In Las Vegas, all bets are off

During the last housing bust of the early 1990s that hit Southern California, many people in the building industry simply temporarily relocated to Las Vegas since it was still booming. For years, thousands of people moved to Southern Nevada for the job opportunities afforded by a growing casino industry and the sorts of services that a growing city needs. Has that now stopped? A story in The Economist asks the question:

The housing slump and high petrol prices do seem to be taking their toll. In the year to April, gaming revenue across Vegas was down by 3.3% from the year before. A dip in occupancy, usually an impressive 90-95%, has prompted hotels to cut room rates, reversing a steady rise in recent years to more than $135 a night on average. Sub-$100 deals at prominent Strip hotels have proliferated in recent weeks.

Though hotels are still coy about advertising these bargains, MGM Mirage, the biggest Strip operator, is reportedly nudging local newspapers to run stories about them. This has raised concerns over a possible price war. Nor can the city fall back on convention business, which has boomed in recent years.

Attendance fell by 7.1% in the first quarter compared with a year earlier—a worrying sign because conference-goers spend twice as much per trip as pleasure-seekers do, though things picked up a bit in April. Las Vegas Sands Corp, the most convention-oriented of the big operators, posted an unexpected loss in the first quarter. Occupancy at its latest mega-hotel, the Palazzo, was a mere 79%. Harrah’s dipped into the red too...

All this coincides with the industry’s biggest-ever building spurt, raising the spectre of oversupply. Wynn Resorts is building a $2.2 billion follow-up to Wynn Las Vegas, the Encore, and MGM is spending $9.2 billion on a 76-acre project called CityCenter. More than 40,000 new rooms will become available in the next four years, triple the number Beijing is providing for the Olympics—and in a city that already has 7% of America’s hotel rooms...

The casino Titans are adept at dealing with shifts in demand, however. Led by Harrah’s, whose boss, Gary Loveman, is a former economics professor, they have become experts in collecting information about their customers and using it to tailor promotions. Gambling firms also have a knack for carving out new markets. And they are ramping up marketing efforts abroad...

If past downturns are a guide, a substantial number of Americans will head to Vegas rather than taking expensive holidays abroad, says David Schwartz of the Centre for Gaming Research. And the “whales”, as high-rollers are known, really are immune to economic fluctuations...

Some high-end casinos are doing even better this year than last, says Brian Gordon of Applied Analysis. This leaves some convinced that Vegas will once again defy the sceptics, just as it confounded those who argued that it would be hurt by competition from Californian gambling dens, or that the wave of mega-hotel openings in the 1990s would create crippling overcapacity.

History suggests that, in America’s gambling capital at least, supply creates its own demand.

Las Vegas feeling impact of recession

For years Las Vegas managed to continue growing despite national peaks and troughs in the economy, but today a combination of higher gas prices, pricier airline tickets, a shift away from gambling revenue towards high-end restaurants and shops and new competition abroad is taking its toll. What does that mean for Sin City? A story in the Wall Street Journal speculates:

The gambling slowdown that began early this year is taking a serious toll on Las Vegas, with banks, investors and private-equity funds growing as tightfisted as the consumers who are gambling less in the slumping economy.

Once believed to be recession-proof, casinos are proving to be highly vulnerable to the economic downturn, which is striking the industry at a bad time. Las Vegas is entering its lethargic summer season, and a boom-time frenzy of grand expansion plans and private-equity buyouts has left casinos laden with debt...

The industry is facing what insiders and analysts call its biggest challenge in years. Rising gasoline prices, the housing crisis and other economic troubles are prompting consumers not just to gamble less, but to spend less at the luxury boutiques and restaurants where casinos draw most of their profits. Struggling airlines are cutting service to Las Vegas. And pressures are building on casinos that cater to local residents, who have been hard hit by economic troubles...

The gambling industry has survived economic famine before. But the current consumer-driven downturn, coupled with a recent industry shift away from gambling and toward luxury amenities, high-priced entertainment and dining, has created a dangerous situation for Las Vegas.

The problems are weighing heavily on gambling companies that cater to the local Las Vegas population with low-glitz, high-profit casinos built away from the tourist zone known as the Las Vegas Strip. Those companies thrived on the boom in southern Nevada's population, as families flocked to the area for jobs in the casino industry. But now those customers are holding back, pinched by a housing crunch and rising unemployment.