- The Washington Times - Thursday, March 27, 2008

LAS VEGAS (AP) In a town enthralled with its own mythology, Las Vegas would like to hold on to one myth in particular these days: Gambling is recession-proof.

But it’s just not true, experts say. Gamblers, whether motivated by compulsion or hope, don’t necessarily double down when the economy spirals and belts tighten.

With the housing market tanking and gasoline and food prices rising, the industry is seeing the effects. A survey of 19 states with casino or racetrack gambling found about half saw gross gambling revenue drop in December 2007 from the year before.

In January 2008, the portion grew to 12 of the 19 states, including Nevada. The state saw gambling revenue fall nearly 5 percent from a year ago to $1.06 billion, although analysts note it’s too soon to discern a clear downward pattern.

Industry analyst Eugene Christiansen and others trace the notion of recession-proof gambling to decades-old economic research conducted when gamblers’ options in the U.S. were limited to horse racing and a handful of Nevada resorts. Such tight supply ensured demand for gambling was steady.

“They fared pretty well,” said William Eadington, a professor of economics and director for the University of Nevada at Reno Institute for the Study of Gambling and Commercial Gaming. “Part of this was a pent-up supply of gaming product.”

Not so in 2008, when 48 states have some form of legal gambling and millions of Americans are within driving distance of a slot machine. Casino companies today have moved gambling to the mainstream of the U.S. tourism and entertainment industry and have moved themselves into the competition for consumers’ discretionary spending.

Harrah’s Entertainment Inc., the world’s largest gambling company by revenue, noted several soft patches in its fourth-quarter earnings report.

Booking cancellations and low attendance at major conventions have increased owing to shortfalls in company budgets for travel, said Harrah’s chief executive, Gary Loveman.

Room rates are “off a bit,” Mr. Loveman said.

MGM Mirage noted similar weak spots, despite reporting a revenue increase of 4 percent, which was aided by a rush of foreign investment. Dubai World, the investment arm of the Dubai government, completed a joint venture giving it a 50 percent stake in the $8.1 billion CityCenter megaresort on the Las Vegas Strip.

While the CityCenter development remains a bright spot on the horizon, smaller projects face uncertain futures owing to the shaky credit market. In January, the Cosmopolitan, a casino resort under construction on the Strip, defaulted on a $760 million construction loan from Deutsche Bank and appears to be moving toward foreclosure. Questions also have been raised about the future of the Plaza, a 3,500-room resort modeled on the Plaza Hotel in New York.

Atlantic City properties are more clearly feeling the pinch of increased competition from new Pennsylvania slot parlors and tight credit markets.

The city’s gambling halls suffered through a 10-month decline in revenue until a much-welcomed 1.5 percent uptick in February. Pinnacle Entertainment recently announced it was considering scrapping a $2 billion megacasino project if credit markets don’t improve.

Mr. Christiansen said such news has precedent. In 1991, when the U.S. was facing a similar mix of economic woes, the casino industry felt the blow. After outpacing increases in personal income for most of the 1980s, the growth in gross gambling revenue fell behind that year.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide