History as a Guide

As America entered the new decade, the warning signs were already there. Trouble was brewing in the Middle East, forcing up gas prices. Inflation and interest rates were creeping up, and housing, steel and car sales were down. By January, the country was already in recession. Unemployment was to peak at 10.8%. Gaming was beginning to proliferate, and Las Vegas faced a safety crisis which could challenge the future of the city.

How Las Vegas responded to the 1980s offers a case study to the challenges that face us today.

Crisis 1: There were two recessions in the USA in the early 80s, colloquially known as the double-dip recession. The National Bureau for Economic Research cites the double-dip as the harshest of the late 20th century. The short recession and recovery in January to June 1980, was followed by a sustained recession from July 1981 to November 1982. With inflation at 11.1% in 1980, The Federal Reserve raised interest rates to slow money supply, which in turn caused a rise in unemployment and the economy to slow. This tightening of monetary policy was compounded by the geo-political crisis caused by the Iranian Revolution and Iran-Iraq war, and subsequent reduction in oil supply led to inflation peaking at 20.5%

Over the next few years, the jobless rate slowly receded, falling to 8.3% by the end of 1983 and to 7.2% by the time of the 1984 “Morning in America” presidential election. However, the unemployment rate didn’t fall below 6% until September 1987, well after the technical end of the recession.

Crisis 2: On the 26 May 1978, in only the second state in the USA to allow legal casinos, Resorts Casino Hotel opened in Atlantic City. It was shortly followed by The Boardwalk Regency (renamed Caesars in 1983), and Bally’s Park Place in 1979. The Brighton (renamed The Sands from 1981), Harrah’s and Steve Wynn’s Golden Nugget opened in 1980. In the coming years, more were to follow.

The miracle of Atlantic City was evident, from no gaming revenue in 1977, to $325m in 1979, $640m in 1980, $1.1bn in 1981, $1.5b in 1982 and nearly $2bn in 1985. Between 1980-1989 total gaming revenues had grown 437% to $18.3bn. On appearance, this small portfolio of properties had relegated the mighty Las Vegas to a desert relic.

Crisis 3: In southern Nevada, the decade started disastrously. On 21 November, 1980, an electrical fire at the MGM Grand ripped through the property, leading to the death of 85 guests and leaving an indelible mark on the city’s history. The deadly nature of the fire was compounded by the light regulatory environment that had evolved in Nevada, where fire sprinklers were not essential in many densely populated areas. A second fire at the Hilton followed in short order, and although not on the same scale, it still resulted in several fatalities. The international headlines and accompanying imagery reached every home in the country.

At the time of the MGM Grand fire, it was the largest and newest resort on the Strip. The gruesome reporting and the horrific deaths of so many guests caused genuine concern to many customers in terms of personal safety when visiting Las Vegas. As we note below, average occupancy declined from over 77% in 1980 to around 70% in 1982.

There was to be no significant new resort openings on The Las Vegas Strip until the final weeks of the decade.

A Divergent Response

Las Vegas had an impressive array of resorts in the mid-1980s. In addition to Caesars Palace, Circus Circus, The MGM Grand (now Bally’s) and The Flamingo stood The Riviera, The Dunes, The Sands, The Hacienda, The Algiers, The Thunderbird, The Barbary Coast, The Castaways, The Desert Inn, The Stardust, The Frontier, The Aladdin, The Marina, The Imperial Palace, The Boardwalk and off-Strip, the distinctive Landmark casino resort.

Within Las Vegas, particularly in the 1980s, the Strip sold the same product at the same price to the same people at the same place at the same time. Points of differentiation were limited. What could be differentiated, however, was the customer.

Within the executive suites, there were two responses to the crises: carry on as before and seek to capture market share, or differentiate the offering to appeal to existing and potential customer needs. The former was the most widely adopted to great effect.

Arguably the two leading executives of the decade were friends and colleagues William Bennett and Stephen Wynn, men with shared experiences running Downtown properties, but with different visions for the future of Las Vegas.

Bennett and his Reno-based partner Bill Pennington acquired the operating lease for Circus Circus in 1974, moving Sarno and Mallin’s bloated Technicolor fantasy into a robust, efficient, tightly controlled machine. Bennett was part of the generation of executives that emerged from military service, like Kirk Kerkorian, Jackie Gaughan and Mel Wolzinger. After engaging in other businesses, he turned to casino management, excelling with a clear focus on creating a value-based business, building thousands of new, no-frills rooms for “ordinary” Americans, an RV park, plenty of loose slots and affordable food and beverage choices.

With fiscal discipline preserving high margins, Circus Circus Enterprises became the first major Las Vegas gaming company to launch an IPO. The listing allowed the group to raise funds for further value driven developments in Reno, Laughlin and for The Excalibur, which opened in 1990. After building The Luxor and Mandalay, and Bennett leaving the company, the renamed Mandalay Resorts Group was acquired by MGM for $7.9bn.

A story now famous in gaming circles, Wynn took The Golden Nugget from Fremont Street to Atlantic City’s Boardwalk. He developed and operated one of the smallest resorts in the market, driving it to the highest gaming revenues. He believed that the mass market was well served and appealed to a different type of customer. While some have stated that this was the wealthy customer, this was not the case. The strategy was to appeal to the aspirational customer, a psychographic shared by many customers, wealthy and middle class alike. The Mirage opened in Las Vegas late 1989, bringing a new generation of customer to experience entertainment and amenities not seen anywhere else in the world. He elevated this model in The Bellagio, taking Las Vegas to a new level of luxury, elegance and profit.

When Circus Circus Enterprises acquired Gold Strike Resorts, Bennett and Wynn became joint venture partners in The Monte Carlo, a property developed for budget travelers. Bennett’s team managed the property. MGM then acquired Mirage Resorts for $6.4bn.

Both Bennett and Wynn were very different operators but had much in common. Most importantly, they had a clear view of who their customers were and went to great lengths to meet their needs. In Bennett’s case, these were good value and accessible amenities. In Wynn’s, aspiration and innovative experiences. Together, they reinvented Las Vegas for a new generation, watching as many other operators without their vision saw their properties implode – some to make room for Wynn and Bennett’s expansion.

Roll with it

Today, there are many different casino brands and operators, positioning various offerings for different customers.

The key lesson of the 1980s is that even in the face of great uncertainty, if we have an understanding of our customers and have the ability to meet their needs, then there is a path for business success.

Since August, a group of thought leaders (including myself) have been working on a post-Covid response for the future of Las Vegas. We have polled over 1,000 visitors and executives on their behaviors and attitudes. It’s clear that today, with 43m visitors, Las Vegas sees a wide spectrum of people. Even at this early stage of recovery, we’ve seen unprecedented actions.

Arguably the leading property on The Strip, The Wynn (now without Steve Wynn at helm) is developing a hospital-level Covid testing and safety facility. Convention leader the Venetian has partnered with Bureau Veritas to bring best practice in personal safety and health to their operations. MGM has also developed Covid testing capabilities for meetings and launched innovative marketing platforms to attract guests back. And the Cosmopolitan is restricting who can visit the property at peak times, and new hygiene, cleaning and safety protocols have been implemented in every resort in the city.

The immediate steps have been reactionary, dealing with a highly fluid situation. The real test is in the months to come when strategic responses need to be proactive and focused in a highly competitive setting.

Like the 1980s, we are either setting the agenda for an exciting decade or facing a future of obsolescence for many properties.

Oliver Lovat

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