Two Way Hard Three | Las Vegas Casino & Design Blog

March 24, 2006

What Happened To All The Cheap Rooms In Vegas? The Shrinking Middle Market

Posted by Hunter

For years and years, many travelers equated cheap rooms, shrimp cocktails and showgirls with Las Vegas. Hotel rooms under $100 per night were available all up and down the Strip - not just from the Northern cluster of older hotels. As recently as 1999 it wasn't uncommon to be able to book at room at Bellagio for $140/night on weekends.

No longer.

These days, rates for standard rooms have increased and former mid-level properties have been renovated and re-branded in an attempt to convert them to the higher end. Forget about Strip rates under $100 on weekends and don't be freaked out if your sub-par room at the Luxor costs $249.

What happened? Is this bad for the city? Is Las Vegas still a deal? More after the jump.

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Let's start off by taking a look at some of the properties built on the Strip in the last 15 years or so. A handful of these properties were built pretty much exclusively to capture high-end business. I'm talking about Bellagio, The Venetian, Wynn Las Vegas and to a lesser extent, Mandalay Bay and THEHotel. These are high end properties and they don't apologize about. To paraphrase Steve Wynn, 'the top two or three places do all the business' and he's right - the numbers show Bellagio, Wynn and The Venetian grabbing huge amounts of high end play, mostly baccarat.

Ok, so no one is expecting a deal at one of those places (though sometimes you *can* find deals but that's another story). Let's look at a few more properties: MGM Grand, Luxor, and Treasure Island (TI). All three of these were built in the early 90s, as Vegas was going through the whole 'family friendly' vibe that was thankfully replaced by a much more realistic 'adults get wasted, gamble, eat and shop for fun' vibe. Anyway, these properties started out with low rates - very reasonable pretty much year round. Specifically, TI was built basically as a place for people that couldn't quite afford The Mirage next door.

Almost immediately after opening, Luxor began a remodeling process to attract more high-end play. In the past years MGM Grand has replaced all the lower end rooms (in some remarkably creative ways considering what they have to work with in some of those small rooms) with a much nicer product and they built The Mansion, their super-high-end high roller paradise. And of course, Treasure Island is now TI and instead of pirates inside we have a ton of 30 year old Californians trying to prove to each other how much money they have by spending lavishly and making a lot of bad field bets on craps. Of course, as all of these changes were being implemented, room rates were rising along with them. Once a bargain compared to The Mirage, lately I have seen TI higher than The Mirage on a few weekends and that's just insane.

This is just the beginning. Even as these mid-range resorts start charging prices that are sometimes two and three times higher than their averages from a few years back, if you look at the plans announced for the Strip you will notice that the Tropicana and Imperial Palace and maybe even the Flamingo will be gone soon, Circus Circus, the Sahara, and the Riviera probably won't last five or six years and the Stardust will be imploded to be replaced by a high end mixed development as soon as the end of this year. Of course this is on top of other developments such as MGM MIRAGE's Project CityCenter, which recently announced that the main hotel component will be higher end than previously designed. How many rooms in that hotel? A measly 4,000 additional luxury high-end beds.

Never to be outdone, Steve Wynn's Wynn Las Vegas expansion, Encore, will be full of rooms even better than the ones at Wynn. His neighbor Sheldon Adelson's Palazzo is well underway and should help to create one of the largest resort complexes in the world at The Venetian.

The bottom line when it comes to rooms is that in ten years a lot of the more budget joints on the Strip will be gone and we'll have a whole lot of high end rooms to fill. Of course, some currently 'mid-range' properties could lower rates if indeed the market can't support all this new supply. Places like Monte Carlo, Bally's or whatever ends up there, and even a place like Luxor could be forced to lower rates in the event no one is buying at $200+.

Another potential scenario is that the patrons of these older and less expensive Strip resorts end up staying downtown much more often - it could become even more of a feeder for the Strip than it is today. Same goes for properties just off the Strip like the Palms, Hard Rock, Rio, Orleans and whatever goes in the Wild Wild West lot.

So, my fearless readers, what do you think? Is this a 'problem' for Las Vegas? Can Vegas survive if this market segment stops visiting as often? Will economics simply 'take care' of any over-supply issues by lowering prices?

Have rising prices directly impacted how often you visit Las Vegas?

The changes I've described above are just some of the forces that are influencing the Vegas room market. Many would argue that even at higher prices, Las Vegas is still a significant bargain compared to other American cities such as New York or Los Angeles. These same proponents of the massive amount of high end product coming into the market will say that Las Vegas offers a powerful combination of choice - any price point to fit any budget for rooms, food, entertainment, etc and that it is that choice that is the magic of Las Vegas' ability to flourish.

I want to know what you guys think. Please leave your thoughts in the comments.

