Perception and panic!
The word ‘bankruptcy’ may be as scary as actual bankruptcy for Vegas
Thu, Nov 6, 2008 (midnight)
Illustration by Colleen Wang
To hear the vice president of public affairs at the Las Vegas Convention and Visitors Authority tell it, Las Vegas is okay. There’s no need to be talking about the possibility of bankruptcies on the Strip—this city is a brand: “Vegas”—that’s still strong, and will remain strong. Maybe it’s a bit of an apologist’s line, but then, what else should he say?
Yet business headlines here and around the world are marking Vegas’ role in the global economic meltdown. It’s been duly noted that the major Vegas players are struggling with falling profits and enormous debt loads as visitor volume drops: “Earnings dive 67 percent as Vegas begs for tourists” (LA Times); “Are the Las Vegas Strip casinos facing bankruptcy?” (kvbc.com); “Casinos: buyouts, bid wars, and bankruptcy” (thedeal.com); “Companies, lenders in delicate dance” (Las Vegas Sun).
Whether justified or not—Vegas and leading casinos are most certainly in a world of hurt—it does seem that our city gets a bit of added drama in the tone: begs for tourists. Maybe it’s because the bottom is indeed falling out, and we’re begging. Or maybe it’s because this is a dramatic city best seen in a dramatic light. Or maybe because “Vegas” means good times, so it seems like an easy bellwether in bad times.
And maybe it’s schadenfreude. For as many people who love Vegas, there are plenty who don’t. “For whatever reasons, there are always those who are interested in getting a pound of flesh from Vegas,” says Keith Schwer, director of UNLV’s Center for Business and Economic Research.
But the question of possible Strip bankruptcies is nonetheless one more disconcerting note in this season of panic. Could there be a clatter of casino doors slamming shut, and would the Strip just roll up the rug for good?
- From the Archives
- Free groceries, empty stores, waiting in line (10/9/08)
- Leave Boyd alone! (8/7/08)
- Another troubled Strip project: WSJ reports Plaza Hotel postponement (8/14/08)
- Beyond the Weekly
- Signs are dim, but is Vegas’ future? (Las Vegas Sun, 8/3/08)
- MGM Mirage earnings dive 67% as Vegas begs for tourists (LA Times, 10/29/08)
- Are the Las Vegas Strip casinos facing bankruptcy? ( KVBC, 10/24/08)
“Of course not,” says David Schwartz, director of UNLV’s Center for Gaming Research, of the End Times for Vegas bankruptcy theory.
“What bothers me is the oversimplification of it. There have been plenty of bankruptcies here before,” Schwartz says, such as the Stratosphere and Aladdin in this era. “It would mean bad news for the creditors, but it doesn’t mean [casinos] would close, or even necessarily lay off people.”
But reports of layoffs at companies that are as much a part of the Vegas identity as MGM Mirage and Harrah’s have a way of undermining hope. MGM Mirage has laid off 1,000 full-time employees in Nevada this year; Harrah’s has laid off about 2,000. Revenues are down everywhere—for Wynn, casino revenues fell 4.6 percent in the third quarter. Sands mogul Sheldon Adelson’s net worth has been widely reported as plummeting $16 billion this year. Dismal outlooks all the way around, increasing consideration of the B-word.
Although individual companies’ fortunes seem to balance on pinheads as dozens of moving financial parts change every day, Schwer’s incredibly gloomy October 22 annual forecast sums it up:
“The chickens have come home to roost. The excesses of the past have seeded a series of recent bewildering events ...
“And, the news about Nevada’s job picture continues to deteriorate, unemployment rates continue to rise. The Nevada unemployment rate trended up to 7.2 percent compared with 6.1 percent nationally. What a difference a year makes; the unemployment rate levels rose by 2.2 percent for the Silver State and 2.3 percent for Las Vegas and 2.2 for Reno, respectively. The slowdown in construction jobs largely explains most of the recent losses. Yet, weak job conditions fortunes now appear more frequently in other Silver State business areas. Frozen credit markets, empty housing units and declining wealth leave one failing to see a speedy resolution to current conditions.”
But, he says, potential bankruptcies shouldn’t be seen as apocalyptic for the Strip.
“Generally the public can’t see the impact of Chapter 11 bankruptcy,” says Schwer. “The analogy is the airline industry—they went through a series of bankruptcies, and they continued to fly as they worked their way out of bankruptcy. It’s an important comparison. They continued to fly, maybe not as conveniently, and it was no longer as nice an experience, but they stayed in business.
“But the difference for Las Vegas,” Schwer says, “is the headlines. There’d be a lot of headlines about casino bankruptcies, and that would hurt. There would be this PR fallout.”
In fact, that’s the major concern. Does a crumbling economy—whether it results in bankruptcies or just tighter belts at casinos—mean Vegas‚ and its current image as a luxurious nightlife playground, will have to change? Are we headed back to the $5.99 All-You-Can-Eat Steak and Shrimp Buffet image?
“We really have changed the messaging,” says Vince Alberta, LVCVA public affairs VP, about the advertising slogans aimed at marketing Vegas around the world.
“What happens here stays here” was succeeded last spring by “Your Vegas is showing,” which, Alberta says, was meant to focus more on retail opportunities here. But, when the market kept tumbling, Alberta says that the LVCVA and R&R Partners decided to revise the slogan to match the times more closely.
The new slogan is “Crazy times call for crazy fun,” he says. “The thought was, as people deal with day-to-day pressures, they need to get away and spend a couple of days here enjoying the adult freedom.”
The LVCVA has been grappling with the downturn in the national consumer confidence index since early 2007. That January, the index was 110, and it has since dropped to a 41-year low of 38.
But Alberta doesn’t think Vegas needs to be recast as a buffet town. Those deals, he says, have always been available even if they don’t make for the best marketing campaign.
“The media focus [on Las Vegas’ appeal] has been on high-end, but the price point has still existed, and there are lots of values in the destination,” Alberta says.
Schwer says, “Properties are dropping room rates, but I don’t know if customers view us as a value right now.
“One of the byproducts of a downturn is that discretionary travel expenditures are affected. We were favorably positioned for travel in the past; instead of going to Europe, they’d go to Vegas. Now they have numerous low-cost alternatives available. And we have lost at least the perception that we are value-oriented.”
But a budget-oriented Vegas is a tricky gambit, because that’s what forever stamped the city with the “cheap and tacky” reputation, garnered some time in between the Sinatra years and the megaresort years. And no one seems eager to revive that reputation, even in a cheeky retro way.
“The ’80s were when Vegas was, ‘That’s where careers go to die,’” says Schwartz. Casinos have been “fighting that impression” ever since, most notably with the arrival of the Bellagio in 1998.
“Long term, the Las Vegas brand is still strong,” Alberta says. “There is still a tremendous amount of investment in this destination. We’re adding 25,000 rooms by 2010. ... So people still have a lot of confidence in Las Vegas.”