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Wednesday, May 21, 2008
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Recession

'Recession-proof' Las Vegas hit by US economic downturn

Women play at the Paris Las Vegas Hotel on Las Vegas Boulevard, known as "The Strip", in Las Vegas recently. Photo: AFP

For almost any other tourist hotspot, greeting nearly 10 million visitors and earning 2.9 billion dollars from convention business in three months would be a cause for cheer.

But for Las Vegas, those figures reflect the cold truth that, in a break from its history as a recession-proof oasis in the American economy, Sin City is hurting in the nationwide downturn, too.

Latest economic figures, released last week by the Las Vegas Convention and Visitors Authority, show that through March 31 several important indicators are either flat or down.

The 2.9 billion dollars in convention revenues represents a 7.1 percent decline and is due partly to a 12.6 percent drop in the number of conventions.

It all adds up to an unfamiliar feeling for a destination that has long prided itself on being impervious to the harshest sides of swings in the national economy.

"This is different from prior downturns," said Bill Lerner, a Vegas-based Deutsche Bank gaming sector analyst.

"Now that there's a lot more non-gaming amenities in Las Vegas, the visitation mix is leaning toward non-gamblers, and the consumer coming to Vegas is different now than it was in prior recessions."

Since 1970, Las Vegas saw gambling revenues fall only once -- in the aftermath of the September 11, 2001 terror attacks, when gaming revenues in 2002 were less than one percent lower than 2001.

As in earlier tough times, Vegas resorts get creative in finding new niche markets to pursue.

The 2001 downturn prompted the advent of aggressive marketing to gays, Hispanics and blacks.

This time, casinos are focusing on lucrative overseas markets where the weak dollar makes coming to Las Vegas a bargain.

"Bachelor parties in Vegas are now all the rage for soon-to-be-wed fellows from Australia and the UK, for instance, because it's so cheap to get there," said Robert LaFleur, a gaming-stock analyst for Susquehanna Financial Services. "If the Hispanic market's been tapped, the gay market's been tapped, the cat-lover market's been tapped, you go find business where you can find it.

"Right now, it's an easy sell to get people from overseas."

As for the hard facts, gambling revenues for the top casinos were down 4.8 percent in March for a 3 percent drop thus far in 2008; the average daily room rates dropped 2.7 percent and the stock prices of Las Vegas Sands, owner of the Venetian and Palazzo, fell 38 percent and MGM Mirage, owner of Bellagio, Mirage and eight other Strip resorts, have fallen 42 percent since November.

Overall visitor volume is up 0.4 percent so far in 2008, but experts say it would be down had it not been for this leap year's extra day in February.

The thinking in past recessions has been that gamblers tended to come to Las Vegas even when times were tough hoping to win something.

But the Las Vegas of 2008 earns just 40 percent of its revenues from gaming sources and the rest from upscale leisure amenities such as restaurants, spas, nightclubs and shows that downturn-damaged Americans can't afford.

In 1992, the last comparable recession, the calculus was reversed; gaming revenues represented 58 percent of overall cash flow.

That makes it harder for Vegas to stay above the economic mire because leisure and business travelers cut discretionary spending, Lerner said.

Indeed, several major annual conventions have seen fewer attendees show up and have seen those that come stay for shorter periods.

The National Association of Broadcasters convention in April is one such example, greeting 105,000 registrants, down from 111,000 in 2007, said NAB executive vice president Chris Brown.

Those figures could have been worse, but advance registrations were so far down that several hotel-casinos voluntarily offered to cut room rates by 10 dollars or more to encourage attendance, he said.

"That's never happened before," Brown said.

Every facet of the nation's economic woes is rearing its ugly head in Vegas.

The credit crunch has forced several major construction projects on the Strip to be delayed, including a second tower for Donald Trump's newly opened condo-hotel and a six-billion-dollar version of New York's Plaza Hotel.

Nearly four percent fewer cars crossed the Nevada-California border along Interstate 15 through March, reflecting in part that record high gasoline prices are curtailing drive-in visitors from California.

In the past six weeks, three airlines with substantial service to Las Vegas -- Aloha, ATA and Champion -- have announced they are going out of business. And if the Strip is slumping, the many casinos that cater to local Las Vegans are facing double-digit drops in gaming revenues in a city that has one of the highest home foreclosure rates in the nation.

The downturn has also prompted some layoffs, most significantly the elimination of 440 middle-management jobs at MGM Mirage for a savings of 75 million dollars annually.

Still, there are some silver linings. More than 30 billion dollars in new construction continues unabated, promising to deliver another 40,000 hotel rooms to the current 136,000 by 2011 and creating more than 100,000 new jobs.

Travel deals are flooding the email boxes of many frequent Las Vegas visitors, including cut-price 68-dollar weekend rooms at the MGM Grand and airfares as low as 37 dollars each way from San Francisco.

Some of the top shows are, for the first time, on sale for discounts at various half-price ticket vendor kiosks around the Strip.

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