Is Vegas Signaling The Consumer Is Folding?

Tyler Durden's picture

Visitor volume to Las Vegas is the highest since 2007, despite rising hotel rates, but gaming revenues are near flat.  Online gambling is popular with Europeans – the Brits and Greeks in particular – yet it has slowed over the past 3 months. ConvergEx's latest off-the-beaten-path economic indicator – gambling – shows an increasing global reluctance to leave household finances at the whims of blackjack and poker tables, be they in actual casinos or online betting parlors. Discretionary spending behavior is reliant on consumer sentiment and economic outlook; gambling is the ultimate “luxury item” because there’s absolutely no guaranteed return, so gambling behavior is a near real-time indicator of changes in consumer confidence.  Our gambling indicators, both domestic and abroad, show what feels a lot like recessionary behavior and point to another leg down in the latter half of 2012.

ConvergEx: Know When to Walk Away and Know When to Run

I’m not really a gambler so when I won 110 bucks on a hand of 3 card poker last weekend I was ecstatic.  I’d never even sat down at a “Real” casino poker table and realized very quickly how gambling addictions can happen.  Yes, I know there are rafts of academic papers on the biological reactions to the win-loss cycle of gambling.  But reading about the rush of endorphins and adrenalin and actually feeling them are two different things entirely.  Anyway later that night, I was dragged out of the casino after forking over $30 to the blackjack slot machine in 15 short seconds.  All said and done, though, I went home a net winner.  Perfect – considering I’d expected to lose my entire pre-determined gambling budget.

 

It was a budget I viewed as a purchase.  I paid “X” amount of dollars for “Y” number of entertainment hours, the goal being to maximize “Y.”  Gambling is therefore the ultimate form of discretionary spending – you’re essentially guaranteed absolutely zero in return for your money.  And for this reason, it makes for a colorful – and useful - economic indicator of consumer sentiment and consumption patterns.

 

First up, gambling in America.  The Las Vegas Convention and Visitors Authority (LVCVA) publishes an assortment of facts and figures, which we’ve compiled as a barometer of middle class America’s spending behavior and economic outlook.  But before we dig into the economic implications of the Vegas data, here’s a closer look at the segment of the U.S population which we’re analyzing.  These demographics are the result of in-person interviews with 3,600 randomly selected visitors in 2011.

  • An overwhelming majority is either currently working (66%) or retired (25%) – virtually none are unemployed (1%).  The remaining 7% is a mix of students and homemakers.  We can’t help but wonder about the “Unemployed” statistic – but that’s what the LVCVA publishes, so that’s what we’ll use.
  • It’s a relatively well-educated group: 50% graduated from college, versus 24% of the entire U.S. population.  25% have taken some undergraduate courses and 20% earned a high school diploma or less.
  • 73% earn at least $60K a year, well above the national average of roughly $44K per year.  32% take in more than $100K, while only about 6% earn less than the national average.
  • The average age is 49, and there’s a 1:1 ratio of men to women.  77% are married.  86% are white.

And here’s what we’ve found regarding the current economic condition of this cross-section of the American middle class, based on visits to Las Vegas and consumer behavior while there.

  • They’re going to Vegas in bigger numbers, despite the rising cost of hotels.  The average cost of a hotel room is $110 thus far in 2012, up from $105 last year and nearly 20% higher than the average of $93 in 2008.  Hotel and motel occupancy rates in the city average 84.3% this year, topping last year’s 83.8% and a low of 80.4% in 2010.  Even when lodging was comparatively dirt cheap, Vegas struggled to attract visitors.  Now that room rates have firmed, people appear to have little problem forking over the extra cash.  All good signs, thus far.
  • But while they have the means to vacation in Vegas, they’re more likely to be found at the pool or at a show than on the casino floor.  Visitor volume is up 2.4% in 2012 year-to-date (January through May) over the same period last year.  And in 2011 more people went to Vegas (39 million) than in any year over the past decade except 2007.  Gaming revenue on the strip, however, is up just 0.2% year-to-date.  Last year’s grand total of $6.1 billion was 5.1% higher than in 2010, so it seems the economic choppiness of 2012 has continued to shrink gambling budgets.
  • Google search trends for the terms “Las Vegas” and “Las Vegas vacation” for U.S. based Internet users support the notion of a very slight slowdown in online interest for the destination.  Interestingly enough, these searches seem to peak in January, presumably because of the annual Consumer Electronics Show (CES) that takes place that month.  Since the 2012 show, however, the search count seems pretty solidly down compared with prior years.
  • Closer to home, the Google Trends data for “Foxwoods” and “Mohegan Sun” show a similar slight, but perceptible, slowdown.  Internet search interest in both Connecticut gambling destinations is lower than at any point in 2011 when the economic recovery seemed on firmer ground.  As for Atlantic City, NJ’s star attraction – the Borgata – search traffic looks to be on par with 2010, but below the same time in 2011.  This location’s peak traffic is in the summer, in keeping with its location on the Jersey shore.

Overseas, gambling is also seems to be losing popularity.  The world’s most popular online gambling websites – illegal in many countries including the U.S. and China – are largely frequented by Europeans, according to data published by Alexa.com.  In the attached table we’ve included a list of the top sites followed by their biggest customers, in terms of countries.  For example, the most popular site, William Hill, is the 23rd most visited website in the country of Greece.  That’s equivalent to the likes of ESPN, the Huffington Post and the Weather Channel in the States.

 

Reach, or the estimated percentage of global internet users who visit a particular site, is down 1% in the past month for the top 6 gambling sites, while average time spent on the sites is down 9%.  Over the past 3 months, reach is down 6% excluding one outlier, and gamblers are spending 7% less time per site visit.  Greek and British citizens appear to be the most enthusiastic online gamblers, so a slowdown in activity likely could be a result of worries over the region’s ongoing debt crisis.

 

While Americans are still going to Vegas and Europeans are still gambling, sentiment is certainly suffering, as evidenced by a slowdown in global risk-taking.  Consumption patterns shift when economic outlook changes.  Gambling is the ultimate “luxury item” because there’s absolutely no guaranteed return, so gambling behavior is a near real-time indicator of changes in consumer confidence.  Our gambling indicators, both domestic and abroad, show what feels a lot like recessionary behavior and point to another leg down in the latter half of 2012.