Point Blank – White Paper
On Las Vegas, the Raiders, and Third-and-11…
I am not going to interrupt the sports flow for this one, so you need not worry about missing anything, the daily Point Blank schedule remains as is. But over the last week I was able to see that there is a reason to dig more deeply into something that has generated more interest than I expected, a quote from me in the current edition of ESPN Magazine.
The piece is “Sin City or Bust”, a terrific read by Seth Wickersham and Don Van Natta Jr., and my contribution was - "For Vegas, it's third-and-11 coming up," says David Malinsky, a leading sports gambling expert who has lived there for 30 years. "If not for the Raiders, there just isn't much left in the playbook."
That quote ruffled a few feathers, but it shouldn’t have. I could say “you’d be surprised how much some folks will read into a single sentence”, but I am not sure these days that calling it a surprise is appropriate. So how about some detail as to just what was meant, and the opportunity for a deeper dive into a place that I am deeply attached to, and plan to be for the remainder of my life. I believe many of you will appreciate the ride, especially those that live in Las Vegas, while it also gives me the selfish ability to say – “click here” any time someone questions that quote in the future.
This is going to be a long read, and I apologize for that up front, but it also shows what can go into a single sentence. So let me offer one quickie before beginning – I am about as spiritually committed to the future of this area as anyone that I know (some of you are already aware of the particulars behind that). In the process, I am working closely with others that have such a passion and commitment, and these are some of the very best people I have ever known, which makes working with them such a privilege. It is in that work that there is also an educated understanding of this area; the sleeves having been rolled up for quite some time.
Item: The background (an evening at the Barrymore)
I both like and trust Don Van Natta. His diligence is something I especially respect in these rather careless modern media times, since one of the most formative stages in my life arc was as an aspiring young journalist. That was before I learned that the oddsmakers did not always get their projections right, which opened the door towards navigating around 11-10 for a cycle of over three decades. It was also my path to Las Vegas, literally getting a point blank view of the arc of a valley in the desert that had slightly more than 400,000 inhabitants when I arrived, and now tops over 2,000,000. It has been quite a view.
Don and I have had various discussions about Las Vegas, the gaming industry, hair color, and life in general through the years, and part of the research he and Seth were doing for the article touched upon something significant - at a time in which public financing for stadiums has been shown to be a dubious endeavor over recent decades, and just a few months after a referendum to keep the Chargers in San Diego failed, what was the foundational logic behind Las Vegas offering up the single biggest public subsidy for a stadium in U.S. history, a robust $750 million?
At first Don seemed surprised when he asked if I was in favor of the subsidy, and I said yes. That led to a long and nuanced discussion about where I believe Las Vegas was, is, and likely would be had the prospect of getting the Raiders not been in play. To bring that discussion into a condensed form, and also into a language that the readers of the ESPN article would likely relate to, it came down to “third-and-11”.
In truth, I explained it this way (to paraphrase a bit) – maybe not officially third-and-11 yet, but it is second-and-11, the quarterback has left the pocket and intentionally thrown the ball away, and the downs-keeper on the field has begun to flip from the #2 to the #3 before the ball has touched the ground. So let’s lay it out.
Item: Third-and-11 is not a desperate situation, but it does mean that you need to make a play
I believe third-and-11 is accurate, but some folks took offense to it, claiming that it painted a dark portrait. It was not meant to. If a dark portrait were intended, it would have included the score of the game, and the time remaining. Instead, what third-and-11 means is that you are in a position in which you need to make something happen, and it may well lead to calling for a low-percentage play. The down-and-distance backs you into that, and a play that one would not consider calling on first or second down, when circumstances allow more favorable options, can be what ends up as the maneuver when the options become limited.
I do not believe Las Vegas is in a dark place, but the potential is there if a positive play is not made. Bringing in the Raiders is a difficult economic gamble, but there is an upside to the process that base economic analysis won’t necessarily see. Most major cities have established their identities, so there is only so much difference a team, or a stadium, can make. Las Vegas is different; there are far more residuals that can potentially come into play.
