Las Vegas feels the pinch as US economy slows
Casino owners in Las Vegas have been warned that Americas economic slowdown had left the gambling mecca facing "its most severe downturn ever".
Challenging the resort citys traditional boast that it was virtually recession-proof, shares in companies that operate casinos have dipped to new lows this week.
With casino owners plunging into heavy debt and even bankruptcy, industry experts have warned that the worlds gambling capital faces the toughest economic challenge in its history.
Keith Foley, a gaming analyst who tracks 55 gambling companies for Moodys, a credit-rating company, said the casino industry was "in the midst of what could be its most severe downturn ever".
"After 9/11, when it bounced back really quickly, everyone thought Vegas was immune to just about anything," he said.
"It is suddenly obvious and maybe kind of scarey that it is not." A combination of rising petrol prices, the housing crisis and cuts in airline services have helped drive down the number of people coming to the Nevada resort city and the amount they are spending there.
The spending downturn has primarily affected the shops and restaurants on which the casinos rely for most of their profits rather than the gaming rooms.
As casinos head into their businesss traditionally quiet summer months, the timing of the income squeeze couldnt have come at a worse time.
Many casino operators have borrowed heavily to finance ambitious expansion plans intended to keep Las Vegas as the worlds gambling mecca.
Four casino companies have already gone into bankruptcy this year, including Tropicana Entertainment, which defaulted on $2.7 billion debts.
Harrahs, the worlds biggest casino group by revenue and owner of Caesars Palace and seven other big casinos on the Vegas "Strip", posted a fourth-quarter loss in the Spring.
Although the company insists it remains profitable, it has resorted to such measures as chartering planes to fly in loyal customers to its regional casinos.
Several big Las Vegas building projects have been delayed due to financial problems, including a second tower on Donald Trumps new hotel and a plan to build a pounds 3 billion version of New Yorks famous Plaza Hotel.
Banks which only six months ago were delighted to lend to casinos have now tightened their lending arrangments. Many are now required to maintain minimum levels of cash flow at all times.
According to the Las Vegas Convention and Visitors Authority, the city has seen gambling revenues fall only once since 1970 - they dropped one per cent in the aftermath of the Sept 11 attacks.
But so far this year, they have dropped more than four per cent while the number of conventions held has fallen by more than 10 per cent.
Experts say that one of the reasons Las Vegas is more vulnerable now is that it is no longer so dependent on gambling. Casinos have diversified so much into areas such as luxury brand boutiques, restaurants and expensive entertainment that around 60 per cent of its revenues now come from non-gaming activities.
Las Vegas has long clung to its own mythology as an economically invincible boomtown, a belief based on the theory that gamblers dont scale down their bets in lean times and may even - out of hope or necessity - do the opposite.
This may have saved Las Vegas in the past but American gamblers now have far more options including casinos in almost every state and the internet, say observers.
"A lot has changed in 10 years. There are some pretty good alternatives to Las Vegas," said Mr Foley.
"If youre getting hit by gas and air prices, you might say, Im going to stay in Atlantic City." Casino bosses hope the weak dollar will lead to increased visits by foreign travellers - who currently make up 13 per cent of all visitors - to Las Vegas more expensive resorts.
2008-07-21
