Las Vegas has undergone some serious changes over the last few decades, and the Vegas of today is not quite your parents' Sin City. The region seems to be moving away from its more scandalous image of yesteryear, which has led to increased spending on shows, food and drink, and other entertainment, while gambling loses some of its luster.
Here are a few interesting developments that might affect your investing thesis for casino operators in the city.
1. There will be a record number of visitors in 2016
Las Vegas saw a record level of tourism in 2015 with 42.3 million visitors during the year. And that record is already on pace to be broken again, with a 1.6% increase so far in the first seven months of 2016, trending to a full-year total of just under 43 million by the end of this year.
That growth seems to be tied to both new and returning visitors. According to the Las Vegas Convention and Visitor Authority (LVCVA) 2015 Las Vegas visitor profile (link opens a PDF), which surveys 3,600 people about their Vegas experience, 16% of respondents were in the city for the first time, which is about consistent since 2011 with an impressive 90% of those surveyed indicating they were "extremely likely" or "likely" to return. For the second year in a row, 100% of respondents said they were "very satisfied" or "satisfied" with their trip. This high level of satisfaction, along with a steady stream of first-time visitors, should combine for record tourist numbers in the future.
2. Visitors' spending habits are changing
The LVCVA profile also showed that visitors still spent more on the casino floor than anywhere else, dropping an average of $578 during a single trip for those that did gamble, up from $447 in 2011. However, the percentage of people that gambled dropped from 77% to 73%, so the average per visitor amounted to $422 in 2015, up from $345 in 2011.
That's a substantial part of overall tourist spending, but other combined expenses -- including food and drink, hotels, and other entertainment -- made up about two-thirds of the total average spend of $1,166.
So while gambling is undoubtedly important, it is accounting for a smaller portion of spending with each passing year. Additionally, less people are gambling during their trip, and only 1% of first-time visitors in 2015 reported that gambling was the main purpose of their trip.
3. Of the largest 50 hotels in the world, more than half are in Las Vegas
Las Vegas hotels are known for their grandeur, not only in their extravagance but also their sheer size. By room count, 17 of the largest 20 hotels in the United States and 27 of the largest hotels in the world are in Las Vegas. The largest hotel in the country is Las Vegas Sands' (NYSE:LVS) The Venetian (and adjacent Palazzo) with about 7,200 rooms. However, it's MGM Resorts International (NYSE:MGM) that owns most of the properties that make up the list.
Most of the large hotels are concentrated on the Strip, as opposed to downtown Las Vegas, and MGM dominates the famous street with more properties than any other company. The visitor profile showed that nearly all respondents stayed in a hotel during their trip, and 75% of them stayed on the Strip. There are about 70,000 rooms on this stretch of Sin City, and about 50% of those are located in MGM properties. Visitors stayed an average of 3.4 nights, and with 42.3 million visitors, it's clear why the Vegas can support so many major hotels.
4. Wynn makes over $100,000 per year from each hotel room
MGM has by far more hotel rooms than Wynn Resorts (NASDAQ:WYNN) in the city, but Steve Wynn's namesake property is one of the most profitable resorts per room. Thanks to its upscale clientele and high occupancy rates, Wynn Resorts kept its average daily rate per room at $321 (with over 91% occupancy). As a result, Wynn generated an average of $106,620 per hotel room in 2015.
That's probably why Wynn has decided to overhaul its famous golf course to replace it with a new lakefront 1,000-room hotel. Wynn Resorts is working on a property renovation called Paradise Park, which will replace its 18-hole course with a giant clear-water "lagoon" that will feature activities like wind sailing, as well as white-sand beaches all around the one-mile perimeter. The $1.5 billion investment will feature nightly fireworks from an island in the middle of the lagoon, visible from the rooms of the new hotel that overlooks the water. Paradise Park is expected to open in 2020.
5. Las Vegas is the home of 59 different conventions ... everyday
In 2015, Las Vegas hosted 21,306 different conventions or large-scale meetings, which included nearly six million participants. The city boasts well over 11 million square feet of convention space, and that number is growing.
MGM boasts the most convention space of the Vegas players. After recently upgrading the Mandalay Bay Convention Center in January, which now has over two million square feet of total meeting space, the company also has plans to expand its its Aria property.
MGM also recently opened its new 20,000-seat arena right on the Strip. The arena will host everything from national sporting competitions to concerts and possibly even Las Vegas' recently awarded NHL team. It can also host some of the city's largest conventions.
The investing takeaway
Las Vegas is growing as a travel destination, but gambling is gradually becoming a smaller piece of that growth story. Instead, diversified entertainment and hotel growth are most important as revenue and earnings drivers going forward. For investors watching these trends, be on the look out for companies that are taking advantage of this shift, including MGM and Wynn Resorts.