Las Vegas Faces Its Deepest Slide Since the 1940s

Las Vegas Faces Its Deepest Slide Since the 1940s
By ADAM NAGOURNEY
Published: October 2, 2010

LAS VEGAS — There are many cities across the country that are beginning to see the first glimpses of the end of the recession.

This is not one of them.

The nation’s gambling capital is staggering under a confluence of economic forces that has sent Las Vegas into what officials describe as its deepest economic rut since casinos first began rising in the desert here in the 1940s.

Even as city leaders remain hopeful that gambling revenues will rebound with the nation’s economy, experts project that it will not be enough to make up for an even deeper realignment that has taken place in the course of this recession: the collapse of the construction industry, which was the other economic pillar of the city and the state.

Unemployment in Nevada is now 14.4 percent, the highest in the nation and a stark contrast to the 3.8 percent unemployment rate here just 10 years ago; in Las Vegas, it is 14.7 percent.

August was the 44th consecutive month in which Nevada led the nation in housing foreclosures.

The Plaza Hotel and Casino, which is downtown, recently announced that it was laying off 400 workers and closing its hotel and parts of its casino for eventual renovation, the latest high-profile hit to a city that has seen a steady parade of them.

“It’s been in bad shape before, but not this bad,” said David G. Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. “If you look at the gaming revenues, they have declined and continue to decline over the past three years. “

“Sept. 11 set off a two-year slowdown,” Mr. Schwartz said. “But nothing of this magnitude.”

Mayor Oscar B. Goodman said in a recent interview that he was “very bullish on our future,” offering as evidence the packed airplanes he encountered both ways on a recent trip east to appear on “The Colbert Report.”

But, he added: “Our daily room rate average is not what it was. Our hotel room rates are bargains now. People aren’t spending on gambling as they have in the past. Ordinarily Las Vegas was the last to go into a recession and the first to come out. This one is different. As soon as they feel secure in their financial position, then Las Vegas will come back stronger than ever.”

The drop in the city’s gambling revenues, at first glance, tracks historical trends: Americans cut back on recreational travel and gambling during a recession. There are some signs that gambling revenues, which are down to 2004 levels, have at least stabilized. After months of precipitous decline, revenues increased 3 percent in the first quarter of 2010, but then dropped 5 percent in the second quarter, according to the Center for Gaming Research.

“I think we are bumping along the bottom,” said Stephen P. A. Brown, the director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, which has been tracking the downturn. “Expectations are that once the U.S. economy turns around, the gaming industry will begin to improve.”

What is worrisome now is the nature of this economic downturn, when many people saw the value of their retirement funds or homes collapse. Economists say people are less likely to gamble as freely as they have in the past, particularly baby boomers, who may now be rattled about their retirement years. In one sign of this, while there were more people coming to Las Vegas in recent months, gambling receipts have remained stagnant.

“The big players, the ones who gamble the big money, I’m not sure they have it anymore,” Mr. Goodman said.

Gambling by Nevadans — itself a steady and critical stream of revenue — has also fallen off as a result of high unemployment, and analysts see no obvious way to turn that around anytime soon.

“Although gaming dropped with this economy, don’t automatically assume that when the economy comes back people will start gaming at the same level,” said Keith Foley, a senior vice president at Moody’s Investors Service who tracks the industry. “We put this in the grand scheme of things. This is a highly discretionary form of spending. People lost their savings.”

And in the midst of all of this, standing as a prime symbol of Las Vegas’s taste for extravagant risk — or perhaps of a fateful misreading of a changing landscape — is a huge new “urban community” called CityCenter, which opened next to the Bellagio on the Strip.

Built by MGM Resorts and the government of Dubai, CityCenter is the largest privately financed construction project in United States history. It is an $8.5 billion labyrinth of hotels, casinos, retail malls, meeting rooms, auditoriums and spas spread across 76 acres with 16 million square feet of floor space. Steel and glass, a crush of buildings often rising at discordant angles, it is an arresting display of a new style of architecture and urban planning that has not been seen in Las Vegas before.

CityCenter was conceived before the economic downturn and did not open until last December, an unfortunate turn of timing that dropped 5,000 new hotel rooms into the city when some of the older properties had been struggling to bring people in. Another 2,500 rooms are due to be added when another new hotel and casino on the Strip, the Cosmopolitan, opens in mid-December. (A recent check online found rooms being offered for as little as $38 a night at the Sahara Hotel and Casino.)

At the same time, officials here are watching another potentially disruptive storm on the horizon: legislation in Congress that would legalize Internet gambling. Mr. Brown said he was hopeful that online gambling would not draw people away from Las Vegas because “Internet gambling appeals more to addicted gamblers than people who are seeking a casino experience.”

But Senator Harry Reid of Nevada, the Senate majority leader who is in the middle of a bruising re-election fight, said he would oppose such a move because it would hurt the state’s tourism industry and cost jobs.

And Billy Vassiliadis, the chief executive of the advertising agency that represents the Las Vegas Convention and Visitors Authority, said, “People are looking at mall visits and online shopping and saying, ‘Yeah, that could be a problem.’ ”

“Am I worried?” Mr. Vassiliadis continued. “Hey, listen, I wish we could go all the way back to before Atlantic City opened. By my nature, I like monopolies as long as they are my clients.”

The potential challenge from the Internet is a reminder of just how much the playing field has changed for Las Vegas over the past generation: with states sponsoring weekly lotteries and legalized gambling permitted in many cities and Indian reservations.

In what may be no better sign of this city’s concern, Mr. Vassiliadis said officials were thinking of tweaking its iconic advertising slogan “What happens in Vegas stays in Vegas” to better appeal to a country that may not be in a big-spending, “let’s party” state of mind.

The downturn in gambling is just one big part of the economic malaise. Nevada is paying a price for an exuberant and often speculative run of commercial and residential construction that has left the market glutted. As a result, the confidence that the return of tourists alone would spur the city to rebound automatically after this recession — the way it did after, say, the recessions of 1982 and 1992 — is absent.

“There was a time 25 years ago that if tourism rebounded, the state rebounded,” Mr. Vassiliadis said. “That isn’t the case anymore. The other side of the economy here is going to be harder. There needs to be some real, thoughtful, deliberate effort to rebuild an economy here. It isn’t going to happen by itself.”