Las Vegas Strip: Why Is It Open Right Now?

At 12:01 a.m. on Thursday, June 4, casinos in the state of Nevada began to reopen for the first time since Gov. Steve Sisolak (a Democrat) ordered the shutdown of the gambling industry and other non-essential businesses on March 17, after Wynn Resorts (WYNN +0.06%) and MGM Resorts International (MGM +1.54%) moved to shut down all of their casinos on March 15.

At that moment, I was in line at the Golden Gate on downtown Fremont Street to be one of the first visitors to set foot in the casino post-lockdown. I spent the next 17 hours walking through reopened casinos downtown; on Boulder Highway; in downtown Henderson; through the local casinos Sunset Station, Green Valley Ranch, and Palace Station owned by Red Rock Resorts (RRR 2.72%); to Boyd Gaming's (BYD 5.91%) Orleans casino off-Strip; and then to the Strip casinos that began opening at 8 a.m., starting with the STRAT (formerly Stratosphere).

By Tuesday, June 9, I had visited every open full-scale casino in Clark County, with a Sunday trip to Laughlin, on the Arizona border, to boot. And the next day, I hit the road toward Reno, stopping in Lake Tahoe on Thursday. On Friday, I passed through Carson City and Winnemucca on the way toward Jackpot in the northeast corner of the state bordering Idaho. Saturday I trekked to Jarbidge -- a smaller and even more remote town with a total of four slot machines, accessible much of the year only by about 20 miles of dirt road down a mountain and along a creek through Idaho. I eventually made it to the great secret of a gambling town of West Wendover along the Utah border on Sunday, before polishing off the trip by hitting Elko, Ely, and eventually Mesquite early Tuesday.

By the time I returned home to Henderson at 5 a.m. on Tuesday, June 16, I had visited virtually every open casino in the state of Nevada.

We'll get to observations of the post-lockdown Nevada gambling industry shortly. But let's begin by talking about the prospect of a recovery for the Las Vegas Strip, which seems to be taken by most as a given.

Las Vegas Strip: A full recovery is not guaranteed

At present, the general consensus seems to be that a full recovery for the Las Vegas Strip will take three to five years; we could perhaps set benchmarks for a recovery of 42 million visitors and $18 billion in total Strip revenue (the latter number was $18.5 billion in 2019, according to the UNLV Center for Gaming Research). But unless you think the presence of COVID-19 is a net positive for Las Vegas visitation, the reality is that a full recovery in that time frame is far from assured.

1. The Las Vegas Strip growth engine was already broken before COVID-19.

Before the pandemic, the Strip showed a flat visitor count of 42 million for the last five years in a row and peaked at 42.9 million visitors in 2016, despite a booming U.S. economy. As I've written many times, this is attributable to many factors: an increasingly disproportionate lack of lower-end hotel supply, pricing out the more populous lower-end visitors from the market and thus stunting visitor growth; the generally rising price of everything on the Strip; the rising house advantage (the price of gambling, all else being equal) on games; and the nickel-and-dime approach used to raise prices involving hidden fees, including resort fees.

Meanwhile, in order to solve those problems, the Strip casino operators have responded to their opportunity to hit the reset button and do this right by reopening and doing...virtually nothing. Aside from reestablishing free parking as standard (for now), the only real changes to the Vegas experience are pandemic-mitigation measures. In fact, instead of doing away with the hidden fees that only serve to tick people off, some Strip restaurants have done the opposite and experimented with adding optional COVID-19 surcharges.

For reference, gambling revenue on the Strip peaked at $6.49 billion in 2007, and hasn't hit that number again since, just finally reaching as high as $6.45 billion in 2019. Following the Great Recession, it took seven years for annual Strip revenue to pass the 2007 level ($15.8 billion). And total Strip revenue of $18.5 billion in 2019 was only a 17% increase from 2007 -- a growth rate that hasn't even kept pace with inflation over that time period (23.3%).

2. By opening without proper visitor restrictions in place, the Strip is going to see an outbreak.

As I discussed in May (see "Las Vegas Strip: On Border Controls and the Subsistence Strategy"), by opening without any visitor restrictions whatsoever -- for example, requiring COVID-19 testing prior to arrival in Nevada, or blocking visitors from hot spots such as Florida, Texas, and especially neighboring Arizona -- Las Vegas is virtually guaranteed to have an outbreak. As we'll discuss in a moment, Strip operators' first line of defense is a temperature check at the door of the casino (which does nothing to screen out asymptomatic carriers, or even many symptomatic ones) -- and only at some casinos, not others.