This city can be a good place to live. Outside of some scorching summer months the weather is pleasant, and the cost of living is extremely reasonable. But outside of the Hotel/Casino operators there has been an on-going struggle to attract industry, and I believe an unfair one. There has been an unfortunate stigma attached, that of gambling impacting the lives of employees so much that it would become a burden on a company located here. That may well have been true in the latter part of the 20th century, but I believe is a much lesser concern now, and possibly microscopic in the future, which is something I will get to in a moment.
So a significant part of how third-and-11 got created across the collective Las Vegas valley is a lack of economic diversity, the sort of thing that enables a community to withstand ebbs and flows. There has been better news in northern Nevada, where both Tesla and Google can create positive economic impact, but Las Vegas has not been as successful.
This would also be the proper spot to address something that was also in the ESPN article, a reference that tied Las Vegas and Detroit together. I have heard from a few folks that also took that in an overly negative way, thinking of the unfortunate straits Detroit is going through, but I believe there is a meaningful connection to be made. It is not about Las Vegas falling into the rusted-out shell that much of Detroit has become, but instead about what happens when any city has too much of its economy tied to a particular industry (I grew up in the coal mine/steel mill belt along the Monongahela River in Pennsylvania, and have btoh lived through, and studiously researched, such socio-economic arcs). Las Vegas would not suffer as badly as Detroit should that key sector going into decline, but the over-reliance can lead to an awkward balancing act on an economic high-wire.
This has been going on through the first down and second down over the last couple of decades, and it will help to understand those plays a little better to put third-and-11 into a proper perspective.
Item: Las Vegas doesn’t have an “always”, and neither does the Hotel/Casino industry
I am going to use H/C for Hotel/Casino the rest of the way, to shorten a discourse that is likely to ramble on far too long.
Here is something I have had referenced back to me multiple times in recent days, about how wrong I was in my portrayal of the down-and-distance because “(Las Vegas, H/C) have always rebounded in the past”. No, they haven’t, because neither genuinely has enough of a trail to constitute all that meaningful of a past.
One of the key elements in sports handicapping that gets stressed here continually is understanding how rare “always” can be used to apply to anything. When building that discipline in understanding the ebbs-and-flows of what happens on a sporting field, one also learns to apply that model through other aspects of life. “Always”, if to be used properly, is damn rare.
Las Vegas has not been around nearly long enough to have an always, the city charter only a little over a century old. As for H/C, the debut was the El Rancho Vegas in 1941. It has only been three generations since then, even if what was happening at the El Rancho had any relevance at all to today, which it doesn’t.
There are issues both Las Vegas and the H/C industry are facing, some in conjunction and some independent of each other. And given those issues, the timing, and the players involved, what is past is not prologue.
Now let’s get to something that I believe is crucial to the understanding of third-and-11, and may not have been appreciated as it was happening…
Item: In 2017 and beyond, Las Vegas is only a mistress to the H/C industry
It would not be out of place to state that the growth of Las Vegas and the H/C industry was a marriage, because in terms of both time and place it was damn close to one. It isn’t anymore.
It was a good marriage, because like in many successful relationships when the needs of each party are integral to the other you can work together to build things. Las Vegas grew because of the H/C/ industry; the industry grew because Las Vegas offered the opportunity. It worked.
There were some creative entrepreneurial minds though this time that genuinely loved (I believe it is fair to use that word) both the city and the industry, classic names like Binion and Boyd that are still attached in some forms to modern operations, and you can count Steve Wynn as someone that has been through much of the cycle. It was Las Vegas that offered Wynn the opportunity to pursue his visions, and Wynn absolutely needed Las Vegas to also be successful if those visions were to get the time and space they needed to develop.
Then things changed. Instead of the Las Vegas strip being a place of creative vision, spurred by so many entrepreneurs competing with each other that encouraged innovation, consolidations took place. Other parts of the United States also opened up to various forms of casino gambling, which naturally led to the Nevada operators being the first in line for those properties, followed by the economic magic of a small island of a little less than 12 square miles called Macau.
