Las Vegas economy may get a hangover from high living
Las Vegas has staked its future on 320-thread-count linens, 2,200-square-foot suites, filet mignon, Chanel, seaweed wraps and $5,000 bets on slot machines. The latest batch of mega-resorts revels in luxury. Thrift mostly vanished with showgirls and the Rat Pack.
Now some observers are wondering whether that was a wise bet.
The recession has hobbled Las Vegas casinos, once lauded as impervious to the national economy's ups and downs. Comparing this October with the same month last year, most everything has plummeted: the number of visitors, hotel occupancy, the number of conventions.
Gaming revenue on the Strip fell 25.8%. And the average daily room rate tumbled 14.3%, a huge blow to profits. At Encore, the leviathan that casino mogul Steve Wynn opened this week, rooms are starting at $159 in January. When his Wynn Las Vegas resort debuted in 2005, $250 was a bargain.
"The world has changed, and we've changed with it," Tom Breitling, senior vice president of strategy and development, said during a media tour of one of Encore's 2,034 plush suites.
Analysts say Las Vegas Boulevard, now pocked with empty lots and stalled construction projects, should bounce back once the credit crisis wanes and tourists feel confident enough to splurge on vacations. But although previous downturns passed as quickly as a thunderstorm, economists expect this squall to linger through 2009, push Clark County's unemployment rate as high as 10%, and wipe out casino projects.
Tourism is Nevada's primary breadwinner, and the Strip, with more than $6.8 billion in gaming revenue last year, is the biggest cash machine of all. How its high-end image plays to tourists during and after the recession will affect the entire state.
"People might want luxury, but are they willing to pay for it?" said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. "We might have missed our brand."
Las Vegas has always thrived on showmanship and glitz. Only in decades past, it was purposely affordable. Benny Binion, who launched the World Series of Poker, talked about making "little people feel like big people" to get rich. The creator of Caesars Palace reportedly declined to name it "Caesar's" because he wanted every guest to feel like an emperor.
The idea of Las Vegas as cheap, if somewhat tacky, carried it through other economic slumps, Schwer said.
But Steve Wynn changed things: His Mirage resort and casino, which opened in 1989, introduced high-end boutiques and steakhouses to gambling palaces. Bellagio was even more lavish.
The latest Strip projects -- including MGM Mirage's 76-acre CityCenter, slated to open in 2009 -- take their cues from Wynn Las Vegas, a bronze skyscraper with no theme, no sidewalk gimmicks and no expense spared. The $2.3-billion Encore is similarly palatial: Red chandeliers resemble licorice twists, Botero artworks anchor a restaurant, a jewelry store showcases the 231-karat Wynn Diamond and the centerpiece nightclub is named XS.
Hundreds of people waited outside Monday for Encore's opening -- many merely to ogle. "I can't afford to stay here. If I had money I would. A lot of money," said Julia Dziegelewski, 62, who was visiting from Palm Bay, Fla., where she said she is struggling to sell her home.
In 2003, a tenth of Las Vegas visitors made $100,000 a year or more. Last year, a quarter did, according to research done for the Las Vegas Convention and Visitors Authority. During those few years, folks making less than $60,000 fell from half of all visitors to about a quarter.
In recent months, tourists and locals have complained in newspapers and online about how the Strip caters to the bourgeoisie.
"If casinos want people back, they need to offer value," said one letter to the Review-Journal. "If they balk at the idea of $3 beers, cheaper food and fewer shakedowns, then perhaps they can try paying their debtors with a mountain of their own folly."
The visitors authority has tweaked its marketing to woo the cost-conscious. Its "Vegas Right Now" campaign aims to fill hotels with discounted rooms, show tickets and spa packages. In the summer, as gasoline prices neared $4 a gallon, ads proposed that "Crazy times call for crazy fun."
Recently, tourism officials flew in 120 residents of Cranfills Gap, Texas -- population 351 -- and filmed them sky-diving, golfing and clubbing. The resulting ad blitz intends to paint Vegas as a quick and affordable getaway for Middle America. At the same time, marketers and hoteliers have tried not to dull the Strip's glitterati appeal.
"You don't want to build a brand in today's market based solely on price that backs you into a corner," said Terry Jicinsky, the visitors authority's senior vice president of marketing.
In some ways, analysts said, the slowdown might be good for the Strip casinos. Months ago, Dennis Forst, an analyst for KeyBanc Capital Markets, thought some jet-setter resorts might have to cut rates or scale back their luxury offerings.
"Even in a good economy, you don't need 20 Il Mulinos in town," he said, referring to a pricey Italian restaurant.
Bill Lerner, a Deutsche Bank analyst, said there were plans to add about 51,000 hotel rooms in Las Vegas, many of them high-end. With several projects on hold because of the recession -- the Echelon, across from Encore, was halted midconstruction -- that number is expected to drop to about 25,000.
"For a while, there was this idea that the Bellagio and the Venetian were going to be midtier properties and everything else would go up a notch," said Kathy LaTour, an associate professor at the University of Nevada, Las Vegas, who studies hospitality marketing. "But we're not going to be Dubai. We're not going to charge $1,000 a night."
High rollers, she said, are "never going to be 100% of the market. The fact is, there are other people who come here who've been lost in the excess of the last few years."