Cooking the goose?

Nightclubs in casinos make tons of money, but they’ve flown under the radar until recently. An LV Sun editorial begs the casino industry, in the name of all that is Vegas, to rein in the doormen and bartenders of these nightspots, lest the city get a bad rep:

The river of money flowing into the Strip’s premier nightclubs has attracted the attention of the Internal Revenue Service, not to mention some unhappy patrons.

The IRS is investigating two clubs operated by Pure Management Group Pure in Caesars Palace and LAX at the Luxor looking at the possibility that club employees were hiding income from the federal government.

The top clubs on the Strip take in tens of thousands to hundreds of thousands of dollars a night. In a story in Sunday’s Las Vegas Sun, casino insiders said the amount of money that flows into nightclubs is astronomical. Because it is often cash, it is unclear where it goes and how much of it is reported.

Casino companies and nightclub owners should realize that their operations may do more than draw the authorities’ attention. The investigations have given air to patrons’ complaints. One couple profiled Sunday in the Sun told of a club where there was an expectation that a patron should hand over cash for anything from getting in to going to the head of the line to use the restroom.

The whole thing smacks of unbridled greed, and that could be worse than an investigation. The clubs may run their customers off.
Killing the golden goose? – Las Vegas Sun

That’s an interesting title. I wonder what Senator Clay Davis would say about killing the goose? He’d probably also warn us to keep the man with his hand on the faucet happy.

Posting this is my way of accepting that the best show in television is over. I won’t say canceled, because the creators of The Wire had a story to tell, and they told it. David Simon had a great farewell letter for the show’s fans where he lays out what he thinks the show has done.

Back to nightclubs: The Sun is assuming that tourists don’t want to pay too much for their experience here. As I discussed in a past post (though I’d never advocate past-posting, of course), a recent study suggests that the more someone pays for something, the more they enjoy it, regardless of its objective quality. Taking that wizz after slipping whoever superintends the bathroom line a $20 might be that much more satisfying an experience than just waiting in line like everyone else. But I can’t see that as being something that you’ll brag about back home: “Yeah, there was a huge line, but because I’m such a big shot I slipped the guy some cash and I was aiming for that urinal cake while everyone else was still waiting.”

Could part of the problem from a public policy perspective (now that’s a lot of p) be that this form of consumer spending in Las Vegas isn’t taxed at the same rate as gaming revenue, if it is taxed at all? From a utilitarian perspective, the state would want to encourage people to drop $500 on blackjack, which would accrue about $37 in tax revenue, if the alternative is them spending that same $500 on tips to doormen.

These are some of the unforeseen difficulties that innovation brings. The nightclubs are a new entertainment offering that can definitely be monetized, but how do you capture tax revenues on them?

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