Las Vegas on historic losing streak

LAS VEGAS — Many cities are beginning to see the first glimpses of the end of the recession.

This is not one of them.

Las Vegas is staggering under a confluence of economic forces that has sent the nation's gambling capital into what officials describe as its deepest economic rut since casinos first began rising in the desert in the 1940s.

Even as city leaders remain hopeful that gambling revenues will rebound with the nation's economy, experts project it will not be enough to make up for an even deeper realignment that has taken place in the course of this recession: the collapse of the construction industry, which was the other economic pillar of the city and the state.

Unemployment in Nevada is 14.4 percent, the highest in the nation and a stark contrast to the state's 3.8 percent unemployment rate 10 years ago; in Las Vegas, the jobless rate is 14.7 percent.

August was the 44th consecutive month in which Nevada led the nation in housing foreclosures.

The Plaza Hotel and Casino, which is downtown, recently announced it was laying off 400 workers and closing its hotel and parts of its casino for eventual renovation, the latest high-profile hit to a city that has seen a steady parade of them.

"It's been in bad shape before, but not this bad," said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. "If you look at the gaming revenues, they have declined and continue to decline over the past three years.

"Sept. 11 set off a two-year slowdown, but nothing of this magnitude."

Mayor Oscar Goodman recently said he was "very bullish on our future," offering as evidence the packed airplanes he encountered both ways on a recent trip east to appear on "The Colbert Report."

But, he added: "Our daily room rate average is not what it was. Our hotel room rates are bargains now. People aren't spending on gambling as they have in the past. Ordinarily Las Vegas was the last to go into a recession and the first to come out. This one is different. As soon as they feel secure in their financial position, then Las Vegas will come back stronger than ever."

Hitting rock bottom

At first glance, the drop in the city's gambling revenues tracks historical trends: Americans cut back on recreational travel and gambling during a recession. There are some signs that gambling revenues, which are down to 2004 levels, have at least stabilized. After months of precipitous decline, revenues increased 3 percent in the first quarter of 2010, but then dropped 5 percent in the second quarter, according to the Center for Gaming Research.

"I think we are bumping along the bottom," said Stephen P.A. Brown, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. "Expectations are that once the U.S. economy turns around, the gaming industry will begin to improve."

What is worrisome now is the nature of this economic downturn, when many people saw the value of their retirement funds or homes collapse. Economists say people are less likely to gamble as freely as they have in the past, particularly baby boomers, who may now be rattled about their retirement years. In one sign of this, while there were more people coming to Las Vegas in recent months, gambling receipts have remained stagnant.

Ill-timed venture

In the midst of this, standing as a prime symbol of Las Vegas' taste for extravagant risk — or perhaps of a fateful misreading of a changing landscape — is a huge new "urban community" called CityCenter, which opened next to the Bellagio on the Strip.

Built by MGM Resorts and the government of Dubai, CityCenter is the largest privately financed construction project in U.S. history. It is an $8.5 billion labyrinth of hotels, casinos, retail malls, meeting rooms, auditoriums and spas spread across 76 acres, with 16 million square feet of floor space. Steel and glass, a crush of buildings often rising at discordant angles, it is an arresting display of a new style of architecture and urban planning that has not been seen in Las Vegas before.

CityCenter was conceived before the economic downtown and did not open until last December, an unfortunate turn of timing that dropped 5,000 new hotel rooms into the city when some of the older properties had been struggling to bring people in. An additional 2,500 rooms are due to be added when another new hotel and casino on the Strip, the Cosmopolitan, opens in mid-December. (A recent check online found rooms offered for as little as $38 a night at the Sahara Hotel and Casino.)

Internet threat

At the same time, city officials are watching another potential storm on the horizon: federal legislation that would legalize Internet gambling. Brown said he was hopeful that online gambling would not draw people away from Las Vegas because "Internet gambling appeals more to addicted gamblers than people who are seeking a casino experience."

But Senate Majority Leader Harry Reid of Nevada, in the middle of a bruising re-election fight, said he would oppose such a move because it would hurt the state's tourism industry and cost jobs.

And Billy Vassiliadis, chief executive of the advertising agency that represents the Las Vegas Convention and Visitors Authority, said, "People are looking at mall visits and online shopping and saying, 'Yeah, that could be a problem.' "

The downturn in gambling is just one big part of an economic malaise. Nevada is paying a price for an exuberant, often-speculative run of commercial and residential construction that has left the market glutted. As a result, the confidence that the return of tourists alone would spur the city to rebound automatically after this recession — the way it did after, say, the recessions of 1982 and 1992 — is absent.

"There was a time 25 years ago that if tourism rebounded, the state rebounded," Vassiliadis said. "That isn't the case anymore. The other side of the economy here is going to be harder. There needs to be some real, thoughtful, deliberate effort to rebuild an economy here. It isn't going to happen by itself."