Published June 7, 2008

Chips are down for Las Vegas as reality bites

Gambling revenues fall, gaming stocks plunge but Asian casinos may weather the storm


(SINGAPORE) Las Vegas, the world's gambling and entertainment heaven, was supposed to be recession- proof.

The ongoing sub-prime mortgage crisis and the broader economic slowdown have changed all that. And nothing has been hit as badly as its casinos.

This year, for only the second time since 1970, Las Vegas is likely to see gambling revenues plunge compared to the previous year. In the first two months of 2008, gaming revenues fell 4 per cent, partly due to a 10.4 per cent drop in conventions and lower average hotel room rates.

There are further signs that the city - which relinquished its stranglehold to Macau as the world's biggest gambling hub in 2006 - is hardly firing on all cylinders.

Three of the biggest US gaming stocks - Las Vegas Sands Corp, Wynn Resorts Ltd and MGM Mirage - have all seen their share prices take a steep tumble after recording highs as recently as last October.

MGM stock, for instance, hit a high of US$99.75 on Oct 9, 2007, but is now trading at just below US$50. The Las Vegas Sands Corp stock recorded a high of US$144.56 a week earlier on Oct 2 but is currently trading close to US$70.

More tellingly, gaming stocks in the US have lost more than US$50 billion in value since their peak last year, according to a June 5 report in the Las Vegas Sun.

As for future casino expansion, even that seems to be hitting a snag. Just this week, Australian casino operator Crown Ltd said that it had scrapped joint-venture plans for a new casino resort on the Las Vegas Strip.

Crown said that it had written off S$57.4 million on the project, due to 'recent upheavals in world credit markets' that led to concerns over the project's commercial viability.

Room rates - a common method used to identify signs of an economic slowdown - are even going for a song in Sin City.

A check with some of the more popular hotels found that rooms at Harrah's are priced at just US$75, Bally's at US$69 and even a stay at the lavish Wynn Las Vegas and the Venetian hotels can be possible for below US$200 - a fraction of the rates a year ago.

According to recent figures from the Las Vegas Convention and Visitors Authority, room rates in the Nevadan city were down 3 per cent in January 2008 from the same month a year ago - the first decline after three straight years of double-digit increases in room rates. Occupancy, too, went down a percentage point in that month.

Which bodes the question: Will Asia, where the eyes of the world are currently focused, suffer the same fate as the US where gaming revenue and casino expansion is concerned?

Not quite, if the findings of a new survey released this week are anything to go by. More than 80 per cent of 23 industry experts polled felt that Asia is likely to surpass the entire US in terms of casino gaming revenue by as early as 2012.

Their confidence stems from the fact that Singapore is on track to open its first two integrated resorts (IRs) with casinos by 2010, while many more casinos are already being mulled in countries such as Japan and Taiwan.

Across the US, casinos raked in US$34.1 billion in 2007, according to the American Gaming Association (AGA), which conducted the survey. Asia's take was estimated at US$15-20 billion.

Macau, the southern Chinese gambling enclave, saw gaming revenue soar 45 per cent last year, according to latest government figures.

The boom has not gone unnoticed by US casino operators eager to get a slice of the pie, with Las Vegas Sands Corp and Wynn Resorts investing over US25 billion to date to meet growing demand from increasing numbers of affluent gamblers from neighbouring China.

'(Macau) will still be the leading market in the region in 10 years' time simply because of the numbers of properties that are already here,' AGA president Frank Fahrenkopf said in Macau on Tuesday at the start of a three-day gaming expo.

One industry analyst told BT that the influx of gambling tourists from China and other countries such as Malaysia and Hong Kong would help sustain the growth of the gaming industry across Asia for the next few years.

'There are still many more new casinos that will open in Macau, and it is quite certain that gaming revenue there will again outstrip Las Vegas this year. With the hype in other cities across Asia, I am fairly optimistic that the industry can weather any storm for now,' he said.

Besides Singapore, the Philippines is now likely to be the next Asian country in line to open its own casinos after legislation was passed to allow the granting of gaming licences. Already, four casino projects are under consideration for development in Manila Bay.

Japan is now considering a law that will allow the registration of casinos, while Taiwan, South Korea, Guam and India have also began discussing their own possible foray into the industry.