With rising displeasure at added fees and charges, as well as more competition from casinos around the world, Las Vegas-based gaming operators need a new way to stay profitable. Some believe that sports betting is the solution, and a new emphasis on wagering has already changed the way these companies approach their business.
Las Vegas casinos made peace long ago with the expansion of gambling. More than that—they are frequently the ones advocating for it, and they often maneuver for years to take full advantage of new opportunities. This is nothing new. Since the 1990s, casino companies have championed the expansion of gambling opportunities both across the United States and internationally. Sometimes it works out—Las Vegas companies have reaped handsome rewards for investing in the Chinese enclave of Macau despite some rough patches—and sometimes it doesn’t, as when Las Vegas Sands owner Sheldon Adelson nixed the planned $30 billion Eurovegas resort near Madrid after pushback from the Spanish government.
But while expansion has worked out well for Las Vegas casinos, conditions at home have been less than stellar. In the early 2000s, the city rebounded from the double-whammy of the post-9/11 recession and increased competition, especially from California tribal casinos, by adopting an upscale, adult approach. Fewer roller coasters, more night clubs. And it worked—until the Great Recession took a bite out of visitor and revenue numbers.
Since hitting the trough of the Great Recession in 2009, Las Vegas casinos clawed their way back to profitability with a mix of international (mostly Chinese) high rollers, convention business, and increased entertainment options. With domestic gamblers apparently wagering less but spending more on food, drink, and shows, the new Vegas that emerged was different from the old. Before the recession, Las Vegas Strip casinos made 41 percent of their money from gambling; last year, that figure had fallen to 34 percent, with every indication that it will continue to decline.
Vegas isn’t about gambling anymore, as players who bemoan the spread of 6:5 blackjack know.
This summer, however, the focus on non-gaming doesn’t seem to be paying off as it has in the past, with both occupancy and spending per room down. So Las Vegas is embracing—and exporting—something it has shied away from in the past: sports betting.
For decades, sports betting was an afterthought in Las Vegas. This was because of a federal law that mandated a 10 percent excise tax on sports betting handle. Since the house edge on sports bets is about five percent, that kept Nevada casinos far away from the business. After Congress lowered the tax to two percent in 1974 and then to a quarter of a percent in 1982, casinos began adding sports books—not so much because sports betting itself made money, but because executives didn’t want big players leaving their casinos to place bets elsewhere, since they would almost certainly gamble on higher-margin games where they bet. So sports books were an amenity for players, not a revenue center. Many Las Vegas casinos even sublet their sports betting operations to companies like William Hill and CG Technologies.
But, as gambling has proliferated and competition has grown, the big Las Vegas-based casino operators have begun to look more fondly at sports betting since it is something that they have offered for years that has a rapidly-growing national audience (for the legal product, at least; illegal betting has been massive for decades). For the past twenty years, the legalization of sports betting has been in limbo. States that didn’t already have legal sports betting were prohibited from adopting it by the Professional and Amateur Sports Protection Act. When the Supreme Court struck down that law on May 14 of this year, the floodgates opened. Five states—New Jersey, Pennsylvania, Mississippi, West Virginia, and Rhode Island—have legalized sports betting, and Delaware, which had been offering parlay (multigame) bets under PASPA, quickly began offering single-game betting.
This is why, in the past month, the big news coming from Las Vegas hasn’t been new headliners or restaurants, but sports betting deals. MGM Resorts International announced that it would partner with UK-based GVC Holdings to create a sports betting and online gaming platform in the United States. The Vegas-based gaming and hospitality giant also inked a deal to share online and mobile gaming opportunities with Boyd Gaming. Not to be left out, rival Caesars Entertainment announced a partnership with manufacturing behemoth Scientific Games to offer sports betting in New Jersey and Mississippi.
Executives are banking on these expanded opportunities to allow them to tap into the growing market for legal sports betting in the United States. Historically, Las Vegas casino operators have shifted their focus to whatever the next growth area appears to be. Whether it was riverboats, conventions, Macau, nightclubs, or resort fees, this approach has kept the industry financially viable in the face of massive competition and major shifts in consumer behavior.
Some question, though, just how big an impact sports betting will have. After all, in Nevada sports wagering has traditionally accounted for only one to two percent of total gaming win. Even if that percentage were to double or triple, sports betting wouldn’t present the same potential returns as expansion into new markets.
The counter-argument is that there are few new markets to expand into; Japan is the biggest global opportunity, and there are few places in the United States that don’t already have casinos nearby. Sports betting represents something rare, an untapped domestic growth frontier. Also remember that corporate leaders are not necessarily tasked with increasing revenues long-term. Rather, they are charged with driving shareholder value, which usually means pursuing short-term revenue gains that boost investor optimism and bump the stock price.
Given that the Supreme Court’s voiding of PASPA and the latest round of partnership announcements led to increases in share values, you could say, “mission accomplished.” In any event, the apparent success of sports betting and the turn to online and mobile wagering platforms is significant because it suggests that, although casino companies have invested (and continue to invest) billions in building and maintaining resorts, they are willing to create ways for their customers to gamble remotely.
The shift to remote wagering is a profound one. Traditionally, casino owners wanted to attract players to their property and keep them there as long as possible, initially to play casino games, but later to spend money on a range of attractions. Letting customers play at home reverses this strategy, acknowledging that while some gamblers want to go out on the town, others just want to get their bets down as conveniently as possible.
An era in which room rates were down in Las Vegas but casinos weren’t panicking because sports betting was trending up would have been unthinkable until recently, but it is just the latest example of casinos doing what they do better than anything else: adapting.
