Back in the good old days, the South Point would cash up to $4 million in paychecks on a busy weekend.
The good old days were just a few years ago.
Since then, the Las Vegas economy has declined into a recession. Unemployment soared to record levels while the Southern Nevada housing market tanked. The construction industry collapsed into near oblivion.
Today, South Point owner Michael Gaughan says he's lucky if his casino cage cashes $1.5 million in paychecks on a weekend.
"It's like 200,000 construction workers dropped off the face of the earth," said Gaughan, who has operated casinos in the locals gaming market for more than three decades.
Boyd Gaming Corp. Chief Operating Officer Paul Chakmak said construction jobs fueled many aspects of the Las Vegas economy, not just the locals gaming sector's bottom lines.
Construction in gaming, commercial and residential areas was key to Las Vegas' economic boom.
"That business doesn't exist in any material way today," Chakmak said. "Those jobs are gone and local economy has had to readjust itself."
Wall Street and other gaming observers have hooked the gaming industry's overall recovery to the Strip, which accounts for 55 percent of Nevada's total annual gaming revenues. In 2010, Strip gaming revenues grew 4.1 percent to more than $5.77 billion, the first annual increase in more two years.
Regional casino markets, namely riverboat locations in the South and Midwest, are showing signs of recovery. New gambling jurisdictions, such as Pennsylvania, are pilfering customers and business from deteriorating areas, such as Atlantic City.
The Las Vegas locals market will be the last to recover, experts believe.
Credit Suisse gaming analyst Joel Simkins said Las Vegas' suburban areas were the hardest-hit gaming markets in the United States.
In North Las Vegas, home to Aliante Station, the Cannery and casinos along Rancho Road, gaming revenues fell almost 15 percent from a high point of $314.4 million in 2006 to $267.8 million last year.
Along the Boulder Strip and in Henderson, which includes Sam's Town, Sunset Station, Green Valley Ranch Resort and M Resort, record gaming revenues of $938.2 million in 2007 declined to $757 million last year, a dip of 19.5 percent.
Meanwhile, gaming revenues for casinos in the area known as the balance of Clark County, which includes Red Rock Resort, South Point and Suncoast, fell from an apex of $1.35 billion in 2007 to $1.02 billion last year, a 24.4 percent drop.
Along with the revenue collapse, high debt loads, poor financial timing and the lack of available capital through credit markets sent locals casino operators Station Casinos and Herbst Gaming into Chapter 11 bankruptcy reorganizations. M Resort's debt was acquired by Penn National Gaming at a 73 percent discount. And two private-equity groups are negotiating to acquire the debt covering the Palms.
Simkins believes the worst may be behind us.
"In our view, most of the financial carnage has passed and we see a period of improving business fundamentals, high flow-through from top-line gains, and limited supply growth through the late decade." Simkins said. "The Las Vegas economy may never experience the highs of the peak years."
Just as they don't expect expansion on the Strip, analysts do not believe the locals gaming market will expand, possibly through the rest of the decade. Companies such as Station Casinos and Boyd Gaming will hold onto parcels in areas once thought of for potential casino development.
Simkins said the steps locals casino operators took to handle the recession, such as cutting costs, could pay off with modest increases in cash flow over the next two years.
So what will it take to get the market completely back on track?
Most analysts believe Las Vegas locals casinos will benefit only if there is a marked recovery through a variety of measures, such as job creation in industries outside of gaming, that significantly helps to reduce unemployment. In turn, the economic recovery could spur a rebound in the housing market.
"Anything that would give Las Vegas a more diverse business climate and make us akin to other major Western cities is the best type of job creation we can hope for," Chakmak said.
Gaughan believes a marked recovery on the Strip, not just one or two straight months of revenue increases and slight jumps in economic indicators, will give the locals market the boost it needs.
"I truly believe that until the Strip comes back, we're not going to see any recovery in the locals market," Gaughan said. "We lost so many employees on the Strip in the past few years, and those were our customers. When the Strip starts hiring again, then we'll see a jump."
Stifel Nicolaus Capital Market gaming analyst Steve Wieczynski agreed with Gaughan's assessment. He told investors recently that the path for a Las Vegas locals comeback is tied to the Strip's pace of recovery.
As Strip revenues grow, Wieczynski said, the locals gaming market will see a trickle-down effect.
"A locals recovery will lag a broader Strip recovery," Wieczynski said. "We are encouraged by early signs of positive incremental gross gaming revenues and visitation data points on the Strip. It could take time before these trends alter the trajectory of a broad-scale locals recovery."
Simkins pegged the locals gaming recovery to two areas: unemployment figures improving and the housing market stabilizing.
The aforementioned construction jobs aren't returning soon, but a modest decline in unemployment to low-double-digit levels might translate into improving gaming revenues.
As for the housing market, Simkins said Credit Suisse's housing analyst said the boom and bust period of the mid- to late 2000s can't be repeated. The market needs to focus on filling vacant or foreclosed homes, as opposed to constructing new supply.
"(That) will determine whether or not the locals business recovers in a steady manner," Simkins said.
Analysts believe improvement in Strip numbers -- gaming revenues, nongaming revenues, hotel occupancy -- could have a ripple effect. Theoretically, tips for dealers, restaurant servers and other tip-based positions will start to improve, which will benefit other supporting industries in the community.
Chakmak said the locals market has stabilized, based on the last few quarterly results from Boyd's properties. Any increase in employment figures will give the market some confidence, which could translate into increased spending.
"We're obviously a tip-oriented economy and people were concerned about maintaining their jobs," Chakmak said. "Tip rates have been down and that's just a fact of life. People are coming to our properties, but spending less. If we see some modest improvement on the Strip, that could cycle through."
Even with the tough economy, many locals didn't give up their entertainment.
Rich Sweetman, a construction sales representative for Westside Building Materials, has continued his weekend visits to Fiesta Henderson, a Station Casinos property. His budget for video poker is reduced, but he remained loyal to the property, largely because of the service and atmosphere.
"What we put aside for fun is a little tighter than it used to be, but we still get all our benefits," said Sweetman, a 45-year-old Henderson resident. "We still get the free dinners and free movie passes based on what we play, so it all works out in the end."
Promotional activities have been key to keeping customers loyal, although many marketing programs were reduced when the economy tanked.
Some programs have returned on a smaller scale. Some are more expansive.
Station Casinos, which is expected to emerge from bankruptcy in the next few months, unveiled its "We Love Locals" advertising campaign in February, the company's largest marketing effort ever.
Station Casinos expects to spend three times what it normally spends on newspaper and television advertisements, special offers and giveaways to bring customers into its 18 properties. An automobile giveaway in February covered 220 cars and cash prizes totaling $5 million.
Not to be outdone, Gaughan expanded South Point's offerings by updating and enlarging the casino floor, adding a lounge, bringing in the city's first Steak 'n Shake restaurant and redesigning the property's race and sports book.
"On weekends, my 5,000 parking spaces are full," Gaughan said. "The rest of the week gives me concern."
Customers are looking for value and the current promotional environment might end up being a double-edged sword. Locals casino patrons could be turned off when the giveaways end.
"They're getting used to the freebies," one casino insider said. "They're not going to be happy when they go away."
Contact reporter Howard Stutz at email@example.com or 702-477-3871.