Las Vegas casinos feel pain of economic crisis - Monday 23rd of March 2009
As Las Vegas casinos are reeling under the economic crisis, some people are talking about the possibility that the U.S. government will bail out, own and operate the casinos to get huge revenues the government badly needs.
About 280 miles (about 448 kilometers) northeast of Los Angeles, Las Vegas grew with gambling owned and operated by the mob. Later the casinos were turned into enterprises and the mobs were driven out. Now people are talking about nationalizing casinos, which means the U.S. government will own and operate the casinos and each U.S. citizen will have a share of the gambling city. To many, that is something unacceptable.
But the reality is, many casinos have borrowed too much money from banks to invest in new projects along the world famous Las Vegas Blvd., the Strip, and many casinos are drowning in a sea of debt. In a matter of months, those casinos will be bank owned. As many banks have been bailed out by government or are in the process to be bailed out by the government, the bank-owned casinos are actually owned by the government.
Las Vegas has been expanding very fast at least in the past 30 years. The new wave of constructions started in the past several years. Unfinished construction projects can be seen on both sides of the citys busiest Las Vegas Blvd. Those investors thought they could easily get money back from the pockets of endless gamblers from all over the world with a dream to become rich overnight and they have borrowed too much.
It is reported that the big players in Las Vegas are all facing the danger of bank default.
Harrahs Entertainment Inc. which owns one of the citys oldest casinos, has a problem to get new loans since Moodys Investors Service cut credit rates for the company over concerns that the casino operator will default on its debt as gambling revenues are declining.
Harrahs now has just enough cash to cover interest payments and is in a negative cash balance position. With banks reluctant to lend money to it, foreclosing on casinos will be possible.
It is reported that MGM, Rivera and Stratosphere are also struggling to tread water in mounting debt.
MGM-Mirage, the largest employer in Las Vegas with ten resorts, has borrowed billions to build the "City Center," the biggest project ever in Las Vegas. MGM-Mirage could default on its debt payments. Now MGM is negotiating with its lenders, but if they cant reach a deal, bankruptcy is unavoidable.
Station Casinos are also in trouble. The company said it may have to file for bankruptcy protection if it fails to reach agreements with lenders to restructure their debt.
More bad news affecting Las Vegas economy came out of two reports released in January: 2008 gaming revenues for Nevada and the rest of the country are down; and Las Vegas casinos are piling up significantly more debt.
U.S. and Nevada commercial and racetrack casino revenues fell 3.5 percent in 2008 to an estimated 36.2 billion dollars. Average Strip casino net debt jumped from 391 million dollars in 2007 to 773.4 million dollars in 2008. Average Las Vegas Downtown casino debt soared to 92.9 million dollars from 6.7 million dollars in 2007.
The U.S. Congress is now discussing ways to bail out the banks. To nationalize some banks seems to be a choice. But it is speculated that very soon Congress will debate on whether the government will own the gambling industry to forestall collapse. Some economic planners even say that nationalizing the gambling industry makes as much or more sense than for the government to take over the banks.
Actually many states have adopted laws to make gambling legal to generate new revenue. California allows card casinos but not slot machines. In some American Indian reservations, Las Vegas style casinos with slot machines are legal.
In the past, when the countrys economy was bad, the gambling industry remained profitable, since more people preferred to go to the casinos to try their lucks when the economy deteriorated. But thats not the case this time. Almost all casinos saw a sharp drop of gamblers.
Supporters of nationalizing the gambling industry include Washington economist Pete Dobson. "If the government took over the casino operators that are tumbling toward bankruptcy, taxpayers could soon see a profit on the investment. Ridding those companies of the toxic assets they committed to in the name of endless reckless growth would put such companies as MGM-Mirage back to the times of huge earnings," said Dobson.
He added: "Nationalization of the casinos would assure the safety of all those jobs, plus provide the U.S. with massive cash flow. Why continue to take just a taste of gaming income, when industry leaders cant maintain profitability in such a simple business?"
Gambling in the United States in 2006 had gross revenues of 90.93 billion dollars. Gross gambling revenue is the amount wagered minus the winnings returned to the players. It is a true measure of the economic value of gambling.
Proponents of gambling say it provides valuable tax revenue and job opportunities. Commercial casinos provided over 354,000 jobs and yearly state and local tax revenue of 5.2 billion dollars as of 2006.
However, strong opposition is expected in the process to nationalize gambling. Opponents say gambling would lead to higher crime rates and increased political corruption.
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