On the third weekend of every April, Emily Ann Frankston and her family—spread out over five states—meet up in Las Vegas for their annual family vacation. This year was different. The only ones to show up were Frankston, her husband and her brother-in-law, and they stayed just two nights instead of the traditional three. "My two sisters back east said airfares were too high, my mother-in-law lost her job in January, and some of the others said they were busy, but we think they didn't want to spend the money," says Frankston, 37, who drove in from the Phoenix area. "We've done this for the past nine years. Even after 9/11 we all came. But this year's it's just us. This recession is really hurting everyone."
It's even hurting the city of Las Vegas, the economy of which was once thought to be impervious to the economic swings suffered by the rest of the country. Not anymore. According to the Las Vegas Convention and Visitors Authority (LVCVA), Las Vegas has seen gambling revenues fall only once since 1970: in the aftermath of the Sept. 11 terror attacks they dropped 1 percent in 2002 from 2001. So far this year they've fallen 4 percent, the number of conventions held has dropped 10.4 percent, and average daily room rates were off 3.8 percent in the first two months of 2008, according to the most recent data available. Visitor volume was up 1.2 percent through February, but market analysts say that's because of the extra day provided by this being a leap year; March's figures will likely put the year-to-date numbers in negative territory. The stock price of MGM Mirage, owner of Bellagio, Mirage and eight other Strip resorts, has halved, from $100.50 in October to about $49 on Friday. In recent weeks the company eliminated 440 middle management jobs to save $75 million annually. "We made a structural change in our company to become more efficient and provide the same level of service, but we did have to advance that effort because we were also seeing a softening in the marketplace," says MGM Mirage spokesman Alan Feldman.
What's leaving Las Vegas more susceptible to this economic crisis than to previous ones? Diversification. Roughly 60 percent of the Las Vegas Strip's revenues now come from nongaming activities. By contrast, in 1991 and 1992, when the last comparable slowdown occurred, nongaming activities provided just 42 percent of overall revenue. "This is different from prior downturns," says Bill Lerner, a Deutsche Bank gaming-sector analyst. "Now that there are a lot more nongaming amenities, the visitation mix is leaning toward nongamblers, and the consumer coming to Vegas is different now than it was."
It doesn't help that the city's convention business is slipping. Several annual conventions have seen fewer attendees show up and have seen those who do come stay for shorter periods. For example, last week's National Association of Broadcasters confab attracted 105,000 registrants, down from 111,000 in 2007, according to NAB executive vice president Chris Brown. Those figures could have been worse, Brown says, but advance registrations were so far down that several hotel-casinos voluntarily offered to cut room rates by $10 or more to encourage attendance. Says Brown, "That's never happened before."
The Frankstons aren't the only vacationers staying away. Nearly 7 percent fewer cars crossed the Nevada-California border along Interstate 15 through February, reflecting in part that record-high gasoline prices are curtailing drive-in visitors from the largest neighboring state. Making matters worse, three airlines with substantial service to Las Vegas—Aloha, ATA and Champion—are going out of business.
Even the mortgage mess and the subsequent credit crunch have taken a toll on Vegas. Several major construction projects on the Strip are delayed due to financing problems, including a second tower for Donald Trump's new condo-hotel. Also delayed is a plan to build a $6 billion version of New York City's famed Plaza Hotel. And while construction continues on the half-built $3 billion Cosmopolitan Resort and Casino next to the Bellagio, the project may be in jeopardy after developer Bruce Eichner's company defaulted on a $760 million loan from Deutsche Bank. (Eichner did not respond to NEWSWEEK's request for comment.)
Despite such problems, other developers still seem more than willing to bet on the future of Vegas. There is more than $30 billion in new construction scheduled for the Strip. And assuming those projects don't get squeezed by the credit crunch, some 40,000 new hotel rooms will be added to the current 136,000 by 2011, resulting in 100,000 new service sector jobs.
Like other major U.S. cities, Las Vegas is banking on the Euro-rich to help out during these tough times. According to Robert LaFleur, a gaming-stock analyst for Susquehanna Financial Services, "Bachelor parties in Vegas are now all the rage for soon-to-be-wed fellows from Australia and the U.K., for instance, because it's so cheap to get there … Right now it's an easy sell to get people from overseas."
The city isn't skimping on its advertising budget, either. Last week the Las Vegas Convention and Visitors Authority launched a $12 million three-month national TV ad blitz called "Vegas Right Now" that insists "that there are new reasons why you ought to come," says Rob O'Keefe of R&R Partners, the ad agency that handles the annual $90 million tourist board account.
But given the host of problems facing the city, an ad campaign might not be enough of a fix. In one, called "The Dangers of Thinking," an announcer urges the audience to "do without thinking. Do Vegas right now." While it was witty, the ad irked Vegas regular Tania Franco of Atlanta, whose husband was recently forced to take a pay cut at his job. "The message is 'Don't think about how crappy your economic situation is, just come to Vegas, damn it. If you don't, you're a wallowing loser.' That's insensitive."