July 08, 2010--The megaclub boom is down to a trickle. From 2004 to 2008, Macy's-sized nightclubs sprouted in Las Vegas to the beat of five per year. Now it's two per year and slowing.

Investors are harder to secure in a recession, notes Sean Evans, contributing editor for the trade magazine Nightclub & Bar.

"Back in 2004, everybody had money and it was cool to throw a few hundred thousand dollars at a project," Evans said. "If it didn't work, at least you got to go drink for free if you're one of the investors."

Now however, return on investment is king.

"It's gotten much harder to raise the upwards of $50 (million) required to do it the right way," agreed Las Vegas night life observer Jack Colton.

Two new megaclubs will have opened in 2010 by New Year's Eve: the 60,000-square-foot Encore Beach Club/Surrender Nightclub born in May at Encore, and a 62,000-square-foot Tao Group nightclub set to ring in 2011 on the fifth-floor roof of the Cosmopolitan. (Its name is being kept secret.)

As for 2011, not one has been announced.

"If Fontainebleu doesn't find a team to take it to the end zone, the Cosmopolitan has the possibility of being the only new hotel to open in the next five years," noted Jason Strauss, co-owner of the Tao Group, which in Las Vegas also runs Tao at The Venetian and Lavo at the Palazzo.

The Tao Group is among the Vegas night life survivors that do not appear to be on night life support. According to Nightclub & Bar, the 21 Las Vegas hot spots occupying its annual list of top 100 grossing nightclubs -- led last year by XS at Encore, Tao, Pure at Caesars Palace, the Bank at Bellagio and Tryst at Wynn -- grossed an average of $22.7 million each in 2009. That's actually a 2 percent increase over the 2008 average. (Grosses from previous years were never reported.)

"If you look at Tao and Pure, they're still very packed with lines and table reservations," Colton said.

And those table reservations -- which require the purchase of bottles at up to 50 times their Lee's Discount Liquor price -- have not been lowered to attract more of the beautiful people. For a party of three on a Saturday night, for instance, Tao's price has held steady for two years at a $900 minimum.

"Instead of discounting, I would say we became more aggressive with our programming when people were less motivated to go out because of the economy," Strauss said.

Not only do the club leaders appear strong despite the recession, the recession may actually help by thinning the competition. In the past two years, the pearly velvet ropes of club heaven have opened to receive Prive at Planet Hollywood, Cherry at Red Rock Resort, Poetry at the Forum Shops at Caesars, 40/40 at the Palazzo and Body English at the Hard Rock Hotel. (Colton said he knows of two more imminent closures, but won't name names: "One's just an older venue and the other one's a newer venue that didn't do what they expected.")

Even in a good economy, nightclubs regularly shutter. In a good economy, though, these clubs are replaced by new ones. None of the closed clubs mentioned above has reopened as a club.

"What you're seeing is a weeding out by natural selection," Evans said. "The top tier of operators has a good clientele and understanding of the market. The second tier has gone by the wayside because they don't have the money to keep doing this."

Contact reporter Corey Levitan at clevitan@review journal.com or 702-383-0456.

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