Each time the gaming industry in the United States has evolved, Las Vegas casinos have changed to cash in on new demand; That dynamic is in play once again — as Vegas diversifies even more into an entertainment and sports destination, while gaming continues its nationwide expansion — with huge implications for casino development on The Strip.

By 2020, billions of dollars will be spent to open not only three major casino-hotels, but also to expand the Las Vegas Convention Center and to build a stadium for the National Football League’s Raiders franchise and a performance venue from Madison Square Garden.

Las Vegas Prepares for Another Turning Point

Dr. David Schwartz, a historian and professor at the University of Nevada-Las Vegas and director of UNLV’s Center for Gaming Research, has chronicled Las Vegas’ history of reinvention in a recent Forbes column, where he has also tracked key issues like sports betting and the construction boom on The Strip. The city’s pivot to toward more non-gaming attractions fits with previous actions, he said.

For example, in the mid-1950s, Las Vegas casinos were going bankrupt due to overbuilding, and the city opened the Convention Center to welcome business travelers and fill rooms during the week. Recessions of the late ’70s and early ’80s caused casinos to develop properties and experiences for middle-market gamblers, not just high rollers. By the 1990s, Vegas was more family-friendly.

More recently, Las Vegas has adapted to post-recession life when the growth of gambling in the market has slowed down. In the downturn after 9/11, Vegas pivoted toward the nightlife-focused “What happens here, stays here” marketing position. And following the Great Recession, casinos sought to recruit international high rollers, like Chinese baccarat players, as the city focused more on entertainment and fine dining.

So how about now?

Recessions are hard to predict, but will Vegas’ continued diversification and new construction insulate it from another slowdown — or at least address the stagnation of gaming revenue?

Casinos Must Create Long-Term Value for Guests

Schwartz said all this new supply should handle the likely increase in demand Las Vegas hopes to create the next few years. But he cautioned that it’s possible for casino operators to overbuild if pricing strategies don’t appeal to customers.

“You don’t want to innovate in the wrong way, lessening the perception of value,” Schwartz said. “The key is to create value in something else. For example, Wynn has created that by having such an aspirational product. It will charge more for a room, but nowhere else is like the Wynn in the consumer’s mind.”

It’s especially important to build loyalty in good times, he said, because consumers would feel pressure in a future downturn to skip not only gambling, but also paying for other ancillaries in Las Vegas, like parking or resort fees.

“It’s equivalent to 6:5 blackjack,” he added. “The hold percentage is as bad as roulette, but some people protest 6:5 blackjack loudly because blackjack always used to be 3:2.”

Schwartz spoke with Duetto to explain why casinos need to ensure their strategies create value over the long term, in order to both adjust to the current state of flux and win the future.

Las Vegas appears to be at another turning point, diversifying with pro sports and even more entertainment. How do you think now compares with other points in the market’s history?

Right: David Schwartz UNLV

I think it’s a major inflection point, and there are a lot of ways it could go. A lot of it depends on the strategy that casinos and hotels put in place. Currently, that strategy seems to be to extract as much short-term benefit as possible, which would be a problem in the long term.

When Vegas casinos made major changes in the 1950s and then again in the ’80s, those were the beginnings of a long-term system strategy to build the brand of Las Vegas and to raise visitation, first by appealing to business travelers and then by opening up to the mass market.

As far back as 1982-83, casinos became aware of the importance of entertainment and not just gambling. That’s when the transition to family-friendly options got underway, but it took a while.

The hotel industry has had a long recovery from the Great Recession. Las Vegas had it bad when the downturn hit, but how’s it doing now?

The non-gaming side of the industry is doing better than it was before the recession, at least through this year, but gaming is still lagging. However, nationwide gaming continues to increase. The most recent numbers are up about 3% nationwide, so the regional markets are seeing the opposite effect.

It’s more of a Vegas-centric change that, for whatever reason, people who come to this market are gambling a little less.

Is that because of broader changes in consumers? Yes and no. You’re already seeing people you’d identify as core visitors who aren’t coming to Vegas as much. I’ve read many tweets saying something like, “I used to stay in Vegas five times a year, and now I only come twice, or not at all.

I don’t know if it’s an overall consumer change. When you see regional markets growing and Vegas not growing [gaming revenue], it tells me that the customer perceptions of gambling in Las Vegas have changed.

What can be done about the gaming revenue part of the equation?

There are two things casinos have to do. One is to create novelty, and the other is to expand access. They can work against each other, though. Novelty means providing things people can’t get anywhere else — which makes these things more expensive to put on. Access means making it affordable. Las Vegas used to have both, because you couldn’t gamble anywhere else. The casinos made so much money on gaming that they could make everything else affordable.

What do 9,000 new hotel rooms on The Strip by 2020 mean in this context?

It all depends on novelty and access. There have been bigger expansions in the past. But when fewer people are coming and gambling — and so far this year, visitation is down a little — adding more capacity might lead to issues.

Even with an expanded Convention Center and new sports offerings, like the Raiders?

Sports addresses these issues to an extent. The NFL brings eight home games a year, which won’t hurt — especially in November and December when it’s slow in Vegas.

The Convention Center is important for luring conferences like [Consumer Electronics Show] and keeping them. That helps occupancy.

It sounds like it still comes back to the experience and guest service to build casino loyalty for you.

Your people in the casino have to be the emphasis. You need to either train them better or recruit better people. The average visitor doesn’t know or care who owns which casino or venue. The effort to build a broader brand identity — for a single casino or for Las Vegas as a whole — has to focus more on the ground level. If your people go above and beyond for you, that’s somebody fighting to make your property stand out in Vegas, which is what you want.

More distinct experiences, more novelty, and more value may be expensive, but they build value in the long term. It doesn’t happen overnight, but it pushes people into adding another trip and saying, “You know what? I want to go back to Vegas.”

Mark Brandau, Director of Content

Mark joined Duetto in January 2016 from market research firm Technomic, where he began his content marketing career after nearly a decade as a business-to-business journalist covering the restaurant industry. As assistant director of content, he helps steer the creation and promotion of all Duetto's content across its blog, video and social-media platforms, as well as sales collateral and internal communications.

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