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A LOSING GAMBLE

Luck runs out on Vegas boom

Construction slows, tourism plummets, discounts pervade. Can the city keep believing that if it builds, visitors will come?

September 07, 2009|Michael Hiltzik and Ashley Powers

LAS VEGAS — The Currans of Granada Hills have been taking family vacations on the Las Vegas Strip for years. They weren't about to pass it up just because Jeff Curran's business selling upscale cookware is down sharply.

But this summer it would be a smart Vegas vacation.

A year ago they plunked down $100 each for tickets to the Blue Man Group show at the Venetian. This year, the family of four -- Jeff, 59, his wife, Michele, 55, and their adult son and daughter -- took in the Mac King Comedy Magic Show at Harrah's with tickets discounted to $10 apiece.

Jeff used to spend up to $500 at the blackjack tables; his new limit was $150 -- on the penny and quarter slot machines.

"I've never seen the penny slots so crowded," Michele remarked in July as the family jaunt was drawing to a close.

For The Record
Los Angeles Times Wednesday, September 09, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 51 words Type of Material: Correction
Vegas development: An article in Monday's Section A about the economic hardships facing the Las Vegas Strip reported that Boyd Gaming Corp. acquired and imploded the Stardust hotel, and then broke ground in 2007 on Echelon, a luxury resort. The article should have mentioned that Boyd purchased the Stardust in 1985.

The Strip's business model for the 21st century, which was to tap into an ever-expanding supply of free-spending visitors clamoring for first-class hotel rooms, four-star restaurant fare and high-priced shows, has been shattered by its worst recession in decades.

Vegas' ability to weather previous declines made it seem recession-proof. No longer. The carnage left by the economic downturn that began last year is unlike anything this town has seen.

Tourism is down for the second year in a row, and the people who come aren't spending with the abandon of the past. Last year Jeff Curran gave his son and daughter virtually free rein on the casino floor; this year their daily limit was $25 each.

In 2007, the peak year, 39.2 million people visited. Last year 37.5 million visitors came to town. Tourism officials say convention business is down about 27% from a year ago. If current trends continue, Vegas may barely break 35 million visits this year, the lowest level since 1999.

Even if the slump eases, its effect will be felt well into the future. The Strip -- the roughly four miles of Las Vegas Boulevard that churns out more than half the gambling revenue in Nevada -- is reassessing its habits of spending lavishly on new construction and of targeting the wealthiest or most spendthrift customers.

Room rates on the Strip are so steeply discounted that the top resorts will put you up today for the same price that downscale hotels charged two years ago.

At the Encore, which Vegas impresario Steve Wynn opened in December as an extension of his luxe Wynn resort, some customers were offered two-night stays this summer for $99. For some nights this fall, promotional rates as low as $90 are being offered at Bellagio, a premier Strip hotel where rooms customarily can reach $500 or more.

Some of the city's top gourmet restaurants have offered half portions for (not quite) half price during slow times of the day. Cirque du Soleil, the acrobatics juggernaut that dominates the Strip with six shows, has done something that veteran Vegas watchers find more mind-blowing than anything it presents onstage: It's knocking as much as 40% off ticket packages for two.

"Cirque never discounted for anyone," says Anthony Curtis, the publisher of Las Vegas Advisor, an insider's guide to deals.

Curtis says Strip resorts and restaurants are more willing than ever to place discount coupons in his guide. "This year I'm getting through doors where there used to not even be doors."

Financial toll

Casino executives say they see indications that the current decline has bottomed out, with hotel occupancy rates creeping back to 90%. But the intense discounting is cutting deeply into resort profits.

A sharp rebound like the one after the Sept. 11 attacks isn't considered likely.

"This is different because it's not a one-dimensional recession," said Rossi T. Ralenkotter, chief executive of the Las Vegas Convention and Visitors Authority.

The behind-the-scenes maneuvering at the Strip's most ambitious new development, MGM Mirage's CityCenter, may provide the best look at the financial fallout.

The enormous project, situated between MGM Mirage's Bellagio and Monte Carlo, is designed as a city within a city of curvilinear steel-and-glass towers.

In 2006, near the peak of the Strip's popularity, the company launched its condo sales campaign with special pricing for "friends and family" -- that is, MGM Mirage's employees and top customers.

Over the next year, MGM took 20% deposits on about half of the roughly 2,400 residential units in three condo buildings and a condo-hotel, some priced as high as $9 million.

Buyers say that the current Las Vegas market may not support appraisals of more than $400 per square foot on units originally sold at $1,000 per square foot. Under those conditions, buyers will be unable to secure mortgages at the full sales price.

"Some people are going to walk away," says Mark Connot, a Las Vegas attorney representing several buyers.

Under Nevada law, MGM can keep deposits up to 15% of a contract price, or more than $262 million of the $350 million in deposits the company says it accepted on 1,336 CityCenter condos as of midyear, with an additional 1,100 units on the market.

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