About a year after Wynn Las Vegas opened in 2005, executives took square footage from a bar in order to expand a nearby baccarat pit.
Less than two years after Encore opened next door, the resort’s porte cochere was removed to make way for a 60,000-square-foot party venue — Encore Beach Club and Surrender nightclub.
And less than a year after opening, renovations are under way at the Cosmopolitan to transform an upstairs VIP lounge into a high-limit gaming room.
Such changes are common in new resorts, underscoring the constant pressure to maximize profits. Yet given the dollars at stake, some may be surprised that most of these decisions are made based more on instinct and tradition than actual data.
“It’s guesswork,” said Tony Lucas, a UNLV hotel management professor, statistician and industry consultant who has published academic studies on which casino attractions make money.
Few casinos conduct research to determine the incremental profitability of new or different amenities and instead rely on anecdotal evidence about the relative benefit of, say, a fine steakhouse or casual restaurant versus a bar, club or gaming area. He calls it a trial-by-error process.
Why? Such analysis is challenging for casinos because they rely on a lot of unrecorded transactions, said Jacob Oberman, director of gaming research and analysis for CB Richard Ellis. Unless customers are using loyalty cards, their spending habits can’t easily be tracked.
Meanwhile, the pressure to remodel and add new attractions will likely increase in the coming years as the economy has resort construction on hold, Oberman said. The focus will be finding new ways for visitors to spend money they otherwise would not have spent, and will involve the addition of venues such as high-end spas or pool parties.
In general, casinos can’t afford loss leaders, Oberman said. Each amenity must generate a profit.
“You used to go to a pool for free and now you pay for it,” Oberman said. “They’re not just refreshing what they have but devising new ways of capturing the patron’s wallet, that potential for 24-hour spending.”
As the process continues, casinos are likely to change venues that are successful in an effort to find larger profits, he said. For example, rather than stick with a profitable restaurant, a casino might decide to lease the space if it can make more in rent.
Change has always been a constant in a town that depends on the whims of fickle tourists. But the emergence of opulent megaclubs and pool clubs appears to have speeded up the process, as some clubs — as is typical for the fleeting nature of that industry — have gone through multiple incarnations within the past decade.
“All of these properties are a work in progress,” said Patrick Bosworth, a partner with Duetto Consulting and a former marketing executive with Wynn Las Vegas.
Research can, however, give insight into the performance of casino amenities.
A 2010 study by Lucas and Sarah Tanford, an associate professor at the UNLV William F. Harrah College of Hotel Administration, showed that the addition of a pool dayclub and nightclub at an Atlantic City casino resulted in a significant increase in table game gambling ($150,500 per day) but had a negligible effect on slot gambling — a mixed result for a casino that generated 80 percent of its revenue from slots.
The results might not be conclusive, especially as the novelty of the pool and nightclub venue wears off over time, authors said.
Another study by Lucas and Tanford last year found a positive correlation between casual restaurants and low-end slot machine play as well as table game volume. Without determining cause and effect, a casino may incorrectly assume that a new restaurant increased business when in fact it might have been the result of a broader business trend or another change to the operation, Lucas said. And what’s to say a steakhouse wouldn’t make more money than a lower-end restaurant?
“You can make a bad bet and win anyway, sometimes,” he said.
In general, casinos aim to surround their gambling floors with attractions designed to work with their property’s particular brand identity. There appear to be few other ground rules, however.
“I don’t think there’s any one formula for success,” Bosworth said.
While Wynn Resorts’ CEO Steve Wynn prefers to roll the dice with amenities and spend money perfecting them, competitor Las Vegas Sands prefers to lease space to third parties with particular specialties and track records, he said.
Still, companies have directly attributed added profits to elaborate makeovers.
Revenue at Caesars Palace has grown as the property has tacked on upscale attractions, from the addition of the deluxe Colosseum Theater in 2003, a third expansion of the Forum Shops mall in 2004 and the opening of the luxury Augustus tower in 2005.
Nearly a decade ago, Caesars closed a Roman-themed attraction with formal dinners, magic acts and toga-wearing hosts and replaced it with the 36,000-square-foot nightclub Pure that continues to draw crowds. The attractions work in tandem with efforts to draw the company’s biggest gamblers to Caesars Palace from other casinos in Las Vegas and beyond.
After buying Treasure Island in 2009, Phil Ruffin closed the resort’s relatively new Christian Audigier nightclub, which had replaced another club. Neither club had been especially lucrative, and Ruffin plans to scuttle the opulent nightclub concept for Senor Frog’s, a chain of tropical-themed restaurants with bars geared toward a middle-class crowd.
Cosmopolitan executives decided to build the high-limit gaming room based on growing demand from high-rollers, according to Chief Marketing Officer Lisa Marchese. The high-limit room will be on the resort’s second floor, near its busy Marquee nightclub, restaurants and shops.
It appears to be a strategic move to grow gambling revenue that has fallen short next to food and beverage offerings that have done well with a “cool crowd” that prefers other forms of entertainment to gambling, Bosworth said.
“They brought in some of the best hosts (for gamblers) in city. My guess is those hosts have talked to those guests to find out what they want,” he said.
Ideally, casinos should study their properties before and after the arrival of a new venue to determine whether it had an effect, Lucas said.
“Casinos can’t afford to make mistakes in today’s economy,” he said.