Several newspapers illustrate in painful detail this week the end of the myth that gambling as an industry is immune to slowing economies.
That myth, strengthened after Las Vegas' almost impervious reaction to 9/11, fails to acknowledge a few critical points about the modern casino industry. Although the general assumption at the heart of the myth-- that even in bad economic times gamblers still hope for that great big win-- could still be true, it doesn't necessarily guarantee that gambling businesses would be unaffected by a downturn.
One now obvious factor is that rising gas prices means fewer people are willing or able to travel to Las Vegas and other destinations. Hence less gambling.
Another factor is that casinos' supplementary goods and services, such as retail stores, entertainment shows, luxury amenities and fine dining, are among the first things consumers forgo in hard times. Gambling revenue represented about 58 percent of overall revenues for Las Vegas casinos in 1990, but today the figure is down around 41 percent; Las Vegas has become more of a place for an all-encompassing vacation than for a dedicated gambling excursion.
Gambling companies' difficulties are further compounded because the recession follows a booming period of expansion in which many of them locked into expensive new developments. Now they have to cope with less cash on hand to complete development projects, and investors are harder to come by.
"The volume of interest in casino turnarounds and situations has dramatically increased in the last three months," Tuck Hardie, managind director in the restructuring group at Houlihan Lokey Howard & Zukin told the Wall Street Journal. "The economy has fallen hard, and to a magnitude people didn't anticipate. There are development projects that are having trouble even getting construction financing."
Thorough, concrete analyses of the casino industry's problems can be found in the Economist and the Wall Street Journal.