As it is, Las Vegas has already been seeing steadily rising case counts. On Tuesday, the state reported a record 462 new cases – the fourth daily record in eight days. Clark County accounted for the bulk of those cases, also setting a new record with 412 new cases. Meanwhile, the test positivity rate has climbed steadily: Since the 7-day moving average test positivity rate for the state bottomed out at 2.5% on May 26, that number has skyrocketed, reaching 9.8% on June 22 (reported Tuesday).

Conditions are worsening.

In what was likely just the beginning, the Mayfair Supper Club at MGM's Bellagio closed Wednesday night after a kitchen employee tested positive for COVID-19 -- not quite two weeks after opening. On Friday, Caesars Entertainment confirmed that two employees at the Flamingo tested positive for COVID-19. That same day, the SAHARA closed the Northside Cafe & Chinese Kitchen after three employees tested positive for COVID-19. On Saturday, Caesars said that an employee at Guy Fieri's Vegas Kitchen at the Linq tested positive -- just a week after the Linq reopened on Friday, June 12 -- and that restaurant closed temporarily. Monday, the Cosmopolitan reported that two employees had tested positive for COVID-19 last week.  

3. The Strip is dangerously close to being branded unsafe.

By opening without visitor restrictions -- despite knowing that an outbreak there is nearly guaranteed -- the Las Vegas Strip has taken a risk that could damage its prospects of a recovery and push that time line further back: that is, the risk of being branded unsafe.

To be clear, the casino operators and the state of Nevada chose to reopen knowing that an outbreak was nearly certain to happen. Again, Macao reopened in February after a two-week closure, and wasn't even open a month before seeing a rash of new cases and banning foreign visitors in March. Hong Kong closed its borders a week later, followed shortly by Singapore. Meanwhile, as I've said many times, the Las Vegas Strip is a petri dish for a virus -- little different from a cruise ship -- and in the country that has perhaps the worst handle on the novel coronavirus outside of Brazil.

So unless they are completely clueless, the three U.S.-based Macao casino operators -- Wynn, Las Vegas Sands (LVS +1.65%), and MGM -- reopened knowing that an outbreak is almost sure to occur. Ditto for everybody else on the Strip.

When companies open the Strip knowing the likelihood that an outbreak will happen, they are signaling to the world that the safety of their frontline employees does not matter; that the safety of Las Vegas does not matter; and -- more importantly to the area's prospect of a recovery -- that the safety of their customers does not matter.

In short, what they're saying is that they actually just don't care.

With that out of the way, let's ask three questions:

1. What are the steps operators should have taken before opening?
2. Why is the Strip open right now?
3. What happens next?

Safety measures: If they were doing this right

I talked in depth in that May article about the importance of border controls and travel restrictions, and the potential value of travel bubbles. But the gist is that the biggest threat to virus-containment efforts in any location is generally visitors from other places. And the places that have the best handle on COVID-19 thus far -- Macao, South Korea, Taiwan, Hong Kong, Singapore, New Zealand, Australia, and Hawaii -- all have one thing in common: the ability to lock down their borders and prevent unwanted visitors from entering. And all of these places -- some of them extremely dependent on tourism, like Macao and Hawaii -- are screaming at the world: "Do not come here!"

Las Vegas, on the other hand, is now open to disease carriers from anywhere, without any qualification whatsoever.

If Nevada had effectively zero cases (like New Zealand or Macao) and complete control over its borders, there would be minimal need for coronavirus-mitigation measures in the casinos. And so assuming residents and employees were healthy to begin with, the need for those mitigation measures would be in direct proportion to how open the borders were.

That said, here are three things that should have been done before opening the Strip:

1. Establish visitor restrictions. The most effective step one could take to reduce coronavirus transmissions is to screen out unwanted visitors before they arrive in Nevada to begin with. The most obvious benefit (and in my mind, the main purpose) of Nevada joining the Western States Pact on April 27 with California, Oregon, Washington, and Colorado would be the eventual formation of a safe travel bubble with states with similar approaches to the virus: a mechanism to allow travel by residents within the region, while blocking or setting up shared testing qualifications for visitors from outside the region, particularly from trouble states. That hasn't happened. Regardless, there needs to be a solution that prevents uncontrolled access, particularly from states where the virus may quickly spiral out of control.

2. Establish a standardized set of "best practice" safety protocols. On May 1, the Nevada Gaming Control Board released a memo detailing a set of minimum coronavirus-mitigation practices casino operators must adhere to upon opening, with guidelines for everything from employee training to social distancing, limiting occupancy of gambling areas to 50% of capacity. The original version included limits on table-game seating: three players per blackjack table, four for roulette and poker, and six for craps. The most recent update, dated June 17, now simply requires players to be seated "at least one betting position apart" -- in practical effect allowing for five-handed poker games, where the previous four-max solution is largely untenable for cash games; it also requires face coverings for players at tables "if there is no barrier, partition, or shield between the dealer and each player." While this is a good starting point, what I'd really like to see is a standardized set of best practices.

