IN-DEPTH 30 June 2016
Diversification is king in Las Vegas
When the housing market crashed, Las Vegas was one of the worst affected cities in America. Close to a decade on, and it's clear lessons have been learned.
By Oliver Lovat
As a long-time obsessive of US politics, 2016 has already been a great year. Las Vegas has hosted candidate debates, campaign rallies, private fundraisers and is lined up as the venue for the all important final Presidential debate later this year.
It wasn’t always like this.
For the politicians of previous generations, Las Vegas was toxic, in the main thanks to its reputation as being a “sunny place for shady people”. In the eyes of the vote-hungry it was seen as one of the worse places to be associated with in America.
And then in the ‘08 recession, Las Vegas was hit more severely than most cities as visitation, spend and population dramatically contracted.
The city crashed, and crashed hard.
Las Vegas had to both reinvent its brand and its offering, and diversify economically in order to shield itself from repeating the economic downturn. Several years on and Las Vegas is becoming one of the most innovative, exciting cities in the world.
The focus on Las Vegas during this election cycle indicates how perceptions of “Sin City” have changed. Las Vegas, because of its unique history, culture and development, has encouraged bold risk and innovation on a scale that few places have done.
The most obvious impact Vegas has had is in the study and development of casinos.
The land-based casino market in 2006, a decade ago, was valued at $99.8bn and by YE 2015, this had risen to $182.7bn. There are very few mature industries that have increased revenues by nearly $80bn over the past decade. Granted, much of this actual revenue is in Asia and not the US, but Las Vegas companies have still been among the greatest beneficiaries, including MGM, Wynn Resorts and of course Las Vegas Sands, which has captured up to 50% of the EBITDA in Macau and an even higher percentage in Singapore.
The large gaming companies in the US had decades of best practice experience in design, operations and marketing, allowing them to craft attractive, lean casinos focused on customer needs without the trial and error that is so evident in other immature markets.
Many gaming executives in Las Vegas count UNLV as an alma mater. Founded as recently as 1957, UNLV has quickly become one of the the leading academic and training facilities for hospitality and hotel management.
For gaming research, both the UNLV Centre for Gaming Research, led by Dr David G Schwartz, and the UNLV International Gaming Institute are world leaders, in 2016 the latter launched a global centre with three focuses: Gaming Innovation, Global Gaming Regulation and Hospitality in the Gaming Sector. These placed it at the centre of the debate and repository of best practice.
With online gaming revenues now at circa $50bn, combined with land, the global gaming industry has revenues of $230bn globally. This is an enormous industry, and with forecasts predicting that i t will continue to grow further, UNLV is poised to grow in stature, size and relevance as the industry matures.
For anyone interested in thought leadership in the gaming industry, this is the place to be.
As a place to live, Las Vegas does not have modern urban problems such as over-crowding, antiquated infrastructure and fractured development, but few cities have seen population growth like Las Vegas.
The Las Vegas metro population demographics over the past 50 years are like no other city in the USA, with population in 2014 being 16 times that of 1960.
As a result of this massive population growth, Las Vegas has become a model of best practice for new master planned community development as the likes of Green Valley and Summerlin have grown from desert scrub.
These areas have not seen a race to quickly saturate, develop and then exit. Developers have built slowly, creating carefully planned, distinctive communities.
There are trends in the multi-family space to integrate resort offerings into day-to-day living, as plenty of developers have cross-sector experience. Las Vegas has become a model for next generation living.
There are hundreds of examples of entrepreneurial activities, from Tony Hsieh’s Downtown Project, which recently celebrated its three year anniversary, to Faraday’s electric car plant in North Las Vegas, all the way down to the guy who launched a food truck on Ogden last week.
As perhaps the greatest victim of the US recession, Las Vegas has realised more than ever that because of its unique characteristics the city is unlike any other, because it is a laboratory where people can afford to take risks. With 42 million visitors each year, the customer base is unique.
The seeds for long-term success have been planted, and those seeds are distributed further afield than simply in the tourism sector. In 50 years it would not be a surprise to see population increase by another two million as Las Vegas grows in importance both nationally and internationally, as it cultivates its climate for innovation and entrepreneurialism.
Oliver Lovat leads the Denstone Group, which offers strategic advice and consultancy on customer-facing, asset-backed investment, with a focus on casino resorts. He is a fellow of the Royal Institution of Chartered Surveyors and visiting faculty at Cass Business School in London