Is 'Sin City' poised for a comeback?

The recession has slammed Las Vegas, but local leaders say they're optimistic about better days ahead. In the meantime, tourists can find bargains galore in the gambling mecca.

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By Elizabeth Strott, MSN Money

Just two years ago, when the stock market was booming and cash was flowing freely, Las Vegas was the destination of choice for many high rollers, conventions and even families on vacation.

But the recession has hit "Sin City" hard, and today it's a very different picture. Las Vegas business leaders and economic experts agree, however, that the downturn could help cultivate the next big opportunity for the city.

Video: What happens here, stays here

"I don't in any way believe that the Las Vegas Strip is going to go away and that Las Vegas will dry up in the Mojave Desert," said Keith Schwer, the director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. "If you look over the longer cycles, these recessions are windows of opportunity to clean up our act and to manage our affairs better, and customers on the other end will come out with a better product."

That continually evolving product is what keeps people coming to Las Vegas, said Joe Essa, the president of Wolfgang Puck Worldwide, which has six restaurants in five Vegas casinos.

Slide show: The history of Vegas

"You can get great accommodations, great spas, great restaurants, great entertainment, gambling -- and not have to leave one building," Essa said. "Because there are so many great places to visit and great things to do, we're very sensitive on competition and pricing. So there are values here that you can't get in any other city."

The recession gives restaurants an opportunity to boost their target audiences, said Terry Jicinsky, the senior vice president of operations for the local tourism bureau, the Las Vegas Convention and Visitors Authority. "There may be segments of their visitor base that thought some restaurants were out of their price range. Now they're seeing deals, and they can get into them and experience them. It allows the restaurants to expand to a new base of customers."

Jicinsky went so far as to dismiss the recession altogether. "It's a blip on the radar screen in comparison to what we've gone through over the past 50 years," he said. "We have every confidence that we'll come out better than before."

Slide show: A trip to Sin City

Snake eyes for the casinos

Luxury-casino operators, such as MGM Mirage (MGM, news, msgs), Las Vegas Sands (LVS, news, msgs)and Steve Wynn's Wynn Resorts (WYNN, news, msgs), have had a rough ride during this economic downturn. Many gamblers and other tourists have simply stayed home.

MGM Mirage, Las Vegas Sands and Wynn Resorts own nearly half of the roughly 40 hotels and casinos along the Las Vegas Strip. Another major player, privately held Harrah's Entertainment, owns seven Vegas casinos.

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Gambling revenue on the Strip fell 11% in 2008, the biggest decline on record, and hotel occupancy declined nearly 10%, according to the Nevada Gaming Control Board.

Revenue hasn't improved this year. The gambling take fell 12% in March, to $456 million, after slumping 23% in February and 15% in January. Visits to Las Vegas are expected to decline 4% this year from 2008, when 38 million people came to Sin City, according to the tourism bureau.

In early May, Wynn Resorts posted a big drop in profit and missed analysts' expectations by a long shot. Las Vegas Sands also reported a slump in first-quarter profit.

But MGM Mirage recorded an unexpected profit, thanks to the sale of its Treasure Island casino. On a conference call with investors May 4, MGM Mirage CEO Jim Murren said room occupancy had improved to 97% in April from the "high 70s" seen in January, when "we were giving rooms away. That allowed casino operators to begin raising rates slightly," Murren said, offering a glimmer of hope for the city's recovery.

Overall, Las Vegas' hotel room occupancy rate was 76% in January, down from the 88% to 90% of the previous three Januarys. But the rate has been climbing since then, rising to 88% in February and 90% in March. Figures for April were not available.

An affordable Vegas?

From January through March, visits to Vegas were down 8.7% compared with the first three months of 2008. But one upside to the city's difficulties has been the excellent opportunity for the tourists who continue to come: The average daily room rate in the year's first quarter slumped 25.3% from a year earlier, with room availability up 3.4%.

And despite the downturn, lots of people have kept flocking to Las Vegas. An estimated 3.2 million people visited the city in March.

To help the city come back, the tourism bureau launched a multimillion-dollar advertising promotion, "Vegas bound," over the winter. But the popular "What happens in Vegas, stays in Vegas" campaign will be back this summer, suggesting a return to normalcy.

It appears the new promotion has helped. The number of visitors to Las Vegas has increased each month this year, and the decline from a year ago is shrinking. March's visits were down 6.5% from a year ago, after an 8% in drop in February and an 11.9% falloff in January.

"The crowds are still coming, and they're taking advantage of the price points the hotels are offering. As we work through the spring months, one thing that is working to our advantage is customer fatigue," the tourism bureau's Jicinsky said, referring to the slumping economy. "U.S. residents are experiencing an overwhelming sense of fatigue that they're looking to escape from. There is the need to escape, to take a little bit of a break."

