Casino gambling is a curious economic animal. It’s been labeled recession-proof, recession-resistant and recession-sensitive. The disjuncture between gambling revenue data and individual consumer behavior should guarantee that no one ever definitively answers the question of whether people gamble more or less when economic times get tough.
Generally speaking, reliable American gaming revenue statistics go back only to 1967, when the Nevada Gaming Control Board began publishing its “Gaming Abstract.” While gaming taxes had been collected by the state since 1946, it is generally accepted that revenues were consistently under-reported due to skimming by both employees and management. It’s difficult to reconstruct just how far off the official tally was from the actual drop, but a number in the range of 10 to 15 percent seems likely.
Since we don’t have reliable numbers on casino win for the industry’s earliest years, we can make only rough estimates, at best, of the effect of larger economic trends on casino performance. It’s likely that any conclusions derived from such analyses would be spurious. So it’s best to limit any comparisons to more recent years with reliable data — the 1970s and after.
But there is another problem in making generalizations about gambling spend and the economy. The current market conditions — a nearly universal dispersion of casino gaming throughout the continental United States — date only from the mid-1990s. The giant wave of casino expansion that spread Indian Gaming, riverboat casinos and restricted-market urban casinos (New Orleans, Detroit) from coast to coast began to swell with the nation’s expanding economy during the Clinton years.
So there isn’t much precedent for a national casino economy weathering a national economic slowdown. There is no true consensus on whether ominous economic forecasts prompt consumers to curtail or increase their gambling budgets; indeed, there are persuasive rhetorical arguments on both sides.
The Bears, The Bulls
The “gambling bear” theory holds that gamblers are rational economic actors; with less discretionary income to go around, gambling expenditures (and therefore gaming revenues) should decline. In addition, fiscal uncertainty will weigh heavily on potential gamblers, and they will choose to save their loose change in anticipation of hard times getting worse. The macro trend — a slowing economy — leads to gamblers having less money to spend on a nonessential entertainment and also prompts them to stockpile rainy-day cash reserves.
While the bear’s roar seems a persuasive reminder of economic prudence, the snorting bull sends the opposite message. “Gambling bulls” say that gamblers will skimp on other forms of entertainment — and even some essentials — before giving up their casino trips. In times of economic insecurity, clean, familiar casinos offer continuity. You might not get a holiday bonus, and your raise might be delayed indefinitely, but a Blackjack will still pay 3-to-2 … unless it’s been pared down to 6-to-5.
Furthermore, the bullish argument says that, rather than getting more skittish as the overall economic picture worsens, gamblers will become more reckless. Caution, they say, got us into this mess. With stock investments and mutual funds looking worse by the day, heading to the casino and hoping for a royal flush might be a better earner than saving for retirement.
Both theories sound quite sensible on paper, and it’s likely that individual gamblers, consciously or not, subscribe to one school or the other. But what about the American gambling economy as a whole? Does it expand or contract with recession (or recessionary fears)?
Lessons From the Past
Gambling consumers today are facing several obstacles to easy gambling. For one, there is the looming threat of recession. Second, energy prices have significantly increased, leading to a quandary: Not only might gamblers have less money to play with, but getting to the casino will cost them more. Established markets have an additional concern: New and expanded gaming, from Pennsylvania to California, is ratcheting up the competition.
For doomsayers, this marks an unprecedented malevolent convergence. But Las Vegas faced similar conditions in the not-too-distant past, and has not only survived, but prospered to a degree unimaginable before the crisis.
In the spring of 1979, Las Vegas casinos seemed to be in dire straits. The country was in the midst of Carter malaise, as stagflation wreaked havoc on corporate bottom lines and household budgets alike. A gasoline shortage forced not only higher prices, but actual scarcities. Drivers had to brave long lines to fill up — if there was any gas left at all. Finally, Atlantic City’s first casino had opened in May of the previous year, giving East Coast gamblers a closer gaming option.
In her 1983 master’s thesis, Paula Adamo concluded that the acute gas shortage forced both short- and long-term changes in Las Vegas visitation. In the short term, visitors changed their transportation mode, taking a bus or plane instead of driving to Las Vegas. But in the long term (1980–82), a substitution effect became apparent: Fewer visitors came from the east, while more came from the west.
