Vegas’ Tourism Boom Now a Hard-Luck Story
Gamblers ignore recessions. Tourists don’t.
During the torrid ‘90s, the spotlight in Las Vegas shifted from slot machines to elaborate themed resorts. A faux Eiffel Tower, Empire State Building, roller coasters and Venetian canals became part of the city’s landscape. That hotel casino building boom, in which richly detailed themed resorts became the attractions, drew waves of tourists and lessened the city’s reliance on gamblers for its income.
But luring tourists requires a healthy economy. And that’s why Las Vegas has been stuck in a three-year tourism slump.
There are many reasons for this slowdown: The stock market slide crimped consumer spending. There are no new luxury resorts to draw visitors. There’s no big-name fighter to replace Mike Tyson and draw mega-crowds. To those, add the Sept. 11 terrorist attacks with their chilling effect on the travel industry, the Iraq war and concerns about severe acute respiratory syndrome that have slowed the flow of tourists from Asia, and Las Vegas is hurting.
With Americans getting ready to take summer vacations -- typically Las Vegas’ slowest season -- the gambling and entertainment mecca will have to wait at least until winter to see whether the hoped-for recovery has taken hold. Winter is the city’s big season, and last winter Las Vegas suffered another disappointing period, with tourist traffic well below its peak of a few years ago.
“Even when the market recovers from all of this, it will only recover to the trend of before 9/11, flat to down” in tourist traffic, said Robin Farley, an analyst with UBS Warburg in New York.
The lengthy slump is evident in falling passenger counts at McCarran International Airport, in declining Clark County hotel room tax collections and in smaller gaming revenue for casinos.
Last year, Las Vegas casinos filled 84% of their rooms, a high number for most cities, but it was the lowest occupancy rate in Las Vegas since 1992, according to the city’s Convention and Visitors Authority. And casinos collected less money for those rooms, as the average daily room rate dipped 5% to $99.90 last year, the Nevada Gaming Commission reported.
“There’s no doubt that Las Vegas is more sensitive to the economy and world affairs” than when it was purely a gambling town, said Wallace Barr, chief executive of Park Place Entertainment Corp., which owns Paris Las Vegas, Caesars Palace and other resorts.
Casino executives and economists agree that there’s little chance Las Vegas can repeat the boom period of the ‘90s. Although some hotels are adding new wings, only one major resort -- Steve Wynn’s lakeside-themed La Reve resort planned for completion in 2005 -- is under construction. Most major casino companies have prime parcels where they can build, yet none has announced plans for a new resort.
The ‘90s building boom “created enormous interest in the city,” said William Schmitt, a gaming analyst at CIBC World Markets in New York. “But now we are living with the hangover.”
Wynn gets credit for taking the lead in rebuilding Las Vegas. When he opened the Mirage Hotel in 1989, it was the first of the mega-resorts, and his goal was to lure visitors interested in more than gambling. The Mirage, with its enclosure for rare white tigers and a fake volcano that spews water and flames every 15 minutes at night, triggered a hotel casino boom as builders tried to outdo one another.
In 1993 the 4,408-room Luxor opened, with its ancient Egyptian pyramid theme and King Tut’s tomb and museum. That year, billionaire Kirk Kerkorian opened his MGM Grand, the nation’s largest hotel with 5,034 rooms and a lion habitat.
In 1998, Wynn unveiled the $1.7-billion European-styled Bellagio, with its choreographed water fountains and an art gallery currently showing Andy Warhol portraits. One of Bellagio’s big draws is the $110 ticket for Cirque du Soleil’s nightly performance of music, dancing and acrobatics set in an aquatic theater. The hotel also has eight upscale restaurants -- including Picasso, with original works by the artist on the walls -- plus six bars and night clubs.
Visitors on the Strip now can see a long string of elaborate themed resorts, including Paris Las Vegas, complete with a 50-story faux Eiffel Tower and a one-third scale version of the Arc de Triomphe. And there’s the New York-New York hotel with a 47-story replica of the Empire State Building and a 150-foot version of the Statue of Liberty.
By the time the Arabian Nights-themed Aladdin opened in 2000, the city had added a dozen major hotels on or within a few blocks of its famous Strip, while the number of hotel rooms doubled to 124,000.
“What other city built 60,000 hotel rooms largely along one street in just 10 years?” asked Hal Rothman, a University of Nevada, Las Vegas historian and author of the modern history of the city, “Neon Metropolis: How Las Vegas Started the Twenty-First Century.”
Along the way, the money flow shifted from gamblers to tourists. When the Mirage opened in 1989, gambling accounted for 59% of casino revenue on the Strip. Last year it was just 43%, according to Nevada gaming industry regulators. Just how much Las Vegas has shrunk its reliance on gaming becomes apparent in the internal corporate numbers of the big casino companies. Gambling accounts for 90% of the revenue at Park Place Entertainment’s operations in Atlantic City but only 49% at its Western division -- primarily Las Vegas.
