Gambling industry holds a weak hand as downturn bites, by Matthew Garrahan and Roger Blitz - Financial Times - 6th October 2008

When a man like Sheldon Adelson, one of the richest in America, has to pour $475m of his family's money into his casino empire to tide things over, it is time for the gambling industry to worry.

The majority owner of Las Vegas Sands, whose assets include the Venetian and the Palazzo on the Strip, made the move to prevent breaching banking covenants last week.

Mr Adelson is up to his neck in new casino projects - $12bn is being sunk into new resorts in Macao, $4bn into one in Singapore. "Had the availability of money been more plentiful, we would have gone out and borrowed," he explained.

But the lack of available credit is just one of his problems. Las Vegas aficionados have always gone to the gambling mecca to forget their worries, but a fall in consumer spending combined with the crisis in the credit markets means the city now has some significant worries of its own.

Gambling revenues at the city's casinos on the Strip are plummeting as cash-strapped punters keep their hands in their pockets: latest quarterly figures for MGM Mirage, the biggest operator in Las Vegas with casinos such as the Bellagio and the Mirage, show a 10 per cent fall in revenues from table games and an 11 per cent fall in slot machine revenues.

Four casino operators have sought bankruptcy protection this year, including Tropicana Entertainment, which defaulted on $2.67bn of bank debt. Other operators have postponed big developments. Boyd Gaming has shelved plans for Echelon, a $4.8bn project on the Strip while it tries to secure new sources of financing.

A $5bn Plaza Hotel development has also been delayed by at least a year. The developers Elad, which owns the Plaza Hotel in New York, and IDB, an Israeli company, have deferred payment of a $625m loan used to buy the Las Vegas site.

The problems facing operators have taken the shine off the city's image as recession-proof. Previous economic downturns have not been as keenly felt in the city but the current slump is having a pronounced affect.

But even when this slump is over, there are longer-term worries. Land-based casinos have become "a growing energy problem", said Warwick Bartlett, a UK-based gaming consultant.

Half of Las Vegas' visitors arrive by air. The rest come by car or coach. To keep Las Vegas powered will require a daily average of 8,000 megawatts of electricity by 2015, way beyond the output of the Hoover Dam.

"The slowdown in the US will hit the pockets of Americans and Las Vegas will feel the effect of that, along with high energy costs and a transportation system reliant on road and air," Mr Bartlett said.

The impact is also being felt in the jobs market. MGM Mirage and Harrah's Entertainment, which owns Caesars Palace, cut jobs this year, and jobs have been cut at the Las Vegas Department of Building and Safety.

The slump has been exacerbated by capacity issues. The city has more hotel rooms than at any point in its history, with aggressive expansion fuelled by cheap and easily available credit.

Las Vegas could afford to expand while punters still beat a path to the city. But economic woes mean there are fewer people visiting, while all-important convention business has also slowed.

All this helps the online gambling industry, in spite of its ban in the US. "People are leaving their cars in the garage, playing online bingo or watching a match on TV and placing a bet from the comfort of an armchair," Mr Bartlett said.

Media Man Australia Profiles

Las Vegas

Casinos

Casino News Media