The Surprising Way Las Vegas Casinos Make Loads of Money

Las Vegas used to be the land of gambling, free drinks, and the $5 buffet. But the Las Vegas of old has evolved, and today every nook and cranny must be a revenue generator to keep a megaresort profitable.

Gaming is still big business for Las Vegas, but the newest and hottest profit centers in the city's most successful hotels are nightclubs and pool parties. Not only will customers willingly pay $50 or more just to enter the door, they're also ready to spend thousands on bottle service for a night (or day) out on the town.

Image source: Getty Images.

Nightclubs are very big business
It's no secret that nightclubs are big business in Las Vegas, but it's eye-opening to see just how big they've become. According to the Nightclub & Bar Media Group, seven of the top 10 grossing bars and nightclubs in the country are in Las Vegas. The center of this nightclub scene is Wynn Resorts (WYNN +0.03%), whose flagship property on the Las Vegas Strip holds three of the top 13 clubs in the country.

XS Nightclub was estimated to generate $90 million-$95 million in revenue last year, barely topping the Marquee Nightclub in the chic Cosmopolitan Las Vegas. XS' sister clubs Surrender -- which turns into Encore Beach Club during the day -- and Tryst respectively generated an estimated $45 million-$50 million and $20 million-$25 million.

That kind of success doesn't go unnoticed. Hakkasan Group spent over $100 million building out the Hakkasan restaurant and nightclub in partnership with MGM Grand, and it is reportedly approaching $100 million in revenue in 2014. When combined with Wet Republic, which is in MGM Grand and also operated by Hakkasan Group, it's possible that the center of the Las Vegas party scene is moving south on The Strip.

What's incredible is how important these clubs have become to the megaresort. As you can see below, in 2013 Wynn and MGM Resorts' (MGM +0.00%) MGM Grand generate roughly 10% of their revenue at day/nightclubs, while The Cosmopolitan Las Vegas collects over 13% of revenue from a single club: Marquee.

Note: Hakkasan and Wet Republic revenue estimated by author based on industry estimates at $90 million and $25 million, respectively.

The simple fact is that gambling is no longer a big growth business in Las Vegas and the younger market is looking more to party than to sit at a gaming table. They're also willing to spend big on a good party.

With big parties come big-time DJs
The dollars being thrown around at clubs is Las Vegas is impressive, but the amount of money top-tier DJs can charge is mind-blowing. Hakkasan reportedly went on a $65 million binge to sign up deadmau5, Tiesto, Steve Aoki, and Calvin Harris when it opened.  

deadmau5 alone reportedly earned $425,000 per show at Hakkasan and Wet Republic. Tiesto reportedly settled for a measly $250,000 per show. It's a good time to be a famous DJ, at least as long as the party lasts. 

Clubs are part of a facelift in Las Vegas
Gambling remains an important part of the casino industry, but day and nightclubs are a surprisingly important revenue source for megaresorts. Wynn Las Vegas and MGM Grand, for example, generate between 60% and 70% of their revenue off the gaming floor each quarter, and clubs are a big piece of that.

It shouldn't be a shock that the most profitable resort in Las Vegas -- Wynn Las Vegas -- also hosts the most profitable clubs on The Strip. Even Steve Wynn knows there's big money to be made in the club scene.