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With Layoffs At MGM, Uncertainty At Caesars, Is The Strip Doing OK?

Layoffs at MGM. Uncertainty at Caesars. Flat Las Vegas visitor volume.

Are warning lights flashing on the Strip even as the Raiders stadium, a bigger convention center, and new resorts take shape?

At MGM Resorts International, nearly 300 people were laid off last month and more job cuts are expected. Caesars Entertainment is looking for direction with a new CEO, and activist investor Carl Ichan is said to be pushing for a sale.

And on top of that, the Cosmopolitan and other Strip resorts are possibly on the market.

What is the economic health of the Strip?

Chad Beynon, a gaming and lodging analyst for Macquarie Capital. He said the overall message from the latest earnings reports from the two biggest players in the Las Vegas market - MGM Resorts and Caesars Entertainment - is one of stability.

He said there were some pockets of weakness in the 4th quarter and a slight deceleration in the 1st quarter because the VIP players didn't come for Chinese New Year and the Super Bowl. 

Beynon said the changes at MGM Resorts and Caesars Entertainment are a response to shareholders. Both companies are publicly held, which means they must do the right thing for shareholders, he said.

"MGM frankly hasn't lived up to the expectations during the past year and a half," he said, "Caesars has been slightly more efficient here. They've implemented some continuous improvements initiatives, some artificial intelligence, some ways that they slice and dice data and I think MGM was a little bit behind."

Support comes from

He said because of that they had to restructure to make some margin improvements. Margin refers to the cash flow of a company divided by its revenue.

MGM is looking to save $100 million in labor costs with the employee cuts that are expected to be near 1,000 positions when everything is finished.

While the layoffs at MGM has people wondering about the health of the economy, John Knott, a resort real estate broker with CBRE, said there are signs in his sector that the economy is doing well.

He said the price for real estate in the resort corridor is doing well and pieces of property are selling. He pointed to the recent sale of land along Blue Diamond Road and Las Vegas Boulevard for $60 million and the sale of land at Harmon and Koval for $130 million.

"I think those are good signs of the economy improving," he said. He believes it shows that capital is coming into the market again.

Knott is doubtful that new resorts will be built along the far south end of the boulevard. He believes any new projects will expand out from the Strip near the Rio and the Palms or toward the Hard Rock Hotel on Paradise.

Knott is also very bullish about the new Raiders Stadium and what it will mean to the economy.

"It's going to be a huge splash," he said, "One, we're going to be an NFL city I think that puts us on the map worldwide differently then we've ever been before."

He does think that businesses around the stadium need to be careful and have a business model that brings people in all the time - not just for the estimated 41 events the stadium will host a year.

Overall, he believes tourists will fly in to see games. UNLV's football program will benefit from a better place to play and he's interested to see what other events will be hosted there.

Anthony Curtis also supports the new stadium and the business it is expected to bring to the city. Curtis runs the Las Vegas Advisor, a website highlighting deals around the valley.

Curtis has a different perspective on the valley's economy. He blames the drop in visitor volume to the nickel and diming of everyday visitors.

He said readers tell him all the time they're not coming to Las Vegas as often or they're not going to as many events on the Strip because of resort fees, paid parking and fewer comps and deals.

"I don't think it's a coincidence," he said, "I think there is a direct correlation there." 

Curtis said, of course, the prices on deals like cheap steak dinners and 99 cent shrimp cocktails have gone up over the decades because of inflation but many customers have hit a tipping point. They don't want to pay for $150 show tickets plus $30 for parking, he said.

"People come, we make money, meaning Vegas," he said, "Fewer people come, we make less money over time."

Guests

Anthony Curtis, Las Vegas Advisor; John Knott, resort real estate broker; Chad Beynon, gaming and lodging analyst

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