The city also is turning to upscale adult entertainment to try to lure younger tourists. In December, the $25-million Sapphire Gentleman’s Club, with a 10,000-square-foot “showroom,” 13 “skyboxes” and what it says is a stable of 6,000 entertainers, opened not far from the Strip.
For years, Las Vegas was on a winning streak. Rothman dates the start of Las Vegas’ downturn to March 2000, when Nasdaq peaked and the dot-com stock market bubble burst soon after, wiping out trillions of dollars in paper wealth.
“I think it is very much related to the economy, the fall in the stock market and people’s net worth,” said Terry Lanni, chief executive of MGM Mirage, which counts the Bellagio, New York-New York and MGM Grand Hotel among its major Las Vegas resorts.
The number of visitors traveling to Las Vegas peaked at 35.8 million in 2000, then fell to about 35 million in each of the last two years, according to the Las Vegas Convention and Visitors Authority. The decline would have been even greater had Las Vegas not been successful in wooing some convention and conference business from other cities. But Las Vegas’ convention business declined in February and March. Two of the city’s biggest casino companies, Park Place Entertainment and MGM Mirage, report soft bookings for the current quarter, said Farley, the UBS Warburg analyst.
Part of the problem is an oversupply of hotel rooms.
“There is an advantage in not adding another 60,000 hotel rooms in a short period again,” Lanni said.
Major casino companies are hoping to see a tightening in the supply of rooms, especially if some less elaborate properties shut down.
“No one wants to have a wholesale discount war here,” said Robert Stewart, spokesman for Park Place Entertainment.
Following what he is calling a “choppy” 2003, Lanni expects to see the start of a rebound next year as the economy slowly picks up. “I think it will be very strong from 2005 and on,” he said.
Another worry is the increased competition to lure gamblers from outside Nevada. In recent years, gamblers have found they could get their fix of everything from blackjack to slot machines closer to home as Indian casinos and riverfront casinos opened. Indeed, with the spread of legalized gambling nationwide, half of the U.S. population now lives within 150 miles of a casino, said Barr, the CEO of Park Place Entertainment.
Although gambling makes up a smaller slice of the Las Vegas revenue pie, some games, such as slot machines, have higher profit margins than the city’s restaurants, amusement park rides or shopping. Slot machines produce a gross profit margin of about 70 cents on the dollar after the state gaming tax, said analyst Schmitt. And it’s a steady business.
“People who gamble will spend their budget come hell or high water,” he said.
Las Vegas still attracts droves of gamblers -- gambling revenue in Clark County rose to $7.6 billion last year, up from $4.1 billion in 1990.
But an increasing number of visitors behave like Jamie Bush, a 30-year-old marketing assistant who works at the Aquarium of the Pacific in Long Beach.
During her two trips a year, Bush does most everything expected of a visitor to Las Vegas. She stays in a nice hotel, like the Mirage, likes to walk down the Strip, taking in the Eiffel Tower at Paris Las Vegas and watching the water fountain ballet at the Bellagio. She also hits the chic nightclubs and browses in the Forum Shops at Caesars Palace.
What Bush doesn’t do is gamble.
“I might put some nickels in a machine to get a free drink, but gambling has never had an appeal,” Bush said. “I wouldn’t be foolish enough to think that you can make any money off of a slot machine.”
Bud Byrnes, who runs a municipal bond firm in Encino, has gone to Las Vegas about 30 times since 1995, either for business meetings or to race his vintage car at the Las Vegas Motor Speedway.
He routinely skips the casinos and heads straight to fine restaurants in the major hotels.
“One of the best meals I have ever had was at Emeril’s at the MGM Grand,” Byrnes said.
“While tourists are good for the economy, they are not as good as gamblers,” said Rothman, the historian.
“When they do gamble, they bet less money and they don’t play as long.”
“This was a strategic move,” said MGM Mirage spokesman Alan Feldman. “The operators knew that in order to grow, there had to be a greater appeal to tourism and the convention business and less reliance on Las Vegas as a gambling business.”
And this makeover has helped the major casino companies take in more revenue. Room rates on the Strip, for example, have almost doubled from an average of $54.19 in 1992. And the cheap, money-losing, all-you-can-eat buffets and other deals that abounded in previous eras have largely faded.
Although gamblers can still get a free drink in the casinos and plenty of perks and room comps if they bet enough, more often than not hotels have become the venue of three-figure dining bills and shows.
“Now, everything has to be a profit center,” Lanni said.
Longer term, Lanni figures his company can do well by catering to aging baby boomers. Which is why MGM Mirage is planning a $375-million expansion at Bellagio, including a 928-room spa tower, with additional spa, retail, restaurant and conference space.
For now, though, Las Vegas will have to wait for the economy to recover.
Ed de Laix, a travel agent at the Arcadia office of the Automobile Club of Southern California, doesn’t see Las Vegas recapturing the frenetic pace of the late 1990s anytime soon. Back then, he said, “there were more people willing to take the higher-priced room without questioning it.”
“Now people want nicer accommodations at a value price,” he said.