Casinos in downtown Las Vegas, where gaming was hit hard by the recession and other economic pressures, have begun to improve their fortunes.
Downtown gaming revenue increased in each of the past two fiscal years, rising 3.1 percent in fiscal year 2015 and 0.83 percent in fiscal year 2014. That marks the only instance over the past decade that the area’s gaming revenue has grown in two consecutive fiscal years.
The uptick is even more apparent when broken down into smaller periods. During fiscal year 2014 — which lasted from July 2013 through June 2014 — downtown gaming revenue dropped by a half-percent during the first six months, according to Michael Lawton, senior research analyst for the state Gaming Control Board.
Then, from January through June 2014, gaming revenue increased 2.1 percent. That was followed by another 2.1 percent increase during the remaining six months of 2014 and a 4 percent increase during the first six months of this year, Lawton said.
Fremont Street Experience
Downtown has seen some encouraging economic signals on the hotel side, too. Occupancy and revenue per available room — a standard performance metric in the hotel industry — both increased last year, and they’re up through July of this year as well, according to the Las Vegas Convention and Visitors Authority.
Meanwhile, 36 percent of tourists polled in an authority survey last year said they visited downtown, up 6 percent from the year before.
The turnaround has been noted by casino operators such as Boyd Gaming Corp., which controls three downtown casinos: the California, Fremont and Main Street Station. Keith Smith, Boyd’s chief executive, said the second quarter of this year was the company’s fourth consecutive quarter of growth downtown in earnings before certain costs.
Smith said the growth was aided by “continued strength” among Hawaiian customers — long an important market for Boyd — and general improvements in the downtown market.
“We are also benefiting from significant growth in visitation to downtown Las Vegas,” Smith said on Boyd’s most recent quarterly earnings conference call. “2015 has been a great year for downtown and Fremont Street, as ongoing reinvestments and improvements in the area continue to draw more visitors.”
The market has endured sizable financial headwinds for years.
Unlike the Strip, where gaming revenue peaked just before plunging due to the recession, downtown gaming revenue actually had its best calendar year in 1992. Casinos won $703 million from gamblers that year, compared with $511.4 million last year, according to the UNLV Center for Gaming Research. The number of casinos dropped from 30 to 20 over the same time period.
David Schwartz, director of the UNLV gaming center, said downtown casinos were hurt by multiple outside forces. For one thing, he said, the 1989 opening of the Mirage on the Strip meant that “a lot of the folks who might have been going to the Golden Nugget were then going to the Mirage.” Compounding that, three big casinos — Luxor, Treasure Island and MGM Grand — opened on the Strip in 1993.
Schwartz said the growth of tribal casinos in California after 2000 also negatively affected downtown gaming.
“It makes sense because a lot of folks who were going downtown were the drive-up customers who were then attracted to the tribal casinos in Southern California,” he said. “Those casinos weren’t really competing with the Bellagio, necessarily — they were competing with downtown casinos to some extent.”
An aerial view of downtown Las Vegas and the Fremont Street Experience.
Years later, the recession began to wreak havoc on Las Vegas tourism. Jonathan Jossel, chief executive of the company that runs downtown’s Plaza casino, said it became “extremely difficult” to get customers into hotel rooms then.
“Some people say you’ve got to fill the rooms, even if it’s at any cost. I don’t necessarily share that philosophy, but I think a lot of people downtown felt that, and some people went crazy and dropped the rates really low,” Jossel said. “In the end, I think they realized that didn’t make sense, but during a recession, people will try anything.”
As Strip resorts lowered their room rates as well, Schwartz said that eroded one of the major selling points for the downtown casino market: affordability.
Now, however, the scales appear to be tipping back in favor of downtown. Last year, the Strip’s average daily room rate rose 5.2 percent to $125.80, while downtown’s average daily rate fell 4 percent to $65.78, according to the convention and visitors authority. Rates in both markets are up slightly this year.
Aside from general economic improvements, other, more deliberate actions have helped downtown casinos. Lawton said the recent positive performance of gaming revenue in the area could be in part a “spillover” from the arrival of Zappos.com and the Downtown Project’s attempts to revitalize the neighborhood. Jossel echoed that point, saying the Downtown Project has helped boost awareness about the area — even outside Las Vegas.
Derek Stevens, the casino executive who controls the D, the Golden Gate and the former Las Vegas Club property, said an increase in entertainment offerings over the years has also helped downtown’s “considerable growth.” He pointed specifically to the Fremont Street Experience.
“We have entertainment on three stages seven nights a week, and that’s clearly been a big driver for what’s taking place downtown,” Stevens said. “You’ve got so many people with their first night in Vegas — it might be a Friday, but it could just as easily be a Tuesday.”
Despite investments in the neighborhood’s entertainment and other nongaming attractions, downtown casinos remain more reliant on funds from gaming than their peers on the Strip. Among the 16 downtown casinos with more than $1 million in gaming revenue during the 2014 fiscal year, 52 percent of the total proceeds came from the casino floor, according to the Gaming Control Board. On the Strip, gaming revenue accounted for just 36.8 percent of departmental revenue during the same period.
But Schwartz pointed out that several major downtown attractions — such as the SlotZilla zipline and the Mob Museum — aren’t inside casinos. Caroline Coyle, the convention and visitors authority’s vice president of brand strategy, said the Neon Museum is “one of our most requested and most popular attractions in all of Las Vegas.”
And like the Strip, downtown casinos used to rely much more on gaming, which accounted for 73 percent of big downtown casinos’ revenue in 1984 and about 60 percent in 2004.