The substitution effect meant that those from farther away were unable or unwilling to invest in a trip to Las Vegas, while those relatively nearby went to Las Vegas instead of a more distant destination. This wasn’t an entirely even swap since, adjusted for inflation, gaming revenues slipped precipitously in 1981 and early 1982. In the end, a poor economy meant that people gambled less in Las Vegas.
But the decline wasn’t permanent. During the 1980s, Las Vegas casinos refocused themselves on the mass market (Circus Circus was a conspicuous success story) and rebounded modestly before Steve Wynn’s Mirage sparked another redefinition, this time toward the high end.
While the 1990s saw a massive expansion of Las Vegas in the face of growing competition, it wasn’t all roses. In 1992, gaming revenue on the Las Vegas Strip actually fell from the previous year, and 1993 saw a small increase. These years corresponded to a period of both increased competition and national money problems — “It’s the economy, stupid,” wasn’t the slogan of a successful presidential campaign for nothing.
But other factors deserve consideration as well. Supply was volatile, with old casinos crashing into dust. Before the new, larger, fancier casinos came online, visitors had fewer places to gamble. So comparing 1992 to 1990 might not be entirely fair. It’s likely that the tilt toward upscale, non-gaming-oriented customers didn’t quite cancel out the temporary loss in volume, accounting for the slight revenue drop.
But, armed with massive capital investments along the Strip, the Nevada gaming industry roared ahead in the mid-to-late 1990s. Every conceivable indicator of success dramatically rose. Gaming expansion in the East, Midwest and South only whetted the appetite of Vegas visitors. By diversifying their product selection and providing ancillaries unavailable elsewhere (e.g., dining and entertainment), Strip casinos grew in the face of increased competition.
Nevada gaming suffered another health scare with a three-punch combination of travel restrictions, economic weakening and burgeoning competition in the years 2001 to 2003. The tragedy of Sept. 11, 2001, prompted both acute and long-term disruptions in travel, though visitation to local and regional casinos remained surprisingly steady. The dot-com boom turned to bust, flushing out many of the overnight millionaires who’d been partying in Las Vegas and denting the wallets of investors nationally. Finally, Indian Gaming came to California with a vengeance, providing close, convenient casinos for millions of Golden Staters who’d been driving to Reno, downtown Las Vegas and Laughlin for low-stakes fun.
The result: an absolute decline in gaming revenues and a drop in visitation.
But after retrenching for about two years, the Strip surged forward again. Refocusing on an even more upscale clientele, Strip operators added amenities, raised room rates, and proved that even with closer options, serious visitors would pay more to come to Las Vegas. Elsewhere in the state, things looked less positive, as convenience gamblers unsurprisingly gambled closer to home. With no reason to fly or drive to Reno or Laughlin, many of them instead patronized California and Arizona Indian casinos.
What’s on Tap?
Are gamers facing more hard times in the near future? Revenues for 2007 in the best-established American gaming states, Nevada and New Jersey, were off, with Nevada posting a relatively small gain and New Jersey’s casino take actually falling. Does this portend doom for the gaming industry?
Looking at the past, the answer seems to be no. If energy prices climb significantly higher, travelers will change their plans, prompting a substitution effect. Instead of traveling to Las Vegas, some lower-end gamblers might stick closer to home, leading to a boost in regional destinations and a net loss for Nevada.
The weak dollar is, ironically, probably positive for the gaming industry. Lured by cheap luxury, foreign visitation will climb, while domestic tourists may nix international travel and instead vacation in Las Vegas or other casino destinations.
The major lesson of the past is that economic hardship forces innovation. Existing destinations will have to either increase their appeal to budget-conscious travelers or create must-see amenities. In either case, they need to give potential visitors an excuse to pay more and travel longer to do something that they could just as easily do near home. In the long run, individual casinos and larger markets that intelligently perceive and react to new conditions will emerge from the immediate crisis stronger and more profitable.
David G. Schwartz is the Director of the Center for Gaming Research at the University of Nevada, Las Vegas. He is the author of several books, including Roll the Bones: The History of Gambling. He can be reached at dgs@unlv.nevada.edu.
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