Las Vegas Sun

March 29, 2024

Las Vegas gaming industry outlook seen as improving

The outlook for Las Vegas' casino industry next year is looking up as the economy strengthens, consumers gain more discretionary spending power and Wall Street eyes gaming investments more favorably, a top economist told a group of tourism officials in Las Vegas Tuesday.

Still, new room towers under construction on the Strip as well as other relatively minor additions apart from building megaresorts are unlikely to have a major effect on either gambling revenue or visitation -- two key performance indicators, Bill Eadington, an economics professor at the University of Nevada, Reno and director of its Institute for the Study of Gambling and Commercial Gaming said at the 20th annual Governor's Conference on Tourism in Las Vegas.

"Historically growth (on the Strip) has depended upon major new attractions to create buzz ... especially new megacasinos," Eadington said. "The level of spending and visitation flattens out when there's not something spectacular to see."

Steve Wynn's Wynn Las Vegas megaresort is likely to boost performance on the Strip when it opens in 2005 by generating interest and "piggy back investment" in the form of upgrades at neighboring resorts, he said.

The extent of that boost, and how meaningful it will be for lesser operators on the Strip, remains to be seen, he said.

Expansion projects now under way also aren't likely to generate the same returns as those that opened in the early to mid 1990s, he noted. Pre-1995 expansion projects at resorts such as Luxor and Treasure Island -- as well as the opening of New York-New York and Monte Carlo properties -- produced returns on invested capital of at least 20 percent. More recent expansions or new projects -- with the exception of Bellagio in 1998 -- produced smaller returns.

"It's harder to justify spending money on the Strip," he said.

For the majority of companies that must raise capital for new projects, Wall Street will determine whether such proposals get built by defining whether the return on invested capital is sufficient enough to warrant financing, he added.

Meanwhile, Nevada's weaker gambling markets are smarting from increasing competition from tribal casinos -- creating negative or flat growth in gambling revenue over the past three years, he said.

"We have a lot of sick patients in our Nevada gaming hostel these days," he said.

Reno has experienced negative growth in gambling revenue in 30 out of the past 39 months, South Lake Tahoe also faces negative growth as more tribal casinos in Northern California open with newer, high-tech amenities, he said.

Laughlin's gambling revenue has remained fairly stagnant since the early 1990s, largely due to growing competition from tribal casinos as well as from Las Vegas, he said.

Eadington didn't discuss Primm Tuesday, though many experts believe it has been far more affected than Laughlin by competition from tribal casinos across the state line. MGM MIRAGE -- which owns Primm Valley, Buffalo Bill's and Whiskey Pete's hotel-casinos near the California border -- has said that competition from California casinos has cut into revenue at those properties.

Downtown Las Vegas also is struggling amid "significant competition from every direction," Eadington said. New entrepreneurs downtown may be able to improve their prospects to the extent they can reinvest in existing properties to draw interest, he said. Little growth is expected downtown because it can't attract much capital investment, however, he said.

Gambling revenue in Las Vegas didn't appear to fare much better than its Nevada peers -- growing only 0.3 percent from 2000 to 2003 as the Sept. 11 attacks and economic woes hurt demand and little was built in the form of new attractions.

A recovery is under way in Las Vegas and investors have been ahead of the curve, pushing share prices for major gaming stocks higher over the past several months, Eadington said.

The weak U.S. dollar, especially compared to the Euro and the British Pound, also bodes well for the city next year as American travelers may choose to substitute international trips for domestic trips, he said.

Greater uncertainties surrounding gambling expansion and international deals are clouding the horizon, he said.

Expansion plans in other states could help Las Vegas by creating new gamblers and potential visitors but could also hurt by creating more opportunities for local casino outings, he said.

Plans by U.S. companies to build casinos abroad also could have mixed results, he said. Casino projects underway in Macau by Wynn and Venetian owner Sheldon Adelson may divert Asian high-rollers from Las Vegas. But similar plans in the United Kingdom could create more potential visitors who still want to visit gaming's Mecca for reasons other than gambling, he said.

Much like this year, debates in about a dozen states over whether to expand gambling will rage once again in 2004, Frank Fahrenkopf, president and chief executive officer of the American Gaming Association, told the conference.

Threats of casino tax increases remain front and center, though the casino industry appears to be making some headway with some state legislators, he said.

"I think the message is getting through ... that you can kill the golden goose," he said.

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