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Higher interest rates, rental costs ate into casino profits, new report shows

Updated February 16, 2024 - 4:28 pm

Gaming industry experts say the cost of doing business, everything from higher interest rates on borrowing to paying employees higher wages, sliced into casino company profits last year despite companies taking in more money than ever before.

A detailed 163-page report issued Friday by the Nevada Gaming Control Board says most Nevada casinos made less money in the 2023 fiscal year than they did in 2022 because of higher interest rates, rental costs and other general and administrative expenses.

The board’s 2023 Nevada Gaming Abstract said casinos statewide made net income of $3.44 billion off revenue of $29.86 billion in the fiscal year that ended June 30. The net income — the amount kept by companies after expenses — reported was 21.4 percent less than in the 2022 fiscal year, but revenue — the amount collected for hotel rooms, food and beverage and other attractions as well as gambling — increased 8.9 percent statewide.

But don’t weep for the casinos — this year’s net income was the second highest in the history of the report and the reason amounts declined in every market except South Lake Tahoe was that fiscal year 2022’s numbers were all-time highs.

Michael Lawton, the Control Board’s senior economic analyst who crunches gaming numbers, said the reason profits dropped since 2022 was because of higher administrative costs.

Lawton said interest expenses increased 23.3 percent or $448.8 million, rent of premises increased 69.8 percent or $248.3 million, and other general and administrative expenses increased 17.1 percent or $612.7 million.

Brendan Bussmann, a gaming industry analyst with Las Vegas-based B Global, said costs associated with paying higher wages and benefits also sliced into company profit margins.

Companies will be paying even more in the current 2023-24 fiscal year after resorts and the Culinary Union reached consensus on new five-year contracts that include record pay levels at every property that uses union labor.

Bussmann noted that MGM Resorts International CEO Bill Hornbuckle has cited paying higher labor costs in company earnings calls.

“You have rising costs of some of those things are starting to play out as factors into the overall global scheme of things when it comes to revenue and the tax structure,” Bussmann said.

But with revenue remaining high, every transaction in the casino, whether it’s casino play, renting a hotel room, buying a restaurant meal or tickets to a show or attraction pays off to the state in the form of taxation.

“Because all those things have a direct impact whether it relates to the room tax, the live entertainment tax, sales tax, and all those other things that are contributing factors and shows what a great sector gaming continues to be, not just for Las Vegas,” Bussmann said. “All those factors drive the economy and support our government resources.”

Lawton said every Nevada market except Laughlin in 2023 surpassed prepandemic levels recorded in the 2019 fiscal year.

Nongaming amenities generated even higher percentage of revenue amounts than casino play again in 2023.

Gaming revenue totaled $10.9 billion and accounted for 36.6 percent of total revenue, which was down from last year’s 40.2 percent.

Rooms, food, beverage and other departments accounted for 63.4 percent of total revenue, up from last year’s 59.8 percent. Nongaming revenue totaled $18.9 billion representing a new all-time record and increased $2.5 billion or 15.5 percent over fiscal year 2022 which was the previous high at $16.4 billion.

According to the report, among 174 Clark County licensees, hotel occupancy was highest in the months of October 2022 and March 2023 at 87.4 percent with a 12-month average of 83.3 percent for the fiscal year.

On average for the year, casinos collected $96.43 per day, per room on table games, including keno and bingo; $239.42 per day, per room on slot machines; $120.78 on food sales; $58.51 on beverage sales; and $211.27 on the average daily room rate. Companies paid an average wage of $39.36 per room, per day.

The 174 casinos had an average 36,717 square feet devoted to gaming space yielding $2,027 per square foot. The most profitable casino sections: table games including keno and bingo, which brought in an average $3,254 per square foot, per day, with slots generating $1,789 per square foot, per day.

In Southern Nevada, Clark County net income of $3.03 billion (down 20.7 percent) was kept from revenue of $26.859 billion (up 9.5 percent).

In Southern Nevada submarkets:

— Strip, net revenue of $1.37 billion (down 33.6 percent) from revenue of $20.48 billion (up 11.6 percent).

— Downtown Las Vegas, net revenue of $259.2 million (down 3.9 percent) from revenue of $1.55 billion (up 4.3 percent).

— Boulder Strip, net revenue of $413.5 million (down 6.7 percent) from revenue of $1.25 billion (up 1.8 percent).

— Laughlin, net revenue of $54.5 million (down 32.9 percent) from revenue of $674.2 million (up 1.6 percent).

— Balance of Clark County, net revenue of $925.6 million (down 2.9 percent) from revenue of $2.891 billion (up 1.8 percent).

The report said gaming revenue statewide was $10.92 billion for the fiscal year, down 1 percent. In Clark County, it was $9.35 billion, down 1.2 percent; the Strip $5.45 billion, down 2.3 percent; Downtown, $733.2 million, up 1.3 percent; Boulder Strip $854.3 million, down 1.4 percent; Laughlin $371.3 million, down 2 percent; and balance of county, $854.3 million, up 1.1 percent.

The Control Board purposely does not identify which properties are in which markets because many of them are privately held.

The statewide report covers 300 nonrestricted gaming licensees with gaming revenue in excess of $1 million. Of those, 174 are in Clark County. A total of 54 casinos are operated by publicly traded companies that accounted for 64.4 percent of total gaming revenue during the fiscal year. Those companies routinely report net income and revenue on a quarterly basis.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on X.

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