Categories: Business of Gaming, Casino Design, CityCenter, Downtown Las Vegas, Las Vegas Strip, MGM Resorts International, Wynn Resorts


Comments

Read archived comments (20 so far)
March 25, 2006 7:19 AM Posted by detroit1051

Interesting topic. Las Vegas, especially the Strip, continues to evolve into a convention and entertainment district which is less dependent on gaming and on budget travelers. I believe both Wynn and MGM have only about 40%-45% of their revenues now coming from casino operations.

As long as the economy doesn't go into severe recession, Las Vegas will attract greater number of conventions and smaller business groups. The further expansion of the Las Vegas Convention Center, Sands Expo and the combined meeting/convention space of operators, especially MGM Mirage, all contribute to increased revenues not subject to the volatility of gaming. As Hunter observed, business travelers still find Las Vegas a relative bargain compared to New York, LA and other cities. The wide restaurant and entertainment offerings add to the appeal.

There will always be a niche market for budget travelers, but it may well be the older downtown properties will fill that need. As recent discussions of redevelopment of the Tropicana property showed, it's impossible to develop even a moderate hotel/casino for less than $1 Billion, and moderately priced rooms won't provide the return gaming corporations need.

It will be interesting to see what Harrah's does to its pricing structure as it renovates or rebuilds Bally's, Imperial Palace, Flamingo and Harrah's Las Vegas. It appears to me that Harrah's is much more dependent on low-mid point travelers than is MGM Mirage.

I'm on a lot of mailing lists, and MGM Mirage, especially since its acquisition of Mandalay Resort Group, has probably the most sophisticated yield management system in the industry. I get attractive email offers for slow periods, and it's still possible to get good rates on the internet with a lot of searching.

To answer Hunter's question on whether rising prices have affected me, not Las Vegas prices as much as rising airfares. It takes a lot more time and effort to find reasonable airfares from South Florida where I am. It's a lot easier for those of you in California and Arizona to respond quickly to special offers; a five hour ride and you're there.

Another factor which may minimize the need for budget properties is the proliferation of tribal and commercial casinos in almost every part of the country. It's no longer necessary to travel to Las Vegas for a few days of fun.

March 25, 2006 3:18 PM Posted by Mike E

Great read, Hunter.

You will always have the naysayers complaining about Las Vegas prices going up and yet they're visiting more and more. My visitation has certainly increased along with the prices, part of that having to do with my age and becoming increasingly independent financially, but also the consistent theme among all the new hotels: Luxury.

For anyone who's been to Vegas more than a handful of times, the novelty of these massive themes of Egypt and Paris fades quickly, at least for me. I find myself going back again and again because it's convenient, decadent, and in the case of Wynn Las Vegas most especially--where the clientele seems like a microcosm of Europe and Asia--it's truly a world destination. At the risk of sounding horribly clich�, lounging at Wynn's topless pool rivals anything the most exclusive European hotels have to offer, and yet it's still a bargain in comparison.

What is often overlooked is that Vegas has always sought after the upper market. Tropicana or Riviera were NOT affordable destination when they first opened. Benny Binion once said something to the extent that high rollers want to hang out with high rollers and low rollers want to hang out with high rollers. In other words, set your standards high, and you'll profit from a broad range of clientele. That's why Luxor, TI, and MGM have changed the way they have and Bellagios and Wynns generate the most revenue.

There will always be something in Las Vegas for all income types--it just might not be from the newest hotel on the block.

March 26, 2006 8:26 AM Posted by Deewese

Good Article. I will be frequently less often, refuse to stay at "low-end" casinos such as downtown, Bally's, etc. so Vegas will see less of me. But with on-line gaming not that big of deal.

March 26, 2006 9:27 AM Posted by detroit1051

Hal Rothman's column in the March 26, 2006 Las Vegas Sun is appropriate for this topic:

http://www.lasvegassun.com/sunbin/stories/do/2006/mar/26/566670390.html

March 26, 2006 8:40 PM Posted by socalduck

For personal trips, I'm getting the casino rate or better, so room rates are not really an issue. High-end dining prices are another matter. In the last two years or so, prices at high end Strip restaraunts have eclipsed most comparable restaurants in New York.

Rather than downtown, I think outlying properties like GVR, the new Red Rock, and JW Marriott will prove to be attractive alternatives to the Strip resorts.

March 27, 2006 2:37 PM Posted by muckcat

Great post.

