All bets are off

It seems that our earlier January blog prediction on Las Vegas' declining fortunes is coming closer to reality every day.

From UK's Telegraph:

Casino owners in Las Vegas have been warned that America's economic slowdown had left the gambling mecca facing "its most severe downturn ever".

Challenging the resort city's traditional boast that it was virtually recession-proof, shares in companies that operate casinos have dipped to new lows this week.

With casino owners plunging into heavy debt and even bankruptcy, industry experts have warned that the world's gambling capital faces the toughest economic challenge in its history.

Keith Foley, a gaming analyst who tracks 55 gambling companies for Moody's, a credit-rating company, said the casino industry was "in the midst of what could be its most severe downturn ever"

"After 9/11, when it bounced back really quickly, everyone thought Vegas was immune to just about anything," he said.

"It is suddenly obvious and maybe kind of scarey that it is not." A combination of rising petrol prices, the housing crisis and cuts in airline services have helped drive down the number of people coming to the Nevada resort city and the amount they are spending there.

The spending downturn has primarily affected the shops and restaurants on which the casinos rely for most of their profits rather than the gaming rooms.

I read on:

Many casino operators have borrowed heavily to finance ambitious expansion plans intended to keep Las Vegas as the world's gambling mecca.

Four casino companies have already gone into bankruptcy this year, including Tropicana Entertainment, which defaulted on $2.7 billion debts.

Harrah's, the world's biggest casino group by revenue and owner of Caesars Palace and seven other big casinos on the Vegas "Strip", posted a fourth-quarter loss in the Spring.

Also from Las Vegas Review Journal, the bright lights don't look so bright:-

Forecasting the demise of Las Vegas is a game that's as tired as puns on the city's ubiquitous "what happens here, stays here" advertising slogan.

But for the first time in recent memory, two benchmark indicators of the health of Las Vegas, the number of hotel rooms in development and airline seat capacity at McCarran International Airport, are moving in opposite directions.

According to the Official Airline Guide, seat capacity at McCarran is expected to decline 12 percent in the fourth quarter. Meanwhile, the number of available hotel rooms on the Strip is expected to increase 18 percent by the end of 2009.

That has investors wondering how resort operators intend to maintain the 90 percent occupancy rates to which they've grown accustomed with fewer available airline seats for customers and drive-in traffic slacking off as gasoline prices approach $5 per gallon in parts of Southern California, the No. 1 source of Las Vegas visitors.

"In our opinion, this could not come at a worse time for Las Vegas," Wachovia analysts Brian McGill and Denis Kelleher wrote in a note to investors. "With the cuts in airline capacity, we do not think there will be enough seats to fill the new room supply."

A major Duh for LV!

Looks like the gambling Corporations have been participating in their own products and spinning that wheel. Betting on being in the black but ends up in the red.

What is ironic is that Casino operators get a mention in Taleb's book "Black Swan".Overview. Though in this Bloggers opinion, this event was not a black swan but entirely foreable as it highly correlates to the housing bubble.

Me no more Heloc = Me no more travel, me mo more gamble.

Room rates in LV are already coming down. The legendary hotel buffets offerings are being cut back. If this continues, the Elvis impersonators will end up pawning their "Blue suede shoes" and moving to "Heatbreak Hotel".

Phileas Fogg,
Houston, Texas
6th July 2008.

For further read see also WSJ article.