Las Vegas down, but this won't help San Diego

San Diego has more Indian casinos than any other U.S. county

When folks run out of gas, they lose interest in sin. This does not apply just to the elderly. Ask Sin City — Las Vegas. High fuel prices are walloping incoming air and auto traffic. Hotel occupancy and gambling revenue have taken a nosedive, and heavily leveraged casinos are worried. Sensing trouble, Sin City officialdom in late April sent sequined showgirls to five cities, including San Diego, on a “glitz blitz” to titillate interest in tourism.

But don’t think San Diego will dance on Las Vegas’s grave. San Diego’s tourism is doing reasonably well but is expected to slow down in the fall. Very few travelers are expected to come to San Diego instead of Las Vegas. Local Indian casinos, which are generally hurting right now, are not likely to lure visitors from Los Angeles in any great numbers. San Diego tourists and Las Vegas tourists are a different breed. San Diego offers wholesome entertainment, such as SeaWorld and the zoo. Vegas’s animalistic attractions are quite different.

The two tourist destinations do have similarities. For example, Las Vegas gets 25 percent of its visitors from Southern California. San Diego gets 34 percent from the region, according to the San Diego Institute for Policy Research. Las Vegas gets 39 million visitors a year; San Diego gets 32 million. Overseas visitors (not including Mexicans and Canadians) are 7.6 percent of Vegas’s tourists and 3 percent of San Diego’s.

But oh, those differences. The average San Diego tourist spends $94 a day. The average Vegas visitor spends $556 on gambling alone. Half of Vegas’s visitors arrive by air. Only 26 percent of San Diego’s do. San Diego has the nation’s 23rd-largest convention center, ranked by size of exhibit space. Since Las Vegas has its own centers as well as big spaces in hotels, it has the 3rd-, 9th-, 10th-, and 20th-largest convention locations in the United States, according to figures compiled by the policy research institute.

But now Vegas is hurting. Statistics from the Las Vegas Convention and Visitors Authority show that air traffic was down 4.7 percent in May and down 2.4 percent thus far this year, compared with a year ago. Traffic at the I-15 Nevada/California border was down 5.6 percent in May and 5.0 percent for the year to date. Here’s the shocker: gaming revenues were down 18 percent in May and 6.4 percent for the year. Hotel occupancy was down 2.4 percent in May and 1.9 percent for the year to date. Another shocker: hotel room nights for conventions were down 9.0 percent in May and 9.7 percent for the first five months.

Attendance at the Las Vegas Convention Center dropped last year by 8.7 percent, says Heywood Sanders, professor and convention expert at the University of Texas at San Antonio. In 2002, the year after 9/11, the drop was only 3.1 percent. “That is pretty sobering,” says Sanders. He thinks the drop this year will be larger, and only partly because of construction activity there. In a soft or contracting economy, “What happens is that fewer people show up, and those that do show up spend fewer days.”

One Las Vegas money manager read in a survey that 50 percent of Californians would forgo Las Vegas if the price of gas got to $3.50 a gallon, and 80 percent would stay home at $4.33. He scoffed at those numbers, and since the price of gas has already passed those levels without making any such dent, his skepticism was proved on the money.

Airplane prices are headed up while flights are being cut. Result: “The prices go up, the hassle increases,” says Sanders. Five airlines that had service to Vegas have filed for bankruptcy or ceased to operate since late last year. Larger carriers serving Sin City are cutting back. So you have to suffer more pain in the wallet and the psyche to get fleeced at the gaming tables.

Meanwhile, San Diego tourism is doing fairly well — thus far. According to Smith Travel Research, San Diego room occupancy for the single month of May of this year rose to 71.8 percent from 70.2 percent in May of 2007. Only 6 of the top 25 cities showed improvement this May. The average of the top 25 markets was a drop from 70.1 percent to 68.5 percent.

For the first five months of the year, January through May, however, it’s a different story. Room occupancy has dropped from 71 percent a year ago to 70.3 percent this year. The average room price has risen from $135.80 a year ago to $141.10, but that’s only modestly above realistic inflation. Occupancy in all of California thus far this year has dropped slightly while average room rent rose modestly. Nevada, on the other hand, has had a 5.5 percent drop in occupancy for the year to date.

