The Biggest Scam in Las Vegas

What is it?

Answer: The inflated hotel room Occupancy Rates.

Occupancy Rates

of selected Resort destinations

Las Vegas	93.4%
NYC	85%
Macau	80%
Honolulu	70%
Anaheim	67%
Orlando	61%

Before the Mega Resort Era (pre- 1992), Las Vegas Hotel Occupancy Rates averaged around 80%. So why the double-digit increase in the last 16 years?

Why do occupancy rates in Las Vegas average above 90%? I am not sure why as this issue is a guarded secret, but I can speculate from the statistical evidence and experience the occupancy inflation is the result of adding in rooms not actually being paid for at normal rates, if at all, in the total rented figures.

Complimentary (free) rooms, deep discounted rooms, promotional incentives, upgrades, and other programs which sets aside banks of rooms for VIPs are booked as rented when they likely go empty. I would estimate looking at the figures, at least 12% of all Las Vegas Hotel rooms fall into this marketing category. Booked as occupied, but other than high demand nights, clearly are devoid of actual human guests.

Another way a Hotel can inflate their occupancy rates is by not including rooms unavailable due to renovation. This factor alone could explain most of the occupancy rate inflation. If a hotel has 10% of their inventory off-line, they are thus only working from a 90% of 100% base when calculating OR.

So what if Las Vegas Hotels hold back 10% to 15% of their rooms for high-rollers and other VIPs who may or may not be in town? Why would this be an issue?

The problem with this practice, this intentional inflating of the Occupancy Rates, is that other parties beyond the Hotel Industry may and do rely upon accurate usage figures when assigning service levels, setting price levels and projecting tax revenue streams for their products and services.

State and local Governments, working with the Las Vegas Convention and Visitor’s Authority, tax room rates between 9 and 11%. These tax revenues are split 50-50 between the LVCVA and Nevada Government. LVCVA uses the money to promote Las Vegas and run Convention Centers. Governments build and operate roads, sewers, schools and libraries with their share. The amount split is nearing $500 million dollars annually.

When a false shortage is created from inflated occupancy rates, Hotels can command a higher average room rate. That increases tax revenues along with hotel profits across all their offerings including rooms and all other attractions. I would submit the Biggest Scam in Las Vegas is the manufactured belief there is a big shortage of rooms. With the belief by Vegas visitors that everything is in high demand and everything is in short supply, prices across the board can be raised, and are. If you get visitors believing rooms are tight, it is not hard to imagine a $10 bottle of beer, or a $100 show.

I do not think it is a stretch to see how this false occupancy issue has contributed to the biggest Real Estate Bubble in the United States. Las Vegas property values have dropped an average of 30% this year. The Strip alone has many Condominium projects which are easily 80% vacant because many relied upon what is little more than a fictional picture of demand and supply when building new projects. The Real Estate decline is steepest in Las Vegas because of this demand myth created by the Hotels and the LVCVA.

The LVCVA has an advertising budget close to $90 million dollars which it uses to promote a climate of scarcity wrapped in a cloud of secrecy.

I am a Las Vegas Taxi Driver who operates in a business environment which can simply be called saturated.

Maybe you have heard this from Vegas cabbie…”too many cabs!” or seen news reports of a cabbie protests over “too many cabs!”. I estimate at any given time of day, there are twice 2x as many cabs on the street than there is business to support them. I would submit this is because the regulatory agency which determines the number of the taxis on the street (Taxicab Authority), relies upon the false occupancy rates being churned out by the Hotels and LVCVA. They allocate cabs based on occupancy rates which do not reflect actual real visitors.

The cabs are real, invisible non-existent riders are not.

One way one can begin to uncover Las Vegas hotel occupancy rate inflation is by looking at Airline Flight data and passenger counts provided by McCarran Airport.

According to McCarran, there are approximately 1000 take-offs and landings each day. If we say the average plane moves 125 per, there are 125,000 people coming AND going at the port each day. Half come and not even considering how many of those 62,500 are locals, let’s assume they are all tourists bound for the strip. So we can estimate 62,500 people arrive per day.

How long do these 62,500 stay in town? looking at these figures the average stay in Las Vegas is 3.5 days, or half a week. So one can say on any given typical day there are around 200,000 tourists in Clark County who came by air.

How many come by car or bus?

We know from these figures, approximately 85,000 “vehicles” cross into Southern Nevada each day from all points. What percentage of these folks end-up as paying hotel guests or are even tourists is unknown. But lets say that number brings the total visitor count for the typical 3.5 timeframe up to 205,000, or 5,000 tourists arrive by car each day.

LVCVA will claim the way visitors come to Las Vegas is more a 50-50 equation between arriving by air or ground. But since ground transportation figures appear to me to be highly inflated since about 2000, and since they are simply vehicle counts, I have tended to focus on the McCarran air figures for this article. Whatever method, I think the 205k average figure is a solid number from my perspective if not inflated which it could be actually.

So assume approximately 205,000 people are on the Strip on any given day. We also know from Taxicab Authority trip-figures published monthly, taxis do around 2 million “trips” per month, or 66,000 per day, or 3600 cab shifts per day doing 18 trips each shift. We can also infer from the fact approximately 25% of visitors will use a taxi during their stay, that 50,000 people will use a taxi per day. If we say 2 is the average number of passengers on those trips, we know there are at least 25,000 taxi trips per day base. If these same people return, the total doubles to 50,000 trips. Now we know cabbies do around 66,000 trips a day, which is not all that far off from our rough passenger numbers.

Now the rub is this, we are told by the LVCVA that Vegas runs a Hotel Occupancy Rate of 93.4% (as of June 2008). We also know the total amount of rooms is over 136,000, so we are being told 127,000 rooms are being rented each day in June. We have calculated there are approximately 205k visitors in Vegas per average day so we can conclude the average room is being occupied by 1.61 people per. 205,000 divided by 127,000 supposed occupied rooms = 1.61 per room.

Unfortunately according to LVCVA’s own findings, the average visiting party to Las Vegas consists of 2.5 people, close to a full person more than what they claim occupancy rates indicate. Using this 2.5 figure instead of 1.61 puts Hotel Occupancy Rates at 58.8% or around 80,000 actual rented rooms.

To make the 93.4% occupancy rate claimed work, we need to have approximately 318,000 visitors in town per day. Using the data available that is IMPOSSIBLE.

The reason cabbie’s sit twice as long as they should is because the Authorities are allocating taxis based on 100,000 people who do not exist in reality. They exist as part of a statistical marketing SCAM being run by the LVCVA with the blessings of the Hotels and likely Government.

These extra people exist only as fictional characters in an Occupancy Fable designed to keep Las Vegas Hotel Room rates inflated.

If rooms were 93.4% full, why is Boyd Gaming putting their $5 billion dollar Echelon Project on hold for a year? Why is the old Frontier Property a dirt lot where the current owner has no immediate plans to develop it in this “business environment”? Why are all Hotels, including places like WYNN, running promotions to move rooms? If we have a shortage, wouldn’t prices be moving UP? not down?

Truth is, Las Vegas is about Hype and nothing is more hyped than the Hotel Room Occupancy Rates. This Occupancy Myth is what has driven Las Vegas into the dumper. It is what has made Las Vegas “over-priced” to far too many Tourists and Conventioneers.

For Taxi Drivers, this LIE has been our ruin.

This entry was posted on Friday, August 15th, 2008 at 4:42 pm and is filed under Las Vegas. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.