My wife and I visit Vegas on average 1 to 2 times a year. The first time was in 1995. We stayed at MGM and at the Rio (with an excursion to the Grand Canyon in between). We did the entire trip including 5 nights in Vegas, a rental car and airfare from NYC for less than a thousand bucks. Last time we visited (with the kids for the first, and last time) we spent just under two thousand for 4 nights in the Augustus Tower w/ airfare for three from NYC. The times have definitely changed. If you'd have asked me 5 or 7 years ago if such price increases would have reduced our frequency of visit I'd have said definitely. But our financial situation has changed dramatically over the past decade and that has mitigated the increased cost. Also, as others have noted, our tastes have nmatured also. Our first few trips the novelty of places like Luxor and Paris and even Rio were enough reason for us to stay at those properties. Now we're looking for luxury. Our last trip was the Augustus Tower and the second we set foot in Wynn my wife said, without hesitation, that Wynn was our next destination. Luxury trumps cost for us now. We've never been huge gamblers. Started off with quarter slots and worked up to dollars. Now I much prefer sitting at a blackjack or a poker table for a 4 of 5 hour stretch rather than hoping around from slot to slot. My wife hardly gambles at all. So I've concentrated my gamble at higher stakes games but compressed the time frame so my dollar amount of gambling has remained relatively consistent. This all plays into the appeal of the nicer properties. It's more enjoyable to sit at a table in a nicer casino than to float around the slot area. Besides, I can't stand the new video slots. They hold no appeal whatsoever for me. The people watching is much better at the tables. And that's a big part of Vegas' continued appeal for us. We've elevated our social expectations over the past decade and I'm glad Vegas has moved in that direction right along with us.

Not sure how that reflects on Vegas' ability today to attract people like we were a decade ago. But it has worked out fine for us. We'll be back there come September. If not before.

March 27, 2006 6:28 PM Posted by Doug

Despite the higher 'rack rate' at strip hotels, low prices on these rooms can still be found. MGM Mirage Players Club will almost always get you a lower rate and MGM Mirage hotel mailing list e-mail offers can be a great deal (just saw an offer for $89 a night at Treasure Island....sorry TI).

I started getting comped free rooms about five years ago (Bellagio, etc.), but I don't always except them. I just don't like the pressure of playing on comp. However, I do prefer luxury whenever I can manage it.

I learned a long time ago that the best way to enjoy a trip to Las Vegas is by staying at the top hotels and lowering your gambling budget a few bucks to pay for it.

March 28, 2006 2:13 PM Posted by eponymous coward

My suspicion is that Harrah's will try and figure out a way to keep some midrange money on the Strip. They have enough in the way of properties on the Four Corners and in the middle of the Strip it would be silly of them not to try it.

That being said, a lot of the mid-low roller market WILL get pushed downtown. Might be a good opportunity for someone.

The other thing is...man, if the Strip goes totally higher-end, at SOME point you'd think there would be a glut, especially with how the Strip condo market is going nuts with building right now (those places will also be on the market somewhat as well, as many people will be buying them as investments and renting them out). At some point, might there be a bust and some price drops? (I am seeing the Venetian coming in at $199 on occasional weekends, for instance. You'd think some of the older properties with less cachet might suffer this as newer stuff comes online.)

March 28, 2006 7:10 PM Posted by mike_ch

I live here so room rates don't affect me, but it seems every company is so charmed by their own high-end luxury oasis that they don't notice that everybody else is doing much the same thing. I guess the exception is Boyd's Stardust replacement, it's design seems very much a reaction to CityCenter. A Palazzo or an Encore on it's own doesn't matter, but everyone together working to build their own five-star diamond in the desert is quite a gamble. Yes, Bellagio can sell out of rooms pretty easily, but that doesn't mean that there's as much demand as there is supply being drawn up. There simply aren't enough big-spenders for all these properties, especially since big spenders recognize that their loyalty to their current home is appreciated and it's a hard sell to move them elsewhere.

I would hope for some sort of reduction in show prices or meals to compensate for this change. The reason people go to Las Vegas is to spend a lot of money on gambling, and if they're broke once they get their room and food budget accounted for, there won't be much gambling. I do expect more chatter about "non-gaming revenue is up" but I don't think I'll take it as seriously as I used to.

I don't think it will bust the town or anything, but I think some companies will be selling rooms for a fraction of the price they were hoping to, which makes it all worthwhile for the consumer in the end, I guess.

March 30, 2006 5:18 AM Posted by detroit1051

The Las Vegas Convention and Visitors Authority issued its 2005 visitors profile. Higher costs have not deterred visitors, and in the words of MGM's Alan Feldman, "The community has focused on nongaming attractions for the better part of the last decade....This just shows that the effort has brought a better gaming customer as well."

The average casino budget was up 15% in 2005, and food and drink expenditures were up 19% in the last two years.