3. Establish protocols to enforce crowd control. By now, probably everybody reading this has seen the viral video of the Cosmopolitan on opening night -- a crowded casino where social distancing and masks were nonexistent. While I'd call such crowds an exception -- my experience is that depending on the time, crowds are mostly avoidable in most casinos, even on parts of the Strip -- I've come across several potential trouble spots where shockingly little (or no) apparent effort has been made to enforce crowd control.

The reality is that with regard to safety measures, it is the Wild West.

If we knew what we were doing, there wouldn't be a million different solutions for everything. If temperature checks were all that effective, they would be standard. Instead, every casino in West Wendover and downtown North Las Vegas requires a temperature check at the door with a temperature gun, while none of the casinos in Mesquite, Laughlin, or Tonopah have security screens of any kind at the door. Wynn and LVS require temperature scans at the door of their Strip properties, while nobody else on the Strip does. Every full-scale Station Casinos (Red Rock Resort) and Boyd Gaming property requires a temperature check, while in many other joints, you can just walk in with zero hassle. Some casinos require IDs with the temperature check; others do not.

The truth is that in normal times, every single thing you see in a casino requires testing. Every gambling device and every new game goes first through a state-sanctioned testing lab to ensure integrity, and requires a field test before widespread use.

And so if that's the case, then who is testing the efficacy of these safety measures, and why do these approaches all have different shapes? And why do some protocols shield the players from each other while others don't?

Why do the blackjack tables at Casino Fandango in Carson City use a flat Plexiglas shield between the dealer and the players, while those at Montego Bay in West Wendover use a half-oval cockpit, and the blackjack tables at the Grand Sierra Resort in Reno have a half-oval cockpit with wings to shield the players from each other?

Why does the Peppermill in Reno have Plexiglas dividers between tables, when nobody else has taken that step? Why do the craps tables at Montego Bay in West Wendover have Plexiglas dividers around the stickman, when virtually nobody else does? Why are some casinos using some Plexiglas dividers for the slot machines and some are using a whole lot, while most are using relatively few or none?

The answer is that this is all a field test, and there seem to be some holes, as we're seeing in some other locations outside of Nevada:

• Gila River Hotels and Casinos closed three Arizona casinos temporarily after a security guard at its Lone Butte property died of COVID-19, having tested positive two weeks after the property's May 15 opening.
• Desert Diamond Casinos also temporarily closed its casino in Why, Arizona, after an employee tested positive for COVID-19.
• On June 10, Morongo Casino Resort & Spa reported that a casino manager had tested positive for COVID-19; the casino had reopened May 22.
• On June 12, Ilani Casino Resort in Washington reported that an employee had tested positive for COVID-19; that casino reopened May 28.
• The Rivers Casino in Pittsburgh reported June 17 that an employee had tested positive for COVID-19, and reported a second case on June 20; the casino just reopened June 9.

So why is the Strip open right now?

After reopening in February, Macao found its gambling revenue down 80% in March, 97% in April, and then 93% in May, as the visitor count dropped 99.5% in May. While Macao banned foreign visitors -- visitors not from China, Hong Kong, or Taiwan -- in March after seeing a rash of new cases, those three locations account for 90% of visitors to Macao. So the biggest causes for the drop in revenue were travel restrictions between Macao and Hong Kong and mainland China involving 14-day mandatory quarantines, and the suspension of tour groups and IVS (individual visit scheme) exit visas from mainland China to Macao and Hong Kong.

Meanwhile, earlier this month, Hong Kong extended its mandatory 14-day quarantine period for visiting non-residents by another three months.

With that in mind, here are five reasons the Strip is open right now:

1. Unwanted travel restrictions: Unless visitor restrictions were never on the table -- which is entirely possible -- it seems crystal clear to me at the moment that Wynn and LVS, in particular, wanted to open ASAP without travel restrictions in place.

2. Unemployment issues: Like many states, and probably more so, Nevada has suffered from an overwhelmed unemployment system; April unemployment of 28.2% was the highest of any state in any month since modern record-keeping began in 1976. On Friday, it was announced that Heather Korbulic, the interim director of the Nevada Department of Employment, Training and Rehabilitation (DETR), requested a transfer from her post after less than two months on the job, after receiving personal threats amid a backlog of tens of thousands of unpaid claims. The Strip being open would naturally help alleviate the issues the state of Nevada is having with doling out unemployment checks, by reducing unemployment.

