The Great Recession of 2009.

Las Vegas is not recession-proof.

Macau "hyper growth" is slowing down.

Regional operators face tighter discretionary budgets.

The "new normal."

The headlines over the past year read like the screenplay for a horror story that leaves your heart racing, skin tingling and hair standing on edge. The only problem is that once you leave the theater, the movie does not end. Welcome to the new casino landscape, an environment where developers and operators have had to scramble to reconfigure their respective businesses no matter where they exist throughout the world, in an effort to not only remain competitive but to try and decipher an ever-changing economy and consumer profile.

Casino executives enjoyed increasing win-per-unit, fat non-gaming revenues and escalating profit margins over the past few years as the global economic boom allowed all boats to rise in performance and profitability. But that ship has sailed, as high tides and turbulent waters quickly replaced success and serenity and have required operators to pull out a new arsenal of tools and implement a different set of strategies to adapt.

A New Reality
Non-gaming amenities were the buzzword in the industry for many years. RD&E was the rage as operators infused these amenities into their assets with increasing cost and expectation. The economic downturn has once again shifted focus to the gaming floor and value is all the rage.

"Historically, non-gaming revenue (excluding rooms) has had an extremely high correlation with rooms revenue," says Jacob Oberman, director of gaming research and analysis for CBRE's Global Gaming Group. "Gaming revenue does not share this high correlation with rooms revenue since some gambling-focused visitors prefer to pay lower room rates so they can have more in their gambling budget."

Non-gaming revenues grew quickly over the last decade, and in some cases outpaced gaming revenues. This was most evident in the destination markets that invested and differentiated RD&E components decades ago and began to reap the fruit of their labor. And nowhere was this more visible than in Las Vegas, where non-gaming revenues outpaced gaming win by almost two to one. However, as the economy turned and discretionary budgets vanished almost as quickly as home equity lines, operators began to adopt new strategies throughout 2009 to react and, in some cases, survive.

Over the past 25 years, the pendulum swung from free rooms, buffets, shows and gifts to an extreme of $300 luxury standard room rates, $100 celebrity chef steak dinners, a Louis Vuitton store on every corner and $500 bottles of vodka at your favorite nightclub. Once again though, the pendulum has swung closer to a casino-centric focus where non-gaming elements often times are now packaged, discounted and promoted to entice consumers to open their wallets and part with any bit of money. Is this the future of RD&E, and have these amenities taken a step backwards, to a spot behind the casino?

Not exactly. The savvy gaming leader realizes a compelling retail, dining and entertainment program still makes sense for today's modern casino resort. A strategically positioned RD&E program is not only a secret weapon but, more importantly, could spell the difference between success and survival. There are many things happening in this space worth taking a closer look at.

Re-Engineering Entertainment
Great entertainment has always been synonymous with the high quality gaming experience. Vegas showgirls, celebrity headliners, high energy lounge acts and one-of-a-kind production shows continue to be a draw and a staple product in casinos throughout the world.

As the bar in quality was raised, so too were the costs, expectations and the level of risk associated with creating just the right product to meet your guests' desires and at the same time post a profit. As management in every industry now looks to retool their existing businesses, it would be easy to simply reduce overhead and associated expenses by reducing the entertainment footprint. However, the successful entertainment operator finds new ways to maintain quality while pursuing opportunities to differentiate their product.

AEG Live is an entertainment powerhouse that built a strong presence in the gaming space. AEG Live is one of the leading providers of sports and live entertainment and is the second largest concert promotion, special event and touring company in the world. They have domestic and international presence with performances in New York, Los Angeles, London, Nashville, Dallas, St. Louis, Houston, Seattle, Denver and Atlanta. Not to mention Las Vegas.

John Meglen is a founding partner and president and co-CEO of AEG Live/Concerts West. A music industry veteran with more than 25 years of experience, Meglen's unprecedented leadership represents urban, Latin, country, comedy, pop, rock and international divisions.

In 2003, AEG/Concerts West took the ultimate Las Vegas risk by introducing "A New Day..." featuring Celine Dion and created by Franco Dragone at the Colosseum at Caesars Palace. Five years and 717 performances later, nearly 3 million people were able to experience an entertainment spectacle unlike any other.

"We believed in Las Vegas," Meglen says. "We knew one and one equaled three: bring in someone who appealed to the breadbasket of America and Canada, and marry them with the producer of "O." Las Vegas is about having an experience. It needs to be more than a concert, something you cannot see anywhere else."

And Meglen did not retire after Celine; instead, he brought Cher and Bette Midler to the Colosseum and recently became the exclusive promoter of the new Joint at the Hard Rock Hotel and Casino, where he again raised the bar by introducing the first Rock Residency in Las Vegas: "Carlos Santana's Supernatural Santana."

"Successful entertainment is a foot-fall driver that attracts people to your property and makes them spend money," Meglen says.

