13.3.07

THE END OF CROSS-SUBSIDIES. Amid news of the demolition of the Stardust casino hotel is evidence of the changing economics of legal gambling.
Bob Boughner, Echelon Resorts' chief executive, said while the Stardust was a favorite of the nostalgia crowd, it was missing out on younger patrons and those who come to Las Vegas for conventions.

For many, the Stardust represented the most accessible place to stay in a city that gives VIP treatment to the biggest gamblers. But the concept of discounting rates to keep people coming is rapidly fading from the Las Vegas Strip as many casinos nowadays make more revenue from hotel rooms, clubs, shows and cuisine than from gambling.

"There was this implicit idea that invisible high rollers came in and funded everything, so that Mr. and Mrs. America could have a steak for $2 and see Frank Sinatra for the price of a drink," said David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas.

"Now you can build a 7,000-room hotel and charge $300 a night for rooms," he said. "With slots being so big, it is all the people losing $200 per trip that are driving the growth."
The casino hotels might have been able to engage in such cross-subsidies as long as legal gambling was confined to Nevada. With the proliferation of small-stakes casinos on reservations and the belief of many governments of obsolete cities that a casino strip was a way to reverse economic decline, the small-stakes gambler has ample substitutes closer by. The nature of a Las Vegas hotel is sufficiently different today than it was at the beginning of the Jet Age that there is a Casino Death Watch mourning the end of those historic properties.

The article does not mention whether the 7,000 room hotels are offering the equivalent of a $500 room for $300. The hotel that is to replace the Stardust, however, clearly envisions a different sort of customer mix.
The Echelon is to open in late 2010 with more than 5,000 hotel rooms, a production theater, concert venue, shopping mall and more than 1 million square feet of meeting space.
We're seeing a variation on the shipping the good apples out phenomenon. If low-stakes gambling is as nearby as the closest reservation or rundown city, there is no incentive for the low-stakes gambler to spend a lot of money going to Las Vegas. Those people who are willing to spend the larger sum of money traveling are, consistent with the incentives of a fixed access fee, willing to consume the experience more intensively, either in the form of higher-stakes gambling or more expensive entertainment.

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