3. State budget shortfall: On May 11, with the state having been on lockdown for nearly two months and the core tax-revenue-generating gambling industry shuttered, Gov. Sisolak declared a state of fiscal emergency, citing a projected budget shortfall of $741 million to $911 million in the state's General Fund for the fiscal year ending June 30, 2020. This allowed the governor to tap into $401 million sitting in a state "rainy day fund" to address the shortfall.

4. Allegiant Stadium: Construction of the $1.8 billion Allegiant Stadium -- soon to be home to the Las Vegas Raiders of the National Football League, and also the University of Nevada Las Vegas football team -- is slated to be completed in July. The funding for the $750 million public taxpayer bill for the stadium comes from a 0.88% increase in hotel room taxes for hotels on or around the Strip, and a 0.5% increase in hotel room taxes elsewhere in the stadium district. Though taxpayer funding does not appear to be in jeopardy for the moment, Las Vegas hotels were contributing effectively zero to the fund while the casinos -- particularly those on the Strip -- were closed.

5. Travel-bubble time frame: In May, I discussed the steps that New Zealand (which has effectively eradicated the novel coronavirus) and Australia (achieving similarly remarkable success) planned to take to form a travel bubble between the two countries. As I mentioned then, both countries are in far better shape with regard to COVID-19 than anywhere in the continental U.S., yet they thought they were "many months" away from being able to safely allow relatively unrestricted travel between the two countries. The current projection for the implementation of the "Trans-Tasman" travel bubble is September -- a probably untenable time frame for reopening casinos in Nevada.

What happens next?

If Las Vegas is to mitigate the threat of outbreaks, what really needs to happen -- and sooner than later -- is that the city or state needs to implement some kind of visitor restrictions, along with better crowd-control measures.

The problem in my mind isn't so much that casinos are open, or even necessarily that the Strip is open. As I've said since April, I think Las Vegas is a relatively safe place to be without the Strip open -- it's largely sprawling suburbia, and isolated in the desert -- and I expected by this point that it would be healthy enough to open the local casinos. Rather, the main problems are:

1. The unrestricted movement of people in and out of Las Vegas without any qualification whatsoever
2. The enforcement (or lack thereof) of crowd-control measures

As I said before, it's unlikely that the plan was going to be to reopen the Strip just to immediately close it again; it would take a lot more pain for that to happen. If the Strip isn't shutting down again, it's better off continuing to simply reopen everything (MGM is slated to reopen Luxor on June 25, and then Mandalay Bay and Aria on July 1): Opening more properties creates more space, which will help reduce crowd-control issues.

In other words, unless things become really unwieldy around Las Vegas, it seems that the plan is to simply roll with it and take any licks for now.

If anything, the focus seems to be on further mitigation tactics. As I mentioned earlier, the new policy from the Nevada Gaming Control Board, dated June 17, mandates face coverings for table-games players at tables without Plexiglas barriers between the player and the dealer. It does seem, however, that there is momentum for stronger and more universal face-mask requirements in Nevada casinos.

Las Vegas can screw this up

I spent much of the day on June 11 walking around downtown Reno, exploring the old casino landscape. At some point, it hit me that downtown Reno must have been a super-happening place 40 to 50 years ago. To a person visiting Reno in 1980, the level of gutting that has taken place since, primarily at the hands of the Indian casinos in California, would probably seem unfathomable.

At present, the downtown Reno landscape is painted with relics. To facilitate the pending $17.3 billion merger between Caesars Entertainment (CZR +0.00%) and acquirer Eldorado Resorts (ERI +0.00%), Caesars sold the massive multibuilding Harrah's Reno complex in January for $50 million; it was sold to Las Vegas-based developer CAI Investments, with a plan to convert it into apartments, office and retail space. Though Caesars was to continue operating the casino through summer, Harrah's Reno closed in March with the statewide shutdown, for what turned out to be for good.

What once was Fitzgerald's Reno is now Whitney Peaks, a non-gambling hotel featuring a rock-climbing wall. The Horseshoe hasn't been a casino since the 1990s. The Virginian closed in 2002, and was purchased by Las Vegas-based Siegel Group in 2013 for a mixed-use development. What opened as Sahara Reno in 1978 is now a high-rise condominium tower.

Las Vegas didn't just survive the widespread gambling expansion of the 1990s and 2000s across the U.S. It capitalized on it by being the global destination gambling market, thanks to pure scale, and mass-market appeal. That mass-market appeal was a function of the development of non-gambling amenities -- high-end hotels, nightclubs, shows and other entertainment, conventions -- and simply being Vegas. While you might frequent your local casino, Las Vegas is still the place you come to get the full experience.

But it's not invulnerable. There is, in fact, likely a limit to how bad an outbreak can get in Las Vegas before it does lasting damage.

The city can screw this up. And what happens next matters.