However, according to Meglen, "Every business unit needs to be profitable and be able to sustain itself. Entertainment today is more than a traffic producer, it should make a profit. In the Rat Pack days, entertainment drove gaming and the profits came from the casino," he says. "Today's experience, though, needs to be based on more than just gambling."

Which is why it is no surprise that a pioneer such as Steve Wynn recently had Beyonce and Larry King perform at his Wynn Las Vegas and Encore Hotels. And in October he announced the new residency of world-renowned musician Garth Brooks, who will be performing regularly in Las Vegas for the next five years. When tickets went on sale, 20 shows sold out in five hours! Or why Alex Yemenidjian, gaming legend and proud new owner of the Tropicana Las Vegas, focused on entertainment to reinvent the Trop by hosting the iconic Wayne Newton and bringing in "Let's Make a Deal" featuring Wayne Brady to attract and retain his customers.

But even a star-studded performance may not be enough in today's operating environment to achieve success. This challenging economy has required management to think outside the box to effectively meet a new set of needs.

"The drop in convention business is what hurt us the most," says Meglen. "We have had to rethink our strategy for 2009 and 2010. This includes decreasing the number of shows, introducing value pricing and creating more packages to meet the needs of our customers."

Although their walkup business has been very strong, particularly at Caesars, they have had to be more aggressive with their efforts to continue to hold market share.

"We can't be complacent," he says. "Our people are working harder and we have had to market and promote our entertainment products more than ever before."

What is the other secret to building a successful entertainment program at a casino hotel? Bring in the professionals right from the beginning.

"Nothing is better than when a gaming executive calls us and says, 'We are looking to develop an entertainment program, and we would like your help,'" says Meglen. "We can assist with evaluating the market, customer and competition and determining what fits. From there we can design the venue and develop the show. Let us build it, operate it and market it-we know ticketing, staffing, ushering, production, F&B and everything else. Let us run it and we can unlock all of the potential synergy, value and customer experience possible."

And this does not only apply to large, Las Vegas-style products. AEG is actively pursuing opportunities in Atlantic City, Dubai, Tokyo, Singapore and Macau. Regional markets like Biloxi, New Orleans, Detroit, Windsor and San Diego are on their radar.

Meglen is most excited about partnering with Native American operators in the future.

"I would enjoy the opportunity to create new gaming entertainment solutions in this space. Incorporating tribal heritage and panache into a Native American brand of entertainment would be exciting," says Meglen. "I think the Seminole Hard Rock is doing some very cool stuff."

Inspired Dining
The food and beverage scene has undergone a dramatic shift as customer spending has shifted to "value menu" and casino hotels have been all too happy to oblige with promotions, discounts and incentives. However, effective F&B executives have realized that this is a perfect opportunity to be innovative and strategic, as opposed to just throwing in everything including the proverbial kitchen sink to try and lure discretionary dollars into buffets and coffee shops around the world. These leaders understand that not only can restaurants and clubs be fantastic marketing machines for the casino, but they can partner with the gaming floor to increase the overall value proposition in an integrated synergistic coupling.

Few know this better than Steve Weitman. As vice president of food and beverage for Wynn Las Vegas, his focus is on maintaining the high quality standards and service at his multiple fine dining and casual outlets while also delivering profitability. But instead of blanketing patrons with buy one get one free offers or discounted all you can eat packages, Weitman and his team have creatively delivered amenities that are value conscious in this environment yet consistent with the luxury product Wynn has built its reputation upon.

"We have introduced our 'Taste of Wynn' menus at each of our restaurants, with three course pairings ranging from $29.99 per person," he says. "Guests have found these very popular as they are value oriented, and these different menu points allow all patrons to try each and every one of our establishments."

Instead of using F&B merely to drive casino foot traffic, clever operators have retooled their operations to attract new customers yet still maintain their margins.

"We partner with the casino to service all of our guests," explains Weitman. "All departments are participating in one over-arching strategy. A perfect example is allowing Wynn guests to redeem their Red Card points (players club members) for 'Taste of Wynn' menus. We create a mutual value proposition."

The back of house is no different.

"Our chefs are on property and they deliver consistent meals without cutting corners or sacrificing quality," he says. "We of course re-evaluate our cost structures. But we also look at refreshing the experience and continually fine tuning and always listening to what our guests want."

Food and beverage is a highly effective tool to persuade gamers and non-casino patrons alike to frequent a property. A favorite three-meal restaurant, the casino bar featuring live sports games and poker machines and the pulsating ultra lounge are all reasons unto themselves to venture out on a weekend night.

No surprise that one of the first announcements at the newly rebranded Tropicana Las Vegas is the introduction of two new dining venues. And operators have been creative in using these venues as marketing tools to promote their properties. The MGM Grand in Las Vegas created the "Value Pass," a collection of exclusive offers specifically targeted to convention guests to use during their stay. Special incentives are available from restaurants, including L'Atelier de Joel Robuchon, to multiple bars, lounges and even the buffet. In fact, special prices for buffets allows diners to eat all their meals during the course of the day-and guarantees the casino will get them back in the house.

