weather icon Clear

Recession lessons may help Las Vegas casinos face next downturn

When the Great Recession hit Las Vegas, its economy didn’t just drop. It nosedived.

Tourism, the city’s lifeblood, took a huge dip. Visitor volume dropped by more than 2.8 million people between 2007 and 2009, according to the Las Vegas Convention and Visitors Authority. The city’s economy dropped to fifth among 150 metropolitan areas in a 2010 ranking from the Brookings Institution. That same year, Nevada’s seasonally adjusted unemployment rate rose to a staggering 13.7 percent, according to the Bureau of Labor Statistics.

After years of rapid growth, it appears that another recession is on its way. In August, the yield curve inverted — meaning the benchmark 10-year Treasury note slipped briefly below 2-year Treasury yields. Such an event has preceded at least the past five U.S. recessions and is a sign of economic pessimism.

While the last economic downturn had a dramatic impact on local casinos, most experts expect the industry will be better able to weather the storm during the next recession.

Lessons learned

Casinos were hit hard during the last recession, according to Michael Green, an associate professor of history at UNLV.

“The problem for the casinos was the lack of discretionary income,” he said. “Fewer people came here to gamble or play, and the people who were coming here were often spending less.”

Progress on the Fontainebleau and Boyd Gaming’s Echelon — now Steve Witkoff’s Drew Las Vegas and Genting Group’s Resorts World Las Vegas, respectively — ground to a halt. The Cosmopolitan of Las Vegas, originally valued at $3.9 billion, was sold to The Blackstone Group for $1.7 billion in 2014, only four years after it opened.

Las Vegas’ economy was slow to recover but has since gained its footing. But Green wonders whether the casino industry took away any lessons from the last downturn.

“There was talk at the time to rethink our economy and culture, and we didn’t,” he said. “It isn’t as though the outcome of the recession was the creation of a lot of better-paying jobs requiring better education.”

But Jeremy Aguero, principal analyst at Applied Analysis, said that after the last recession, casino operators grew more diversified, more efficient and more risk-averse. They focused on bringing in a diversified audience and broadened sources of revenue outside gaming.

In 2007, 47.9 percent of Clark County casinos’ revenue came from gaming. By 2017, the figure was down to 40.9 percent as resorts relied more on things such as room rates and food and beverage sales.

The recession was “so deep and so difficult, it changed the way people operate altogether,” Aguero said. “Our hotels and casinos are much more diversified within their own four walls than they were.”

Derek Stevens, co-owner of the D Las Vegas, said most casino operators today have a better balance sheet today when compared with 2007.

Many casinos have streamlined their business since the last recession. MGM Resort International, for example, cut 1,070 jobs as part of its MGM 2020 initiative.

But lowering costs too much in the midst of a booming economy could hurt employees down the road, according to Todd Simons, a longtime casino executive who is a managing partner in the consulting firm Hidden Fruit.

When there’s a strong economy, operators are always looking for ways to improve the guest experience, lower costs and grow revenue.

But for many casino companies, Simons said, “there’s no more fat to cut” when the recession hits.That could mean they turn toward other ways to reduce costs, possibly turning toward automation.

“When revenues begin to stagnate and in some cases retract, we look to find additional revenue streams or efficiency within the operation,” Simons said. “When you get to a point where all of the efficiencies have been realized with the current operational structure, we then look at consolidation of roles and responsibilities and automation.”

Representatives from the six largest gaming employers in Las Vegas — MGM, Caesars Entertainment Corp., Red Rock Resorts, Boyd Gaming Corp., Wynn Resorts Ltd. and Sands Las Vegas Corp. — declined to comment.

Are casinos prepared?

The question isn’t whether Las Vegas will get hit by another recession, according to economist John Restrepo. It’s how hard it will hit.

“How prepared are resorts? That depends on the depth” of the recession, he said.

Many economists expect a recession to hit within the next couple of years, but Restrepo said it’s unlikely that slump will be as severe as the Great Recession.

He said Las Vegas operators should be able to handle the next recession “pretty well.” He doesn’t expect massive layoffs based on current economic trends, and he said casinos could keep visitors interested by dropping prices.

Simons was executive vice president of casino operations and marketing for Planet Hollywood Resort when the Great Recession hit. He said incentives such as discounted hotel rates or entertainment would be an easy way to attract visitors.

“It gets people interested and says, ‘Look, we know we’re in a recession, but you still have money to spend,’ ” he said.

If it is a deep recession, Restrepo said, then all bets are off.

“If the trade war gets worse, if there are international events that become bad or get worse, then that’s a different discussion,” he said. “Hopefully this time we learned a lesson and we’re paying attention to the indicators.”

Reactionary approach

While economists agree that a recession is bound to hit eventually, finding a way to prepare as a casino operator isn’t a one-size-fits-all task.

“You can’t paint every property with a single brush,” Aguero said.

In general, he said, casinos can start preparing by making sure they’re “operating in the best way possible,” holding sufficient revenues and keeping a pulse on their customer base.

But according to Simons, it’s hard to prepare for a downturn.

“It’s more of a reactive-type of approach than it is anything proactive,” he said. “The business doesn’t just fall off the edge when a recession hits. It’s a gradual decline.”

Others say the downturn could spur opportunities for local operators. For example, Aguero said some travelers could opt for Las Vegas instead of more expensive destinations like Hawaii. And Stevens, developer of the downtown hotel-casino Circa, said he prefers investing during downturns.