Lalia Rach, the dean of the Tisch Center for Hospitality, Tourism and Sports Management at New York University, said she expects "a psychological rebound" from the recession.

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"It's going to be a long time before we throw money out the windows again. We've been taught lessons," Rach said. "But we will sin again. We will leave this Puritan era, and we will begin to embrace sin again."

And what better place for that than Sin City?

Debt problems slam Las Vegas

Earlier this decade, just as easy money and a booming economy were filling Las Vegas with tourists, easy credit prompted many casino developers to borrow massive amounts of money for new projects. But then the economy tanked and the credit markets froze, causing many projects to be put on hold or canceled, with some companies having trouble making debt payments because of the visitor drought.

MGM Mirage, which is struggling to finish its massive CityCenter project, has put three non-Vegas properties, including the MGM Grand Detroit and the Biloxi Beau Rivage in Mississippi, on the block. The company sold the Treasure Island casino in December for $775 million.

On May 14, MGM Mirage said it had completed a $1 billion stock offering with shares priced at $7 each. The company also sold $1.5 billion in five- and eight-year notes. The moves were part of MGM's plan to raise $2.5 billion to help pay off some of its $14 billion in debt.

Debt difficulties have also taken their toll on Las Vegas Sands. President and Chief Operating Officer William Weidner abruptly quit in March after 13 years at the company. Weidner said the move was because of conflicts with the founder and chairman, Sheldon Adelson, including a big battle over whether to raise capital amid the downturn. In November, the company did end up raising $2.14 billion -- $1 billion from Adelson and the rest through the sale of stock. But the stock offering was valued at a mere $5.50 per share, well below the $122-per-share price seen a year earlier.

Adelson said in March that he was in talks with four groups of potential investors for the company's Macau development, which had stalled in November amid the credit crunch. In late April, Las Vegas Sands said it was considering selling its Macau casino. The development also includes two luxury hotels, apartments and a shopping mall.

CityCenter on schedule for December opening

The Las Vegas Strip will also have a new player come December, when the lavish $8.6 billion CityCenter project debuts.

It's been a long road for the casino-resort-retail-residential project, a joint venture between Kirk Kerkorian's MGM Mirage and Dubai World, a state-owned investment company. A series of financing hurdles this year caused many to doubt whether it would ever be completed.

In March, Dubai World sued MGM, alleging mismanagement of the project. The next month, Dubai World withheld two construction payments in April.

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In an eleventh-hour deal in late April, the two sides agreed to fund their remaining financial contributions to the project through letters of credit. Dubai World said it would dismiss its suit and start making its share of construction payments again, reimbursing MGM the $135 million the casino operator had paid in construction payments in its behalf. CityCenter's lenders said they would immediately fund a $1.8 billion loan.

Though the future of the CityCenter project is finally settled, MGM Mirage still has a long row to hoe, still facing the prospect of bankruptcy and reportedly considering selling more of its Las Vegas casinos, including The Mirage, which popped up on the strip in 1989 as the first major luxury casino of today's Vegas.

Penn National Gaming (PENN, news, msgs), which has nearly $1.5 billion cash on hand, and Boyd Gaming are two other players that could get into the MGM Mirage game.

And don't think Steve Wynn isn't waiting for a chance to pounce on any MGM Mirage properties. Wynn, who helped transform the Strip into a sea of luxury casinos with The Mirage back when he owned it, said in late April that he'd "be interested, if at the right price," in some of MGM Mirage's casinos.

A recovery in the local housing market?

Las Vegas is also ready to benefit from a bottom in the slumping housing market.

Home sales in the Las Vegas Valley jumped nearly 80% in April from a year ago, the Greater Las Vegas Association of Realtors reported in early May, and a report from the National Association of Realtors showed a 117% gain in home sales statewide in the first quarter.

Rach, the Tisch Center dean, described the nation's recession as a case of "first in, first out" -- and that's good news for Las Vegas, which felt the economic slowdown sooner than most parts of the U.S. She added, "If I were a business person in Nevada, I'd watch California (for signs of a recovery) and the news that we've seen lately that housing prices are starting to pick up."

Las Vegas is ripe for a rebound, according to a recent Forbes.com report on the nation's best cities for jobs. Though Sin City did not make Forbes' top 10, the report's author, Joel Kotkin, said he expects that the same factors that drove people to Las Vegas and other Sun Belt cities in the past will re-emerge.

"When the economy comes back, tax and regulatory pressures will begin to bring people to (the Sun Belt)," he told the Las Vegas Review-Journal. "And frankly, I think it's much healthier if people go to Las Vegas . . . because they can get a good job and buy a nice house, as opposed to going there because they want to speculate on real estate. It's a more reasonable long-term strategy for growth."

Produced by Darragh Worland / Graphics by Sean Enzwiler

Published May 18, 2009