Winners & Losers 2009: Big loser - Las Vegas

Las Vegas raked it in during the good times, but the downturn has made Sin City pay for bad bets.

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You know things are bad in Las Vegas when even the Hooters Hotel Casino can’t make a dime. Granted, the establishment, which bills itself as a regular Hooters on “mega doses of estrogen,” isn’t as desperate as Déjà Vu, a club that recently deployed a Plexiglas truck with pole dancers to lure customers off the street. Nevertheless, despite its 250 “sexy but wholesome” hostesses, Sin City’s Hooters is struggling to survive under its US$147-million debt. “Because we are in the hospitality and recreation business, which is largely dependent on discretionary spending,” the company’s latest financial report explains, “we believe that the weak housing market, increases in unemployment, decreases in air flights to Las Vegas, decreases in the value of stock and other investments, and the general tightening of spending on business travel have all affected visitations to Las Vegas and the spending budget of our customers.” That’s from a company offering $20 rooms.

Hooters isn’t the only Vegas business in trouble these days. In September, year-over-year gambling revenue for Strip casinos fell for the 21st straight month, despite this year’s favourable placement of the Labour Day weekend, not to mention an increase in sport betting driven by football season and the Mayweather-Marquez boxing match. Every major gaming joint in the Nevada city reported worse results in the third quarter of this year than in Q3 2008, when the stock market crashed. Simply put, Lady Luck has left Vegas, and she may never return.

The Great Recession has managed to do what past downturns never could: bust America’s boom town. For years, no other U.S. city could hold a candle to the Vegas growth streak. In 1980, the city’s population was 450,000. Today, it’s two million. In recent times, it wasn’t unusual for 30,000 new homes to crop up in 12 months. Over the past decade, more than US$30 billion in casino property expansions were launched.

The run of luck was so good that gaming-industry folks started to believe Vegas was invincible, thanks to a steady flow of high- and low-rolling suckers who left behind more money than secrets when flying home. “During the Great Depression and previous recessions, people would always save enough to go to the movies,” American Gaming Association chair Frank Fahrenkopf noted two years ago, adding that Vegas casinos are equally protected from tough times. But Sin City isn’t just about gambling anymore. Back in the ’80s, it started going mainstream, targeting tourists by making massive investments in retail, dining and entertainment. The soon-to-open CityCenter casino, for example, is just part of the largest and most expensive resort complex in Vegas history, surrounded by shops and more than 3,500 condos.

As a result, Vegas is now like every other tourist trap in America — it’s vulnerable to the business cycle. Unemployment sits at about 13%, and home foreclosures are setting records. The skyline is dotted with black holes that represent unfinished hotels, and builders expect few new major business investments for at least a decade.

Thanks to discounted rooms, the decline in tourist visits is just over 10%. But unlike at Hooters, much of the Vegas expansion was aimed at the high-end luxury market. So bargain hunters travelling on budgets are not going to turn things around.

As Patricia Becker, executive director of the University of Nevada-Las Vegas’s International Gaming Institute, recently pointed out, it’s not just gaming that has to recover to turn Vegas around: “You have to get a rebound with people who feel like they want to spend money in a restaurant or want to buy higher-end clothing or apparel, or go to a spa. That means you have to affect overall consumer confidence more than just getting somebody in here who says, “OK, I want to splurge and gamble for a few days.'”

The optimists are betting Vegas has hit bottom. They see the opening of CityCenter as a must-see attraction that will restore the town’s buzz and attract more wallets. But it is hard to imagine that adding 6,000 rooms to a tourism town fighting overcapacity is going to be good news — especially across the street, where the Planet Hollywood hotel-casino has just been taken over by creditors. In other words, as long as mainstream America is in trouble, avoiding Chapter 11 will probably be the hottest game in town.

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