Casino Connection Nevada

The Economy's Impact on Gaming

Nevada’s economic outlook depends on your viewpoint

by Jan Jones

To paraphrase Charles Dickens in A Tale of Two Cities, it is the best of times and it is the worst of times for Nevada’s economy.

On one hand, more than $10 billion of commercial and high-rise residential construction is under way along a three-mile stretch of the Las Vegas Strip, and more major construction projects are on the drawing boards. Southern Nevada is still attracting 6,300 new residents each month. Tens of thousands of new tourism jobs are expected to be created in the state over the next five years. Our convention business is robust, and taxable sales remain strong.

On the other hand, housing sales, starts and prices are on the decline throughout the state, and the inventory of unsold homes is at historic highs. Unemployment has climbed above 5 percent and the state government is facing a large budget deficit.

The signals are so confusing that even economists, bankers and financial analysts can’t agree on whether Nevada—or for that matter the nation as a whole—is in a recession or just a temporary slowdown in growth. And no one knows for certain exactly what the state of Nevada’s economy will be 12 to 18 months from now.

But if history is any guide, there’s plenty of reason to be optimistic. Nevada’s gaming industry is the state’s largest employer and biggest taxpayer. And during past national recessions—which since the 1950s have typically lasted less than a year—the gaming industry fared far better than other segments of the economy.

The biggest economic downturn for Nevada gaming in several decades came in the aftermath of 9/11. The state’s casinos laid off thousands of workers because of the sharp decline in air travel. But within months, demand for air service began to rise and tourists began flocking back to the state in ever-growing numbers. In less than a year, the gaming industry had refilled most of those positions and was again posting record numbers.

While Nevada has experienced a slight decline in visitation numbers in recent months, we’ve also noted that the tourists visiting Harrah’s Entertainment properties in the state are spending more than they have before. This enabled our operations in both southern and northern Nevada to outperform their markets in the 2007 fourth quarter. Other Nevada gaming operators have also posted strong results.

Economists differ on whether the visitation numbers will continue to slip or if tourist spending will increase through 2008. One thing seems certain: Individual consumers as well as businesses will be impacted by the ripple effects of the credit crunch that started in the housing and finance industries. How much and how long those consumers are affected will play a key role in their decisions on how, where and when to spend their month.

We've historically provided consumers with compelling reasons to visit Nevada, regardless of the state of the economy. For example, we’re closing in on the biggest introduction of spectacular new resort, entertainment and lifestyle attractions in southern Nevada’s history. Each previous wave generated sharp increases in visitation as tourists clamored to see the latest attractions, and there’s little doubt we’ll see similar growth as the new properties begin to open over the next couple years.

The single most important consideration moving forward will be whether the state continues to provide the gaming industry with the economic incentive it needs—a fair and reasonable tax rate on gaming revenues—to justify the reinvestment of billions of dollars in Nevada. Or will we let ill-advised initiatives lead to higher taxes on our No. 1 industry, which would eventually shift capital investment from Nevada to tax-friendlier jurisdictions?

The urge to tax ourselves to prosperity is as old as it is misguided. As Jack Kennedy pointed out more than 40 years ago: “An economy hampered by restrictive tax rates will never produce enough revenues to balance out budget—just as it will never produce enough jobs or profits.”

As we move forward, I'm confident Nevada will heed JFK's advice and continue to prosper. We've weathered economic uncertainties before in large part because of the health of the gaming industry. We can continue to do so if we move ahead with an expansion of our tax base to avoid over-reliance on—and over-burdening of—the gaming industry.