In Las Vegas, all bets are off

During the last housing bust of the early 1990s that hit Southern California, many people in the building industry simply temporarily relocated to Las Vegas since it was still booming. For years, thousands of people moved to Southern Nevada for the job opportunities afforded by a growing casino industry and the sorts of services that a growing city needs. Has that now stopped? A story in The Economist asks the question:

The housing slump and high petrol prices do seem to be taking their toll. In the year to April, gaming revenue across Vegas was down by 3.3% from the year before. A dip in occupancy, usually an impressive 90-95%, has prompted hotels to cut room rates, reversing a steady rise in recent years to more than $135 a night on average. Sub-$100 deals at prominent Strip hotels have proliferated in recent weeks.

Though hotels are still coy about advertising these bargains, MGM Mirage, the biggest Strip operator, is reportedly nudging local newspapers to run stories about them. This has raised concerns over a possible price war. Nor can the city fall back on convention business, which has boomed in recent years.

Attendance fell by 7.1% in the first quarter compared with a year earlier—a worrying sign because conference-goers spend twice as much per trip as pleasure-seekers do, though things picked up a bit in April. Las Vegas Sands Corp, the most convention-oriented of the big operators, posted an unexpected loss in the first quarter. Occupancy at its latest mega-hotel, the Palazzo, was a mere 79%. Harrah’s dipped into the red too...

All this coincides with the industry’s biggest-ever building spurt, raising the spectre of oversupply. Wynn Resorts is building a $2.2 billion follow-up to Wynn Las Vegas, the Encore, and MGM is spending $9.2 billion on a 76-acre project called CityCenter. More than 40,000 new rooms will become available in the next four years, triple the number Beijing is providing for the Olympics—and in a city that already has 7% of America’s hotel rooms...

The casino Titans are adept at dealing with shifts in demand, however. Led by Harrah’s, whose boss, Gary Loveman, is a former economics professor, they have become experts in collecting information about their customers and using it to tailor promotions. Gambling firms also have a knack for carving out new markets. And they are ramping up marketing efforts abroad...

If past downturns are a guide, a substantial number of Americans will head to Vegas rather than taking expensive holidays abroad, says David Schwartz of the Centre for Gaming Research. And the “whales”, as high-rollers are known, really are immune to economic fluctuations...

Some high-end casinos are doing even better this year than last, says Brian Gordon of Applied Analysis. This leaves some convinced that Vegas will once again defy the sceptics, just as it confounded those who argued that it would be hurt by competition from Californian gambling dens, or that the wave of mega-hotel openings in the 1990s would create crippling overcapacity.

History suggests that, in America’s gambling capital at least, supply creates its own demand.