TIME: Behind Vegas's Bad Bet

[marmar]

Behind Vegas's Bad Bet
By Deirdre Van Dyk Monday, Dec. 29, 2008


What happened to recession-proof Vegas? The short answer is that the city placed most of its bets on the tourism industry. For a long time it paid off, but, says Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada at Las Vegas, "if you ride a fast horse, you have the likelihood of greater volatility."

That volatility was all positive and profitable as Las Vegas morphed from a place where people went just to gamble and get a lap dance to a destination where middle Americans wanted to vacation. It became so mainstream that even the Southern Baptists had a convention in the city. "Visitors were coming to hotels at rates of 90% — a signal to expand," Schwer explains. "And interest rates dropped, so there was readily available cash to do just that." Jan Freitag, a hotel analyst at Smith Travel Research, agrees: "There was the sense that if you build it, they will come — that there was this pent-up demand."

The city attracted convention business: 6 million attendees brought in $8 billion of business last year. No other city could compete with the entertainment, parties and number of hotel rooms. "If you put three to a room," says Schwer to illustrate the capacity Vegas has, "you could put the whole population of Wyoming in Vegas and still be able to feed, clothe and give them extra towels." (See 10 things to do in Las Vegas.)

Over the past four years, Nevada was growing jobs at two to six times the national rate. In the past decade, the state's population increased 50%, with new residents attracted by steady employment, no personal income tax and housing that seemed to grow ever more valuable (home prices increased 135% between 2000 and 2006, according to Standard & Poor's). "We thought we had decoupled from the national economy," says Schwer. Unlike the rest of country, Nevada hadn't had a downturn since the 1980s.

But Las Vegas, in doubling down on the travel sector, had not diversified its economy. As the visitor rate dropped 10% in October, average daily room rates fell 14% and gaming revenue dove 26%. The hotel-casino downturn sent ripples across the city that turned into a tsunami. "In our union halls, 30% of members were what we call travelers," says Steve Holloway of the Las Vegas chapter of the Associated General Contractors of America. "They came here for the work, and now they're going home." The construction industry alone employs 10% of Las Vegas's population. .......(more)

The complete piece is at: http://www.time.com/time/business/article/0,8599,1868933,00.html?imw=Y

[joeunderdog]

1. There's something Shakespearian about Vegas going bust.

Not that they'll be out of the game completely. One thing's for sure, they are the epitome of the Ugly American lifestyle of excess.

[BeyondGeography]

2. Things are much worse than the article suggests

There is a ton of capacity online that has been shut down because of falling demand, all of it aimed at the disappearing high end of the market. More than anything, Vegas bet on rising incomes at the top, and that ship has sailed. When the country "comes back," there still won't be the demand for $400 a night hotel rooms supported by Ferrari shops and gambling that these projects were predicated on. Many of these projects also include "luxury" condos with Manhattan-style price tags, another ship that has sailed. "Why Vegas is Fucked for the Next Ten Years" would be my headline.