Las Vegas hopes run of bad luck is behind it

Tourism officials in Las Vegas like to describe the gambling mecca as an adult Disneyland, an anything-goes playground where everyday worries can be forgotten.

But the casino operators that ply their trade in Las Vegas, the biggest gaming market in the US, have had 12 months they would rather forget.

Pummelled by the economic downturn and paralysed by unyielding credit markets, the city’s gaming industry has endured one of its worst periods yet.

“In 28 years in the industry I have never seen anything like it,” says Bobby Baldwin, chief design and construction officer of MGM Mirage, which operates casinos such as the Bellagio, Mirage and the MGM Grand.

Evidence of decline is visible across the city. The $3.5bn Fontainebleau casino hotel was abandoned after its developers declared the company bankrupt and walked away from the project, with the resultant loss of 3,500 construction jobs. A large space has been cleared for Boyd Gaming’s $4.8bn Echelon casino hotel at the north end of the city’s fabled gaming Strip but the land stands empty after the company suspended development.

With visitor spending stagnant, construction workers laid off and hotel operators cutting room rates to lure tourists, there are glum faces everywhere.

But the industry has not given up hope. In fact, Las Vegas is weeks away from the opening of the largest development in its history: MGM Mirage’s $8.5bn CityCenter project.

The group and its largest shareholder, Kirk Kerkorian, have spent four years developing CityCenter. The company has made adjustments in response to tough economic conditions. It scrapped plans to sell 200 condominiums in the Norman Foster-designed Harmon hotel tower that is part of the development. It also cut the cost of condominiums in other towers by 30 per cent.

“We want our residential owners to complete [the sales] and to enjoy the units,” says Mr Baldwin, who is also president and chief executive of CityCenter. “But given the nature of the credit markets that wasn’t going to be possible at 2007 prices.”

The price cuts are part of a trend that has swept Las Vegas, with hotel operators across the city slashing room rates. For visitors, Las Vegas is cheaper than it has been in years.

Analysts say such price cuts could be part of a broader re-positioning of Las Vegas. “Casino operators may have to undergo a fundamental re-engineering of how they attract customers,” says Joseph Weinert, senior vice-president of Spectrum Gaming Group, a research and consultancy company.

He points to the city’s past as a “value-driven” destination, when hotels and entertainment were cheap or free in an effort to lure visitors to casinos.

But over the past 15 years Las Vegas has become more of an upscale destination, packed with expensive restaurants and luxurious hotels. A constant flow of visitors from the US and abroad ensured room demand was strong, while cheap credit fuelled a building boom, and thousands of hotel rooms were added.

The visitors pouring into the city sustained lofty room rates and high-priced boutiques and restaurants. “It became an upscale destination,” says Mr Weinert.

But he underlines the task facing resorts now: “The average Strip hotel has 3,000 rooms to fill. They have to cut back on room rates and offer show and dining packages ... they have to aggressively market themselves to the cash spending customer.”

The opening of City-Center will add thousands more rooms to a city overflowing with hotel accommodation. Mr Weinert says this will put further pressure on pricing. “There will be a supply shock, but will the demand follow?”

But Mr Baldwin is confident that CityCenter will not hit demand for other casinos owned by MGM Mirage. “There’s plenty of room in the market,” he says. “The number one competitor to [MGM’s] Bellagio is the Wynn Las Vegas hotel. But when the Wynn opened, the Bellagio had its best year.”