“I feel pretty good about the fact that we’re investing in Circa right now,” he said. “You’ve just got to make sure you’ve got a large amount of equity in any project. … You don’t want to take on too much debt when there’s the potential of a downturn.”

The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.

Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter.

Don't miss the big stories. Like us on Facebook.
Business Videos
Binion's debuts a spinning bar overlooking Fremont Street Experience
Binion's debuted its spinning bar inside the Whiskey Licker Up Saloon. The Rotating bar only goes at one full rotation per 15 minutes overlooking the Fremont Street Experience. (James Schaeffer/Las Vegas Review-Journal)
Southern Nevada could set a new resale-price record in coming months.
The median sales price of previously owned single-family homes – the bulk of the market – was $310,000 in September. Before the economy crashed last decade, prices peaked in June 2006 at $315,000, according to the Greater Las Vegas Association of Realtors.(Bizuayehu Tesfaye/Las Vegas Review-Journal) @bizutesfaye
Walmart container park in Henderson - VIDEO
Henderson could be home to a container park associated with a Walmart Inc. initiative. (Las Vegas Review-Journal)
Recession lessons could help Las Vegas face next slump - VIDEO
While the last economic downturn had a dramatic impact on local casinos, most experts expect the industry will be better able to weather the storm during the next recession. (Mat Luschek / Las Vegas Review-Journal)
MGM and victims of Oct. 1 reach settlement agreement - VIDEO
MGM Resorts International and lawyers representing potentially thousands of victims of the Oct. 1, 2017, mass shooting on the Las Vegas Strip have reached a tentative settlement of between $735 million and $800 million. (Mat Luschek /Las Vegas Review-Journal)
Live music and EDM dominate the night on day 2 of A’Le’Innstock
After sunset bands rocked the crowds at A’Le’Innstock in Rachel, Nevada on the second night of the event.
iPhone 11 Release
Local Las Vegas long time Apple product consumer shares her excitement for the new iPhone 11 release Downtown Summerlin. (Elizabeth Page Brumley/Las Vegas Review-Journal)
Lihi Levin talks about a mobil app Dropit - VIDEO
Lihi Levin, regional manager at Dropit Shopping, talks about a mobil app Dropit. The app lets customers leave their shopping bags at a store then have them delivered the same day to their home or hotel so they can shop without carrying multiple bags all day. (Bizuayehu Tesfaye Las Vegas Review-Journal) @bizutesfaye
North Las Vegas company prepares for Mars - VIDEO
Robert Bigelow and his Bigelow Aerospace manufacturing facility played host to eight NASA astronauts and 60 engineers this week getting to know the company’s B330 autonomous, expandable space station. (Elizabeth Brumley/Las Vegas Review-Journal)
Las Vegas developer talks about a new apartment complex called “the yoU”
Frank Marretti lll, founder of G2 Capital Development, talks about his new apartment complex called “the yoU” near UNLV. (Bizuayehu Tesfaye/Las Vegas Review-Journal) @bizutesfaye
Steel cables will hoist roof at Allegiant Stadium - VIDEO
Stainless steel cables are being put into place at Allegiant Stadium to begin the process of putting the roof on the 65,000-seat stadium in Las Vegas. Stadium Chief Operating Officer Don Webb explains how the cables will be used to get the roof put on the future home of the Raiders and UNLV football. (Heidi Fang/Las Vegas Review-Journal)
The last remaining Sigma Derby game in Las Vegas
Derek Stevens, owner of the D Las Vegas, talks about the last remaining Sigma Derby horse racing game in Las Vegas inside his casino floor. (Erik Verduzco/Las Vegas Review-Journal)
Popeyes Spicy Chicken Sandwich Review
Janine Blake of Las Vegas gives her review of the new Popeyes Spicy Chicken Sandwich at the restaurant’s location on west Bonanza Road on Thursday, Aug. 22, 2019,
SuperZoo 2019 takes over Mandalay Bay in Las Vegas
SuperZoo 2019 show for pet retailers brought pet products of all description to the Mandalay Bay Convention Center in Las Vegas. (Heidi Knapp Rinella/Las Vegas Review-Journal)
MSG Sphere at The Venetian to cost $1.2B plus
Scheduled to open in 2021, it is expected to be busier than Madison Square Garden in New York. (Michael Quine/Las Vegas Review-Journal)
Favorite products from SuperZoo 2019
Some of the fun and interesting pet products on display at the SuperZoo in Las Vegas at the Mandalay Bay Convention Center. (L.E. Baskow/Las Vegas Review-Journal)
MAGIC Convention Day 3
The fashion trade show MAGIC, held Monday through Wednesday at the Las Vegas Convention Center. (Elizabeth Brumley/Las Vegas Review-Journal)
MAGIC Las Vegas - Day One
The biannual MAGIC convention show opened Monday at the Las Vegas Convention Center. (Elizabeth Brumley/Las Vegas Review-Journal)
Allegiant celebrates naming deal with tailgate party
Allegiant Air employees celebrate with a tailgate party after the company’s naming deal with the Raiders for the new Las Vegas stadium.
Nevada's sportsbook operators welcome competition
Sportsbook operators from near and far are looking to get into in the established Nevada market, experts say. (Las Vegas Review-Journal)
Get a first look of MSG Sphere construction in Las Vegas
Representatives of The Madison Square Garden Company give the first glimpse of progress Tuesday of the under-construction MSG Sphere — a first-of-its-kind performance venue with high-tech audio and visual capabilities.