Howard Hughes bought the Desert Inn in November 1966 for $13.2 million in cash. This was unusual because no casino operator in Nevada had ever paid cash for a major property. They had always used debt. Hughes was different. Hughes had both cash and a specific neurosis about control that made him willing to spend it.
The Desert Inn, at that moment, was struggling. The Vietnamese War was eating Las Vegas's military population. Convention tourism had plateaued. The old guard of mob-connected operators was losing its grip. Hughes entered a market in transition.
November 1966 Through February 1967
Between the purchase and the opening of the high-limit suites, Hughes made one strategic decision: he wanted no more gambling. He wanted suites. He wanted only the highest-limit customers. This was a departure from the Las Vegas model, which was to maximize headcount and accept lower per-capita wins.
The Desert Inn had 299 rooms in 1966. Hughes commissioned a 300-room expansion that was never completed. The expansion was meant to be all-suite accommodations priced at $250 per night, which was 3x the hotel's average rate at the time. He wanted guests, not players. This was not a failure of market understanding. This was a genuine attempt to create a different product.
1968 Through 1972
By 1968, Hughes controlled the Desert Inn, the Sands, the Frontier, and the Silver Slipper. He was on his way to controlling five casinos. His strategy was consistent: reduce gaming, increase room rates, target high-net-worth individuals. This strategy was sound in microeconomic terms. It was disastrous in market timing.
Nevada had just legalized favorable tax treatment for corporate casinos. Wall Street capital was entering the market. Public companies like MGM Grand and Caesar's Palace were beginning construction. The moment Hughes was trying to optimize the properties he owned, the competition was investing billions in new capacity.
1972 Through 1976
Hughes left Las Vegas in 1972. He moved to Nicaragua. The properties he controlled were taken over by professional management. Under professional management, they returned to the old model: maximize headcount, increase gaming space, compete on rate volume not rate premium.
The Desert Inn, under Hughes, was a three-year experiment in high-limit, low-volume gambling. After Hughes, it became a mass-market property with high-limit rooms attached. It stayed this way until it closed in 2000.
The Lesson
Hughes's intervention demonstrated that casinos are not optimizing for the owner's preference if the owner has preferences that contradict the market incentive. Hughes could not create a casino that was not a casino through capital alone. The economics of the business reassert themselves once the founder's attention is elsewhere.
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