Unexpectedly, Las Vegas hit by U.S. downturn

By Deena Beasley

LAS VEGAS (Reuters) - Sue Garrett, in Las Vegas for a birthday party earlier this month, went to what she considers extraordinary lengths to hold down the cost of her trip.

"We decided to sit through one of those blasted timeshare presentations to get a free hotel room," said Garrett, who lives in Los Angeles. She turned down the timeshare but earned herself and her husband a stay on the Las Vegas Strip for her trouble.

Similar stories are heard all over Las Vegas these days, where resorts are discounting and even giving away room nights just to attract enough people to keep their roulette wheels and slot machines spinning.

Vegas barreled through previous U.S. economic recessions with no problem, but the current slowdown -- marked by home foreclosures and then high gasoline prices -- has had a much bigger impact on the gambling mecca than economists expected.

And while free rooms and room discounts have kept hotels relatively full -- occupancy is down just 1 percent in the year to July -- gambling revenue is down 6.5 percent.

"People still have Las Vegas as their destination of choice, but their budget is less," said Jan Jones, senior vice president at Harrah's Entertainment, operator of nearly one-third of the Strip, from Bally's to Caesars Palace.

Harrah's and MGM, which operates 10 properties on the Strip including Bellagio and Circus Circus, have each cut about 1,500 Las Vegas jobs over the past year.

"There is no question that people are spending less money now," said Jim Murren, president and chief operating officer at

MGM.

MGM plans to continue aggressive promotions, such as a $300 return travel voucher for a two-night stay at the MGM Grand. "Our business model is based on a desire to maximize occupancy and traffic at the properties," Murren said.

The majority of Harrah's hotel rooms in Las Vegas, Jones said, are "comped" -- given for free -- to higher-spending members of the company's bonus points system.

Two factors make the current downturn harder for Las Vegas than previous ones, according to analysts.

One is high gasoline prices, which will hit the pockets of the more than half of Las Vegas visitors who drive in by car or bus. No one knows how $4-a-gallon gasoline will affect their spending decisions, said Margaret Holloway, senior credit officer at Moody's Investors Service.

The other is the growth of places where gamblers can get a cheaper fix close to home, like riverboats in the U.S. Midwest and new casinos on Indian reservations like the MGM Grand at the Foxwoods casino in Connecticut.

The U.S. credit crisis has begun to dampen construction, a big economic driver since the 1990s.