Investors Eye This Record-Setting Vegas Surge
Something strange is happening in Las Vegas.
But it's not the typical weird stuff that Vegas is known for.
It's actually about how they get as much money as they can from every person who visits the city.
They used to be good at it.
But now they've gotten even better.
And the ramifications and opportunity for investors could be lucrative for investors watching this trend hit Las Vegas and spread from there.
The House Always Wins
A lawsuit was recently filed against all the big hotel operators in Las Vegas.
This might explain something that has been going on in Vegas for a long time about hotel prices.
The Vegas hotel market has been extremely odd over the last few months.
It seems largely disconnected from supply and demand.
And looking at some recent data, it has become disconnected.
The demand for hotels is not as high as it used to be, but the prices are much higher.
The data bears this out.
According to the Las Vegas Convention and Visitors Authority (LVCVA), hotel occupancy rates are still coming back.
For example, the weekend occupancy rate in October was 94%, which is the highest since February 2020 when it reached 94.8%.
This means that more people are staying in hotels on weekends, but the rates are still lower than they used to be.
The midweek occupancy rate was 85.1%, which is still lower than the 87.1% rate in October 2019.
Lower demand and lower occupancy should lead to lower prices.
But it’s not this time.
The average nightly rate for October came in at $210.
That’s a 20% increase from last year and 50% higher than October 2019.
Again, this seems crazy. Demand down, prices up.
But a recent lawsuit may explain why.
Hagens Berman, a law firm, filed a class action lawsuit against all the big hotel owners on the Strip, including Caesar's (CZR), MGM (MGM), Wynn (WYNN), and Treasure Island.
The lawsuit claims all of these companies used “algorithmic-driven price-fixing” by outsourcing pricing advisory to the same firm.
This, according to basic economic theory, would have allowed the resorts to see demand for the entire Strip and surrounding areas and price themselves accordingly.
And it’s precisely how demand can still be down a bit, but prices can be much higher.
We expect to see good cases on both sides.
I mean, as we’ve discussed, demand is down and prices are setting records.
But on the other hand, Las Vegas has an NFL team now, so home game weekends should result in higher prices.
And there’s inflation. There’s 38% more money supply, so a 50% increase in prices is not crazy at all.
Either way, there’s a clear trend here that investors should be watching.
Is The Future "Legalized Collusion?"
This situation has two important things for investors to think about.
First, this system can transform the value of hotels and operators.
Because expenses are largely fixed and price increases head to the bottom line fast in the hotel industry.
The value of these properties have soared because they’re getting so much more money per visitor.
Second, this might be happening in other places around the country.
Las Vegas is just most obvious because it's a highly concentrated and prominent market.
It's more than likely other industries are hiring researchers to do analysis of the max pricing power.
This means that in the future, the companies and industries with products in high demand, will have more power over their customers.