A summary of the 90 page report can be read at:

http://www.reviewjournal.com/lvrj_home/2006/Mar-30-Thu-2006/business/6609259.html

March 31, 2006 8:02 PM Posted by detroit1051

In Business Las Vegas has more details from the LV Convention and Visitors Authority's report on Las Vegas visitors. The income figures make me conclude higher prices will not jeopardize the continued success of the city.

http://inbusinesslasvegas.com/2006/03/31/tourism.html

April 2, 2006 7:32 PM Posted by viniita207

Found a great Vegas site! Easy to use, filled with accurate information. Everything I needed in one place. insidervlv.com

April 7, 2006 5:21 PM Posted by Jeanne Pollack

Just got back from LV. The slots were terrible,
prices too high, small Casinos biting the dust, no
more LV for me. Will go to Biloxi or Laughlin
or other Casinos. I never was so dissaponted in my life. GOODBYE LAS VEGAS. I will live with my memories, thank you.

April 8, 2006 6:03 AM Posted by Robbylou121

Great article Hunter!

Our visits to Las Vegas started in 1997 and we would go 2-3 times a year. I remember 2000 the best when we got a "family rate" of $49.00 a night at the Flamingo (off their website)..the next year we started to plan and wanted to stay at Flamingo and the room rates were 129.00 a night and the family rate was gone and that was in one year. Here it is 2006(last visit was 2004) and we plan on going out in June and you talk about "Sticker Shock"..wow they are getting to be too much for us to afford..we are gamblers and like to have fun gambling. We will see if we still like Las Vegas when we go in June.

My question is why does the Gaming Commission approve all the buy outs? I guess that if there is just one independent casino then there is no monopoly. Thanks again for the great article.

April 8, 2006 11:05 AM Posted by detroit1051

The April 8 Las Vegas sun has a story on this topic.

"We're seeing people who would only stay at a Four Seasons property staying at the Wynn. They wish they would implode all the lower-end resorts and start bringing in more Wynn resorts."

Read "Vegas boom going upscale, Middle-income tourists not in picture" at:

http://www.lasvegassun.com/sunbin/stories/sun/2006/apr/08/566655510.html

April 9, 2006 2:56 PM Posted by Mike P.

I stumbled across a reservation confirmation for a Bellagio stay of ours last July. Rates for a Penthouse suite were $450 a night with a weekend bump to $600. For the same week this year they're quoting $600 a night, but without the weekend rate hike.

I was hoping Wynn and Augustus Tower's opening would put some pressure on high end room rates, but just the opposite happened.

Rising room rates haven't had too much of an effect on us -- yet. My wife usually takes a CME course on our Vegas trips, so her expenses are mostly reimbursed. I could see us cutting down on pure leisure stays though, especially during busy seasons.

Mike P.

May 4, 2006 10:34 PM Posted by Blondee

What about the tourist on a budget that only goes to Vegas for the decadents, the atmosphere, the heat/sunshine without gambling?

Staying outside of the main strip like Orleans or Rio can be a burden for those who don't rent a car?

Is it true that Vegas [on the strip] is forgeting about travellers like me?

May 5, 2006 2:02 PM Posted by Hunter

The town is certainly catering more and more to non-gamblers. So, no, they aren't forgetting about non-gamblers - they are embracing them even more.

It is true that there are more and more options with higher price points but there are also a lot of options at the lower end. Like you indicated, you might have to drive/walk/take a bus to save the money, but those options exist.

May 6, 2006 4:34 AM Posted by detroit1051

The May 6 issue of the New York Times has an article on the escalation of prices in Las Vegas, "No More Cheap Shrimp Cocktails in Las Vegas". It can be read for free, but you may have to register at the site.

http://select.nytimes.com/mem/tnt.html?emc=tnt&tntget=2006/05/06/business/06vegas.html&tntemail0=y

May 22, 2006 3:14 AM Posted by John

I finally made it to Vegas back in january and loved it. I am not a gambler at all, but I love the entertainment aspect of vegas. I attended the Adult Entertainment Expo, which is what lured me to go to vegas finally. I stayed downtown and coud care less about these upscale mega resorts. Give me a clean room to throw my stuff in and sleep and i am happy because for me, I am not in my room until I come back from being out all day and then get changed and head out for a bite to eat and party in the nightlife. I laugh at those who say stay at bellagio..why to sleep 3-4 hours a night?
Vegas will always have deals, just have to do some work by searching the internet and your local travel section in the newspaper.
I don't drop thousands in vegas, I'll bring about $700 and I am good to go. I went again at the beginning of this month, May, and had a blast. vegas will not only be for those who have 6 figure incomes. There will always be deals to be found. I attend the shows, check out the attraction, go to the bars/nightclubs and stroll up and down the strip. I may not be what vegas likes as a visitor but hey I feel comfortable there, Vegas has made me feel comfortable.
In Toronto we can find lots of good deals online and at our travel agents. Just that most people are too lazy to bother to take the time to do some searching. 4 nights at Excalibur with return airfare on America West only cost me $600...not bad at all.