Now four leviathans dominate the strip landscape, large cumbersome corporations that are not built well for maneuvering quickly in the water. They sure as hell don’t have an “always”, because so many of the suits upstairs are relatively new to the industry (more on the particular timing of that in a moment). They may bring top-level financial expertise, which can make a company effective at maintaining a positive status quo, but are those various corporate ladders filled with the kind of vision that built the industry in the first place? There isn’t much evidence of that, but that is for the next item.
It is important to understand that the relationship between H/C and Las Vegas has changed, the city now reduced to the role of mistress. When you are a mistress you are kept because of what you can do for the master, but the relationship becomes far less often about what the master can do for you. Once upon a time the success of the H/C industry was directly tied to the success of Las Vegas; it isn’t anymore.
A meaningful case study, which I won’t delve too deeply into here because of how long this is already going to run, would be the Las Vegas attempt at becoming a branch of the “Rock in Rio” music festival, hosting what was planned as the U.S. inaugural in 2015. Rock in Rio goes all the way back to 1985, held on occasion in Rio de Janeiro across two decades, before having become a semi-annual event, with Madrid having hosted a few, and Lisbon on the verge of making it semi-annual there now as well.
Las Vegas had/has the potential to be a terrific host of this type of event, arguably as good of a place as anywhere in the world. There was a serviceable, if not ideal, venue for the concerts, and not only easy access to tens of thousands of hotel rooms, but for visitors to be able to watch a show and be quickly transported to lounging by the pool during the daytime, or to top off the evening performances by hitting the clubs.
And some of us just went to see Gary Clark Jr. (this is from his appearance; if you have read this far you deserve a musical interlude).
At the same time it was also bringing something that is essential going forward – the ability to target a younger audience, get them to the city to experience it, and also do some tracking of their behaviors to help build future models to best cater to their mores. An on-going festival would have been an ideal way to stay contemporary; instead it appears that the 2015 event will likely go down as a one-off.
What happened? A festival that could have been great for the city was not necessarily great for three of the four H/C leviathans. MGM was the host, but was not able to get much cooperation from the other strip players. Why the lack? Because the others did not like the economics of their hotel guests for the weekend spending most of their time away from the property listening to music, instead of being under their roof either gambling, or spending money in some other form (especially with the festival itself helping to advertiser a competitor).
Rock in Rio had a chance to be a major plus for Las Vegas, the sort of thing a wife would get from a husband, who would understand it was in the best long-term interests of the relationship. But in this instance a mistress could not coax it from a lover, because it was not in the lover’s self-interest.
It would be easy to say that these major H/C players no long bleed Las Vegas blood when pricked, but that is slightly unfair because in their corporate models I am not convinced that they bleed at all. As the layers get built, it can be difficult to find the trace of a pulse that could be connected to any individual. That is not merely an H/C reference, but pretty much a way of life for corporate behemoths that operate across the globe in just about any industry.
Now for a little more about those H/C paramours that Las Vegas remains in relationship with…
Item: The growing challenge for the H/C industry, and just how well structured are they to play through it
Part of why I brought up flexibility and creativity for the large players on the strip is that those skills are being tested now. First there came the economic recession of a decade ago, which was a major test of reaction skills. It did not play well because by then the industry leaders had already grown so big that they could not be nimble, not just in terms of reacting to external events, but in still learning to put the right pieces in the right places beneath their large and often unwieldy tents (prior to bankruptcy, Caesars never really did figure out how to arrange their own furniture).
There was also something else that had warning signs that some listened to at the time but others did not pay heed – was the success of both Las Vegas and the H/C industry something that was on a growth curve, or was it also a right place/right time meshing to a cultural segment? There were some folks a decade ago beginning to offer a considered vision that the Baby Boomers were an almost ideal consumer for what was being offered, a best-case generation, and that it might have represented a peak, rather than merely another step on an infinite ladder.
