Wynn, California Tribal Casinos Key to Las Vegas Economy

LAS VEGAS -- The profitability of Wynn Las Vegas and the continuing transformation of the California tribal casino market are the biggest question marks facing the Las Vegas economy, the state's top gaming economist said Tuesday.

Addressing the Governor's Conference on Tourism at Caesars Palace, University of Nevada, Reno professor Bill Eadington said the opening of Wynn Las Vegas in 2005 has the potential to trigger another wave of Strip resort development.

Noting that Wynn-built megaresort openings launched three earlier Strip growth spurts, Eadington said Wall Street money managers are keeping a keen eye on the return Wynn can generate on his $2 billion megaresort.

Openings at New York-New York, Monte Carlo, Treasure Island and Luxor in the 1990s all produced at least 20 percent returns on invested capital, while the 1998-2000 spurt, when Bellagio, Mandalay Bay, The Venetian, Paris and Aladdin opened, produced a wide range of returns, from Bellagio's 27 percent down to the bankrupt Aladdin's 2 percent, Eadington noted.

"There is not an insignificant risk of failure," the professor said.

If Wynn Las Vegas' returns please Wall Street, financing for a handful of additional Strip resorts will be a lot easier to raise, he predicted.

"They're waiting to see if Wynn can go to the well one more time," Eadington said. "If the returns aren't there, the wave fizzles and we don't generate the increases in visitation and gross gaming revenue (that have followed past megaresort booms)."

Asked to predict whether Wynn Las Vegas would spur a wave of new resorts along the lines of the 1998-2000 spurt, Eadington guessed the impact of Wynn's new project would be somewhat less.

"It's going to be pretty good, but whether it's big enough to excite Wall Street, that's the question," he said. "Wall Street's expectation on return on invested capital holds the key to the future of the state."

If Wall Street finances more projects, more visitors will likely follow.

"People are attracted to Las Vegas when there's something spectacular to see," Eadington said.

The continuing growth of California tribal gaming is the second major variable affecting Nevada casinos, but the impact remains greatest in Northern Nevada, Laughlin and downtown Las Vegas, Eadington said.

"We have a lot of sick patients in our Nevada gaming hospital these days," Eadington said. "A lot of what's happening in Nevada depends upon what's happening in California."

What's already happening, and what's likely to continue, is that California tribal casinos will get bigger, nicer and more numerous, generating returns that would make Nevada operators envious, he said.

Reno has had no big casino openings since the Silver Legacy in 1995, and the city's casinos look dated compared to Las Vegas and California properties, he said.

Laughlin has been stagnant since the early 1990s because of competition from Arizona, California and Las Vegas, while downtown Las Vegas is treading water in the face of competition "from everywhere," Eadington said.

Eadington said the 38 percent annualized growth rate in California gaming revenues since Proposition 1A passed in May 2000 is in large part responsible for the slowdown of Nevada's gaming revenue from non-Strip tourist markets.

Despite the lack of new Strip megaresort openings until 2005, Eadington predicted 2004 results could benefit from two critical factors: an improving economy and a weak U.S. dollar.

Economic growth should spur discretionary spending and the convention business, both good for Las Vegas, while a weak dollar makes it easier for international visitors to travel to Las Vegas.

Weak greenbacks simultaneously make it more expensive for Americans to travel abroad, making Las Vegas a more attractive vacation destination by comparison, he said.