LOOKING IN ON: GAMING

Sunday, Oct. 21, 2007 | 12:54 p.m.

Do housing prices affect spending patterns? Surveys, and now research, say yes.

After the state reported double-digit percentage gambling revenue declines in August at local neighborhood casinos, even bullish analysts are conceding that gambling revenue, like spending on other discretionary items, isn't immune to broad economic downturns.

Several local analysts have drawn the conclusion that the local housing slump has hurt Nevada's casino revenue, which was down 4.4 percent in August. The declines for both Las Vegas and the state are from a year earlier.

But investment house Deutsche Bank went a step further last week by offering evidence that changing real estate prices in the United States might affect spending patterns more than do changes in the stock market. The report also said that American consumers react more strongly to real estate price changes than European consumers because U.S. consumers take on more debt to buy their homes.

Falling real estate prices correlate with declining spending in other countries as well as the United States.

The reason behind the correlation between housing prices and casino spending still puzzles the experts. Rising home prices raise homeowners' paper wealth but also mean higher property taxes and should therefore have little effect on spending. While homeowners might want to spend more because they feel richer, others , who don't yet own a home might feel the need to save more, thus curtailing their spending.

A separate Deutsche Bank report noted that home prices across the country are expected to fall at least 5 percent during the next two years, and perhaps as much as 15 percent.

The current trend of casino companies going private has many people concerned because the companies drive the economy by creating jobs and generating big tax revenue .

The companies give expected answers. Harrah's Entertainment, which received New Jersey regulators' approval for its $28 billion going-private deal, says it doesn't plan any layoffs or asset sales. Station Casinos received approval for its $9 billion management-led buyout in Nevada and gave a similar message - it would be "business as usual" for the company afterward.

Going private should give both companies more flexibility to react to changing market conditions and decide whether it makes sense to grow more aggressively or at a slower pace.

Station's growth plan, as the dominant player in the locals market and the off-Strip operator best able to weather the housing slump, seems more certain than Harrah's, which will face off against more than 30,000 new hotel rooms opening on the Strip in the next few years.

"We expect there to be continued organic growth based upon how our business model ... should take advantage of the supply-demand dynamics in Nevada," Station President Lorenzo Fertitta told Nevada regulators this month.

Station is awaiting final approval of its deal from the National Indian Gaming Commission, the federal agency that regulates Station's casino contracts with tribes.

The Harrah's deal needs regulatory approval in Nevada, where the Gaming Control Board and Nevada Gaming Commission are expected to consider the transaction in December. Unlike the Station deal, which involved closely investigated Station executives and one outside investor who was previously licensed in Nevada, the Harrah's transaction involves two separate buyers largely unknown to regulators.

When O.J. Simpson was arrested in Las Vegas last month, Station Casinos execs cringed at the national media's description of Palace Station as "dingy," "seedy" and "dilapidated."

Sure, Palace Station can't compare to the splendor of the Strip resorts. But Station bosses recently spent millions on upgrades throughout the property, from new restaurants to carpet.

Station is nearly done remodeling some meeting rooms and more than 500 rooms in Palace Station's hotel tower, at a cost of $14 million. The new rooms feature 42-inch flat screen TVs, pillowtop mattresses and a sleeker, more modern look. The company remodeled its oldest rooms, at the property's rear, a couple of years ago.