There were some fascinating discussions on this front, and I got to be a part of a few of them, including doing some copious research on the issues, which continues to this day. But at the time, those with such views were considered more of being nay-sayers than anything else, the upper offices of the leviathans bubbling with optimism. When you combine optimism with cheap access to capital there is a danger at play, and it happened. Things were built because they could be, not necessarily because they should be, and that has created a major burden. When the Caesars bankruptcy was formally filed in 2015 the debt load was $18.4 billion, but even that only after a significant chunk (about $5 billion) had also been pushed to a side through some creative shuffling. MGM Resorts International entered 2017 carrying a debt load of $13.1 billion. That is a difficult cloud to be operating beneath, because the patience of creditors cannot be guaranteed.
The economic downturn of 2007-08 was a haymaker to the major H/C players, but perhaps made worse because there was so much focus on that front that the generational change of the audience was also slipping past them. At the time I began keeping a file of “when the economy rebounds we’ll be fine” quotes from the powers that be, and while some of that was naturally the PR that has to be offered at such moments, in looking across the dinner table, or at the bar stool next to me for some of the utterances of the phrase, I was often seeing eyes that indicated that was their genuine belief.
So now set some perspective in terms of down and distance and go back to the notion that the H/C industry does not have an “always”. You can trace the colossus that is currently Caesars to 2005, when Harrah’s bought out Caesars Entertainment for $9.3 billion. A more specific date for MGM Resorts International is tougher to pin down because of various cycles, from MGM Grand to MGM Mirage to the current name being adopted in 2010, with all sorts of acquisitions being added under the tent, as well as expensive forays into real estate (City Center). For as gargantuan as Las Vegas Sands is globally, it has only been 20 years since the first shovel hit the dirt at what is now the Venetian on :as Vegas Boulevard. Steve Wynn at least has a storied history in Las Vegas, but Wynn Resorts International was not formalized until late 2002. Many of the individuals involved have ridden through through ups and downs, but as large corporate entities there isn’t much that could be called a legacy of working through adversity, and nothing anywhere near an “always”.
I have some good friends working at these places, and they are among the sharpest people that I know. But they are part of huge structures that are still learning each day about how to best operate internally, much less evolve for consumer demand. A result is that Las Vegas ends up in an uncomfortable down and distance setting not just because the major players do not share as much interest in the development of the city as they once did, but that these major players might genuinely be too cumbersome to maneuver effectively anyway.
And now the next wave…
Item: The Millennials will not be as bad for the gaming industry as the murals that some will paint, but they sure aren’t going to be the Baby Boomers
At one point gaming revenue in Clark County grew in 36 of 37 years, a blip occurring in the latter part of 2001, for the obvious reasons. There was spectacular growth because Time and Place came together through a generational cycle of people like myself. I was born in 1960, learned to dial a rotary phone to talk to someone, and the neighborhood I grew up in did not have cable television until I was off to college. For me, and so many others coming from a low-tech time, casino gambling was exciting. And because of a relatively strong economy over a long period, we had both money, and the recreational time to spend it, just as travel was becoming much easier.
That is changing now, the next generation having grown up with easy access to around-the-clock entertainment, and also the excitement that technology can deliver. There thus becomes a question as to whether casino games would remain popular with a crowd that might actually find them duller than the rest of their daily lives, as opposed to being more exciting than the life many of my generation were living.
That will remain a question for quite some time, but the first hard numbers are coming in now, and one of the genuine concerns that has been shared to me by industry friends is that they are not comfortable with those numbers. From what I have seen they shouldn’t be.
We don’t have to go to any insider stuff here, what is commonly available helps to tell the tale. While there has been a gradual recovery from the economic malaise of a decade ago, that has coincided with the shifting of consumer behaviors. To establish a reference to work from, let’s go to some of the basics. The first indicates that in the most recent years, the numbers have been rather flat –
Clark County Gaming Revenue
2013 9,674,404,000
2014 9,553,864,000
2015 9,617,671,000
2016 9,712,796,000
Although in truth “flat” is not quite proper because visitations have increased 7.6 percent across that span. So let’s set a perspective by looking at gaming drop per visitor, going back a dozen years so that it can reflect the cycle before the peak, the quick decline afterwards, and while not entirely a precise phrasing, what can be called the post-recovery period -
Clark County Gaming Revenue per Visitor (in dollars)
2005 – 252.0
2006 – 273.2
2007 – 277.3
2008 – 261.4
2009 – 243.1
2010 – 238.6
2011 – 236.9
2012 – 236.6
2013 – 243.9
2014 – 232.3
2015 – 227.3
2016 – 226.9
Is there a particular non-gaming economic factor contributing to those recent declines? No one has brought anything they have found to my attention, though I may have missed something. Likely close to the truth - what industry folks do believe is happening is that this is representing the shifting sands of the Baby Boomer generation aging at the upper end, being replaced by Millennials in the visitor counts. That shift will continue to happen indefinitely into the future.
