Remembering Sept. 11, 2001: After Disaster, Rebirth

11 September 2006

LAS VEGAS, Nevada -- For the gaming industry, the five years since the Sept. 11, 2001, terrorist attacks started with the deepest downturn in the industry's history. But they ended in a remarkable recovery that redefined what the business is all about.

American Gaming Association President Frank Fahrenkopf said the industry's response to the sharp slide it experienced after the attacks proved its resilience, albeit with a serious toll in terms of individual jobs lost.

And Station Casinos Chief Financial Officer Glenn Christenson said the industry restored its self-confidence in managing its way out of the economic disaster.

More important, he said, the industry created a template for dealing with any future disasters.

Today, industry leaders are confounded to find gaming's recovery has not only outpaced every other segment of American business, but has landed them center stage in the entertainment business.

"Some of us were asleep at the switch and the attacks woke us up," said one casino executive who asked not to be identified. "Sheldon (Adelson, owner of Las Vegas Sands Corp.) was herding in conventioneers, and we had started upgrading amenities, but this really accelerated the drive for biggest and best from just bigger and better."

Another executive, who asked not to be quoted saying anything positive about Sept. 11, said the crash that followed the attacks made it clear the industry needed stronger reasons for people to come to Las Vegas: better shows, better dining, better shopping.

"Security, here in the middle of the country, would market itself," he said. "Without the attacks and the downturn, we might still be coasting. Instead we're chasing around like business will never be surefire again."

Nevada Gaming Commission Chairman Peter Bernhard said the state's casinos responded not just with increased security, but also by using their "optimism and entrepreneurial spirit" to revitalize operations and restore consumer confidence.

"Since 9-11, gaming regulators have overseen an almost complete ownership changeover in downtown Las Vegas, along with the infusion of billions of dollars around the Las Vegas Strip through private equity, public financings, mergers and self-funded projects," he said.

"New operators and expansions of existing properties have dominated the Reno-Carson City-Lake Tahoe region over the past five years. Rural Nevada markets are vibrant and growing. Ticket in-ticket out and integrated systems dominate the casino floor, reflecting the technology and creativity of our manufacturers and distributors," Bernhard said.

David G. Schwartz, director of the University of Nevada, Las Vegas' Center for Gaming Research said that since Sept. 11, the gaming industry on the Strip has tweaked its message, continuing to zero in on business travelers and leisure travelers who may be more interested in shows, dining and nightlife than craps tables.

The recent trend toward hotel-condominiums and outright residential projects along the Strip corridor are further signs of the diversification.

University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies, said that thanks to these responses and people's gravitation toward leisure consumption, the industry has moved far beyond simple recovery.

"I don't know of any other industry in America that's gone through a transformation or a growth sprint like gaming," he said. "The gaming industry has come out of 9-11 like it has come out of Katrina -- one of the strongest parts of the national and regional economies.

"The boom in Las Vegas is evidence of an industry that is well focused upon what it wants -- profits," Thompson added. "Perhaps the industry has even found in the general public a willing accomplice -- a public that is willing to turn to recreation and leisure, and the frivolity of risk-taking in times of gloom and otherwise disappointing events."

Thompson said although the growth of gaming since Sept. 11 has been phenomenal, the one disturbing note is the possibility of something happening again -- another attack, a severe recession, tumbling consumer confidence or international instability.

"But without another 9-11 disaster we are the golden city for at least another 10 years," Thompson said.

In the end, Sept. 11 has served to show how durable and resilient the gaming industry is, Fahrenkopf said.

"Anyone who was in the travel and hospitality industry was hurt," he said. "The Las Vegas segment was especially hurt because it's such a fly-in destination. We really got bonked."

It became clear, however, that as people got back to flying, the industry would rebound and faster than most. It just took Las Vegas longer than some of the drive-in markets, Fahrenkopf said.

Las Vegas has since rebounded, however, with visitor records breaking pre-9-11 totals.

And local casinos are making more than before the attacks. In October 2001, Strip casinos reported $771 .7 million in revenue, compared to an estimated $1 billion in revenue for this October.

Even today, however, the work force is feeling the effect of the nosedive the industry took, he said. Almost 15,000 jobs were lost industrywide in the immediate aftermath of the attacks, association data show. Only 4,000 of those jobs have been restored in the intervening five years.

"A significant factor was the layoffs," Fahrenkopf said. "The most valuable assets we have are our employees. (The layoffs were) disastrous, even as we started filling jobs again."

Fahrenkopf also said that the two largest mergers in industry history, Harrah's Entertainment buyout of Caesars Entertainment and MGM Mirage's buyout of Mandalay Resort Group, have cost many talented workers their jobs.

The consolidations created economies of scale and boosted industry profits, but that always means people lose jobs, Fahrenkopf said.

Deutsche Bank analyst Andrew Zarnett found a positive amid the job loss.

"9-11 changed the way the companies think about costs," he said. "It showed everyone they are on a moment's notice for making major adjustments. And they became much more sensitive to cost and looking for economies of scale."

Fahrenkopf, however, said the rediscovery for the industry of what it was and what it could be was the most important development.

"When you look at the remarkable mix of why people come to Las Vegas or destination-type resorts, you hardly recognize the industry," Fahrenkopf.

It's hard to remember, but even a short five years ago, the casino pit accounted for the bulk of the industry's revenues, he said.

"Now, 45 percent comes from casinos and other entertainment produces the majority," Fahrenkopf said.

That's a paradigm shift in what the industry is, first seen in Las Vegas, and now spreading to other destinations, especially with Borgata and Harrah's Pier in Atlantic City and the reopening of Beau Rivage in Biloxi, Miss., he said.

"There's really been a redefinition of the industry. You even see it at racinos, which now realize they need more than a grungy clubhouse (to lure guests)," Fahrenkopf said, citing Dover Downs in Delaware.

Christenson said the aftermath of Sept. 11 was a tremendous challenge. But he added that his industry's response and newfound confidence have created a model for handling future adversity and for other industries.

"It took until 2003 for things to start getting back on track but now we have the experience to know what to do going forward," he said.

Despite the remarkable achievements, however, a casino critic says consolidation and retrenchment lie ahead for the casino industry.

Tom Grey, executive director of the National Coalition Against Legalized Gambling, said the gaming industry has seen its best days because Americans are gambling more but enjoying it less.

In 2005, commercial casinos had revenue of $30.3 billion, up 18 percent from $25.7 billion in 2001. But 52.8 million Americans visited casinos in 2005, down slightly from 53.2 million in 2001.

Meanwhile, the Pew Research Center for the People and the Press has found a developing backlash against casinos. Seventy percent of respondents to a local survey said Americans who gamble lose more than they can afford; 42 percent said casinos have had a negative impact on their community.

"All this suggests, if you were doing marketing of your product, you've got problems," Grey said.

Grey conceded that the industry had expanded following Sept. 11, but said it was because casino companies acted like scavengers.

"Tax us, tax us, was their cry and politicians welcomed them," he said. "But from 2001 on, they've only added lotteries in South Carolina and racinos in Pennsylvania.

"The fact is they have a flawed product and can't bury the bodies," Grey added. "Politicians know it and people know it. That's why they'll stall out in the United States and try international markets as their next gambit," he said.

"If you can't expand (your player base) after 9-11, what are you going to do now that states have surpluses and it's been proved you can't gamble a state rich?" Grey asked.

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