The best example of this marketing power is visible at the new M Resort Casino in Las Vegas. Far from the critical mass of the Las Vegas Strip, the M found a different way to generate its own buzz as the star of the Bravo Channel's hit show Top Chef. Millions of people tune in regularly and are welcomed into the dining rooms and kitchens of this food savvy gaming property. And this translates into a competitive advantage, as out-of-town visitors and even locals flock to the property to see first hand the behind-the-scenes magic.

And if you thought it was the end of the white-hot nightclub concept, think again. Nightclubs and ultra lounges in Las Vegas, Atlantic City and elsewhere continue to set the pulse of the property and create a high level energy that blends perfectly into the casino ambiance. So well, that in a time of cutbacks and CAPEX reductions, some are bucking the trend and actually expanding.

"XS at Wynn has been very successful. It has effectively differentiated its product, service, ambiance and overall experience," Weitman says proudly. It has done so well that Wynn's sister property, Encore Las Vegas, recently announced they were beginning design and construction to add an additional nightclub to the bustling casino landscape.

Retail Retrofit
Very few segments have been as impacted by the current economic malaise as the retail sector. Whether it is your local Target, the city shopping mall or your casino sundry and leased outlets, retail expenditure reductions are in line with the decreases in overall discretionary spend. From Louis Vuitton to Lowe's, retailers are having to find new ways to market to their customers and enhance the value of the shopping spree.

So how does the casino operator take full advantage of this new marketplace? Frank Volk is executive vice president of Robert K. Futterman & Associates, one of the most recognized names in retail leasing, advisory and management services.

"Casino properties still need to have the retail component as an amenity," he says. "First off, to have the experience be 'sticky,' you need to have the right amount-not too much, not too little. Second, you need to know your customer and what they expect. Luxury is being challenged as the aspirational buyer is out of the market. However, the mid-scale segment is seeing good traffic, since consumers can still shop at this level. So there is opportunity out there whether you are the landlord or the tenant."

Casino executives are using this window of time to "re-merchandise" their retail offerings. Volk explains,"Properties are replacing their poor performing tenants, the ones that were potentially the wrong fit, with new stores that better fit the right customer demographic. They are also able to change price points and the mix of products available in the retail space."

In some cases, gaming management is able to be creative and try new products with space that comes available. Wynn's newly opened Taste of Wynn Retail Store is a unique example of not only redefining the retail space but raising the F&B bar in a challenging market. This hybrid retail/F&B venue is an innovative space that allows in-house chefs to offer their favorite products, from secret ingredients to $35,000 slicers.

Weitman says it has been very well received. "Now it is more than just a dining experience; you can take it home with you as well!"

Retailers are also finding this environment an opportune time to refocus.

"They are not going to give up their margins purely to drive traffic for the casino," Volk states clearly. "The effective casino operator needs to take a measured look at what needs to be in the box versus just dedicating a large amount of space to a retail development. In order to retool these spaces, many operators are offering better lease deals to attract tenants, particularly in the luxury segment. Sales comps are not enough to attract business; it takes landlords sharpening their pencil to get a deal done."

And retailers are taking notice. Volk believes it is a great time for local and regional stores to have a chance to get into big markets like Las Vegas, where before they were back in the line behind the national operators. And, they can get in at better prices than before! New retailers in Las Vegas, for example, include the Sugar Factory at the Mirage and the Miracle Mile at Planet Hollywood, and Vegas Royalty at the Grand Canal Shoppes at Venetian/Palazzo. After Hours was a temporary tenant at the Fashion Show Mall in Las Vegas that waited long enough and took advantage of a great opportunity to now become a permanent space holder.

A New RD&E Ship Sets Sail
Although there is no clear-cut strategy that applies to all gaming operators, it is a proven fact that a compelling program of retail stores, dining establishments, clubs and lounges, and a well conceived and operated entertainment product are still very much critical components of the successful casino hotel. In this challenging time, leveraging an entire campus of amenities will allow operators to build competitive advantage, customer loyalty and long-term profitability. If nothing else, this unique period of time allows each of us to re-evaluate where we have been and where we are going, and retool our boxes to offer the best experience possible exceeding customers' needs, wants and expectations. The smart casino operator has already realized this, and has laid out a strategy to address these challenges in order to achieve a better tomorrow.

Don't miss the boat!

By Mark Birtha

Mark Birtha has been in the Las Vegas gaming market for more than 15 years and is currently vice president development Las Vegas for Marriott International Lodging Development. Birtha is also project manager for the 4,000-room JW Marriott Las Vegas Hotel Casino Convention Center property currently in development. Prior to joining Marriott, Birtha was VP development and operations for the W Las Vegas Hotel Casino and Residences. Prior to the W, he was an executive with the Venetian for six years where he managed casino marketing and served in management positions including corporate development/Macau and conference management. He opened the Bellagio Hotel in 1998 as director of beverage and started his career at the Mirage in food and beverage operations.

He can be reached at 702-496-1116 or markbirtha@msn.com.

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