San Diego won’t pick up Las Vegas customers “because the economy is the problem,” says La Jolla hotel guru Jerry Morrison. “There is a certain point for people at which demand starts to drop because they are worried about prices, jobs, the economy.” San Diego retail sales are down. People in San Diego and throughout the nation are cutting back on almost everything, and that includes gambling.

While San Diego has more Indian casinos than any other U.S. county, according to the institute, only 3 percent of tourists come here to go to those gaming dens. “People tell me that the Indian casinos are really hurting,” says Bob Rauch, who teaches hospitality at San Diego State and owns two hotels in Torrey Hills. Another source who works closely with the Native American casinos confirms that the major ones are ailing now. “Remember, they are a long way away too — in far East County and North County. They are vulnerable to high gasoline prices and the economic downturn,” says this source.

“San Diego is going to have an okay summer; it always does. But I am worried about fall bookings. People tell me they are down — conventions, groups, individuals,” says Morrison.

“Vegas is down more than San Diego because it is more of a fly market,” says Rauch. San Diego still has a certain cushion because most tourists drive here and, in a downturn or energy crisis, tend to cancel longer trips and come to San Diego. This year, “We will weather the downturn, but it will still be a downturn.” San Diego will pick up a few Angelenos who were going to gamble in Vegas, but that will be a small piece of the pie. Overall, this year “is turning out to be uneven. We are headed off the peak toward the trough, which will be in 2009.” Next year is when the pain really hits.

San Diego will not gain from Las Vegas’s woes, agrees Sanders. “Las Vegas is a bellwether for the larger economy.” San Diego will hurt along with other convention/tourist destinations.

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Response to post #9: An interesting situation worth looking into. Best, Don Bauder

Since there is high leverage in the building of so many of those Casino's it will be interesting to see if any go BK.

Steve Winn might be sweating a few bullets about now......

Las Vegas has not really had a downturn for over 20 years......in fact it has probably had more economic expansion than any major city in the US over the last 20-30 years.

This underlines the folly of any economy depending too much on tourism...including San Diego.

Response to post #1: For about 20 years, I have been predicting a downturn in Vegas and in gambling across the country. So far I have been wrong. It appears to be happening, but I don't know if it is a long term trend. When will people figure out that casinos and lotteries are scams? Yes, Vegas casinos are heavily leveraged, and there are some new ones going up. Yes, there could be some BKs. Best, Don Bauder

Response to post #2: Las Vegas depends on tourism and real estate. Both are hurting. San Diego's tech, about ten percent of employment, at least gives it more balance. Best, Don Bauder

I know there is literally tons of new building being foreclosed on in Las Vegas, especially the high end condos built on or near the strip.

Miami, Las Vegas and San Diego were at the top of the real estate bubble, so now that the bubble has popped we see these areas really getting hammered, and hammered hard.

It will be interesting to see what happens if a serious downturn hits Las Vegas. I was always surprised that Las Vegas could have such a long economic expansion.

As for gambling-it is nothing but problems.

Another outstanding article. The Reader needs to have Don's articles and blogs indexed in the news section at Yahoo.com to increase his influence and reach on the internet. Most people now obtain their news from Yahoo.com. They use the search function at Yahoo news to locate articles of interest and ignore the rest. There's a tremendous demand on the internet for quality business content.

Response to post #5: Las Vegas and Miami are in the most trouble with condos. San Diego and LA are close behind. Best, Don Bauder

Response to post #6: I will pass on the suggestion. Thank you. Best, Don Bauder

Please pardon my digression,but I am curious if you have ever looked at MTDB and John Scott.I find it interesting that they can give 10 taxi medallions,currently selling for $130,000 apiece,to an Amir Aghassi,president of the board of the NONPROFIT co. Orange Cab.Of course technically these cannot be bought or sold but they often are.This brought Mr.Aghassis' total to 20, apparently out of the pure goodness of Mr.Scott and the MTDB.Sort of makes me wonder what they got in return.

querulously yours,kneadstono

When will people figure out that casinos and lotteries are scams? You're a financial guy so you and I look at expected returns. A lot of people see their losses in Vegas as the cost of entertainment. The lotteyr is a different story. The lottery can't be judged quantitatively alone. Some people think that their only chance at wealth is the lottery.

Response to post #12: Government-run lotteries are particularly reprehensible, because the people who fall for the scam are the ones who financially have no business gambling. But as you say, they think it is their only ticket to affluence. Best, Don Bauder

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