It isn’t that the Millennials are bad customers across the board; they are willing to spend money, but will do it in different ways on their visits. The issue is that they aren’t the Boomers, who the current carpets and drapes were selected for. Those of you that bet sports understand how to work the comparison – when a player gets injured his abilities are only part of the equation in adjusting the power ratings; it is also his particular style impact on the rest of the team, the abilities of the replacement, and the style impact of the replacement on the rest of the team that go into the formula.
Item: Visitor counts keep increasing because people really like Las Vegas (as they should)
Las Vegas has a lot to offer, people from various walks of life are aware of that, and they are coming here in increasing numbers. That is good for the city/valley. It is not necessarily a salvation for the H/C industry, however, if those visitors are less interested in gambling. There are shows, restaurants and clubs that have a tremendous appeal to the younger crowd, and money spent in those corridors helps to make up for shortfalls from the slot machines or the pits. But under the current operating models, plus the debt loads, it isn’t enough.
This becomes the major challenge of their collective business lifetimes for the H/C operators. Transitioning means at least tilting a bit from the foundations they were built upon, and some of these alternate avenues are not their field of expertise. Las Vegas Sands wanted little to do with food and beverage, and nothing at all with Sports Wagering, which just happens to be one of the gaming areas that the younger crowd is flocking to with an increased enthusiasm (in truth, almost all of the major operators were going in the opposite direction as sports betting was beginning to come into its own in terms of consumer interest over the past 10-15 years, debates of which I have far too much first-hand experience in).
Can they make the transitions? I sincerely hope so. A legitimate problem is that large entities built for particular purposes can find even slight adjustments in direction to be unwieldy, and whereas the H/C operators were once ruthlessly efficient in operating gaming in the past (though not so much now, their size negatively impacting their customer relations abilities, which had once been a cornerstone), will they be anywhere near that same level of efficiency in driving down what were formerly just side streets? Envision a big, bold, polished Cadillac trying to squeeze down an alley better suited for a sleeker vehicle.
Want to know something that you won’t be reading in public soon, but is showing up in some in-house surveys? I will not violate a confidence here by getting too specific, but there is a split growing in consumer attitudes – they like Las Vegas, but are not necessarily enamored with where they are staying when here. Results from similar surveys were far different in the past.
Hence, before the opportunity to get the Raiders came along, what I believed Las Vegas encountered was an over-reliance not only on an industry that faces uncertainties, but also that the leading players in that industry were likely going to care less about the well-being of this city over time as well. That can happen to a mistress.
And that, folks, is what led to the notion of “third-and-11”, which I believe is as close as I can come to translating the various circumstances into a sports setting. If not for the Raiders and the NFL, which help to put a stamp that makes a far easier sell to other businesses with relocation interests, I don’t know what else was going to be coming to the table. And something needs to come to this table. I could cite so much more, one of the more telling current dynamics being the hesitation of the Genting Group to go forward on the land that was formerly the Stardust, memories coming to the front because it was just a few weeks ago that the 10-year anniversary of the implosion of that property took place (sometimes it feels like yesterday; other times it feels like 30 years ago), but this is likely already far more than you wanted to read.
There are a multitude of other talking points out there, but perhaps the most insightful just might be how the $750 million for the Raiders got passed. It was done by those that understand just what much of the writing on the wall indicates. When it’s “third-and-11” you gotta make a play…
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