 on food and drink, $254.18 on accommodations, $83.53 shopping and $44.79 on shows for a total of $576.72 over about four days, according to the Las Vegas Convention and Visitors Authority.
By comparison, the average visitor who gambled – about 89 percent of visitors, but that number is steadily dropping – had a “gaming budget” of about $500, meaning the maximum amount they were willing to lose. And those figures encompass the entire Strip, not just the high-end properties that offer visitors plenty of other ways to spend their money.
Given the trend, Las Vegas may have to reinvent itself again. Part of the problem is that it may have simply run out of new gamblers. “I think there has been a realization that the market for gamblers coming in on Thursday and flying out on Sunday is finite,” said David G. Schwartz, coordinator of the Gaming Studies Research Center at the University of Nevada Las Vegas and author of “Suburban Xanadu: The Casino Resort on the Las Vegas Strip and Beyond” (Routledge, 2003).
As Mr. Murren acknowledged, “No one says, ‘Let’s go see the next 300 slot machines at Monte Carlo.’ “
The New York Times > Business > Your Money > Is There Life After Blackjack? Ask MGM
That’s a decent quote–not quite as profound as some of the other I said, but hey, any ink in the Sunday Times is good, right? But I pop up again at the bottom of the article, sounding an uncharacteristically pessimistic note, maybe:
But the real question will be whether having people living on the Strip will be as profitable as having people jet in for the weekend. Mr. Murren, who had McKinsey & Company study the situation for months (“We spent a fortune on those guys,” he said), said residents would eventually prove to be more profitable than visitors.Others are less sure. Mr. Schwartz of the University of Nevada Las Vegas says he goes to the Strip when he has guests in town. “Other than that, it’s rare.”
Now, I’m not an ingrate or anything–I had a great conversation with the writer, who seems like a really cool guy, and it was a privilege to be quoted, but I do have something to say.
But I think that this is a perfect example of how journalists write stories. To balance out the obviously favorable slant that Murren and company put on the project, the writer needed a contrarian voice. Unfortunately, when giving my professional opinion of the project, I said that it was the next step in the evolution of the Strip, and actually had a precursor as early as the 1950s, when the Desert Inn built the Desert Inn Estates–high-income housing–along their golf course. I actually spent several pages of Suburban Xanadu talking about the links between casino operators and suburban developers.
So, out of a twenty-minute discussion, my admission that no, I don’t often go to the Strip, gets used to refute months of careful study. For the record, if there was a Whole Foods market on the Strip, I’d go kind of often, and if there was a Trader Joes, I (and every visitor from Hawaii, I’m sure) would go regularly. If apartment or condo units in the City Center project are affordable for a low-level state employee like myself, I’ll be happy to live there (if parking isn’t a hassle).
Also, it’s Dr. Schwartz, not Mr. Schwartz…I don’t usually insist on it but in this context I think it’s appropriate.
If you think about it, there’s not much reason for me to spend a lot of leisure time on the Strip as it is today. Let’s run through the checklist: gambling? nope; shopping? give me a break; fine dining? not my first choice for fun; drinking? not really. About the only thing to draw me to the Strip is the nightclub scene, and even then that’s only when I sense that, somewhere, a bachelorette party needs some entertainment. Of course, my readers know that I go to the clubs sometimes: I’ve even been photographed at the Moorea Beach Club. But such occasions are, much to the chagrin of bachelorettes out on the town, becoming increasingly rare.
The bottom line of all this? Last Friday, the Amazon sales rank of Suburban Xanadu was around 185,000. Today, it’s 15,000.
Coincidence? Probably not. So, though I would like to have been quoted more extensively with reference to my historical study of the gaming industry, I’m grateful to Andrew Sorkin, the author of the NY Times story, and I’d be happy to take him on my mildly subversive tour of the Strip if he’s out here to research another story.