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July 24, 2014

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Post-9/11 cuts may have gone too far

Study suggests layoffs at casinos were overreaction

In the immediate aftermath of the 9/11 terrorist attacks, Strip casinos laid off more than 10,000 workers, delayed expansions and scaled back construction jobs.

They may have overreacted, according to a UNLV study published this month in Cornell Hospitality Quarterly.

The study, “Fear and Managing in Las Vegas,” adds to a continuing debate on how big casinos best manage their huge payrolls, which are adjusted throughout the year according to business activity.

Based on a statistical analysis of slot machine volume, researchers in UNLV’s William F. Harrah College of Hotel Administration found the Strip had recovered about five months after the attacks — consistent with data showing relatively speedy recovery rates after terrorist events for other tourism centers in the 1970s and 1980s.

Researchers compared actual slot revenue with estimates of slot revenue had the terrorist attacks never happened, and they concluded slot volume had recovered by the end of January 2002.

They chose to study slot volume because slots are a fairly stable indicator of demand compared with table games, and are casinos’ primary source of revenue.

Some casino representatives found fault with the findings, saying the data are too limited to make broad conclusions.

MGM Mirage spokesman Alan Feldman said the study has little relevance to major Strip operators because slot revenue is a declining percentage of total casino revenue.

During the period studied, Strip casinos were embracing new sources of major revenue, such as fine dining, entertainment and high-end retail sales.

“When the business came back it came back differently,” he said. “The customer base was changing and people were spending money on other things” besides gambling.

Executives didn’t regret their decision to lay off as many workers as they did because many workers were involved in nongaming areas that were hard-hit, Feldman said.

“If you have 20 percent of your rooms going unoccupied, what do you do with your bell staff, front desk and other people servicing those rooms?”

MGM Mirage, Park Place Entertainment (later acquired by Harrah’s Entertainment) and Mandalay Resort Group (later acquired by MGM Mirage) laid off thousands of workers in the wake of the attacks. At the time, Harrah’s Entertainment laid off few workers, mostly because the company cut deals with private air carriers to ferry customers to its Las Vegas casinos while major airlines were grounded. People also continued to patronize regional Harrah’s casinos closer to home after the attacks.

“I’m not going to second guess the decisions made by companies” after the attacks, Harrah’s spokesman Gary Thompson said. “Slots may be a good indicator of demand but it’s not an area that employs many people” relative to other departments, such as hotel service or even table games.

“You don’t want to be paying people just to stand around,” Thompson said.

Study co-author Bo Bernhard said the study isn’t meant to criticize casino executives at a unique turning point in history.

“It’s easy to play Monday morning quarterback with 20-20 hindsight,” said Bernhard, a sociology professor and director of gambling research at UNLV. “We’re not attacking the decision-makers that had the task of making difficult decisions. It was a scary time.”

The study, he said, presents some evidence that the concerns of some experts at the time — that the attacks would have a profound and lasting effect on Las Vegas’ tourism industry — were probably overblown.

“Research can inform future decision making,” he said.

The paper is based on the master’s thesis of UNLV hotel management school graduate David Eisendrath, who gave up a career on Wall Street to study the gaming industry. Eisendrath is now an executive at Harrah’s.

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