Lessons From Las Vegas

Lessons From Las Vegas

Lessons From Las Vegas

Nov. 21 1997 3:30 AM

Lessons From Las Vegas

Are casinos a model for the new American economy?

Long-standing oral traditions and Caribbean Stud video-poker machines apparently don't mix that well. Or so I'd like to deduce from the recent decision of the Navajo Nation to reject casino gambling on its reservation land in Arizona and New Mexico. After all, Navajo culture is replete with stories cautioning against the dangers of gambling, and this is the second time in three years that the Navajo have said no to casinos.

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At a time when Las Vegas has become America's model of economic development, the Navajo vote may seem a grand self-defeating gesture. But while Las Vegas is certainly a tremendous economic success story, it's not clear that the story can be easily duplicated elsewhere.

That's not because playing the house's role in a gambling operation requires Feynmanian genius. The economics of casino gambling are pretty straightforward: Every day people walk through the doors, mill around for a while, and eventually leave, and when they leave they have--as a group--somewhere between 78 percent and 81 percent as much money as they had when they came in. That's it. Some of the people, of course, lose more than 20 percent of their money, and in doing so effectively transfer their cash to those who lose less or who--rarity of rarities--actually win. But the casinos' cut of the "drop"--the total cash that's converted into chips or tokens--is remarkably unvarying. As a character in Mario Puzo's Fools Die puts it: "Percentages never lie. We built all these hotels on percentages. ... The percentage will always stand fast."

(There is only one real exception to this rule--the high roller, and it is only a short-term exception. Click for some examples.)

What this means is that running a casino is not really about gambling at all. You do have to keep people from cheating, and you do have to keep deadbeats like Adnan Khashoggi--who bankrupted the Sands in 1983 by not paying his markers--from skipping out on their debts. But the real business of casinos is not about what happens once a player sits down at a blackjack table or in front of a slot machine. The real business is about getting that player to sit down at your table and not the table at the casino across the street.

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In that sense, a casino is like a restaurant or a movie theater, except that there's one crucial difference: Every casino is selling the exact same product. There are minor variations in the kinds of slot machines you'll find, and casinos are always coming up with mindless variants on the classic table games, but in essence what every gambler is buying is simply opportunity. Or, as a casino CEO has said, they're buying "time." Time to win and, of course, time to lose. Whether you're in Circus Circus or Luxor or the MGM Grand or the Golden Horseshoe, though, the time is the same. McDonald's can sell a Big Mac to distinguish itself from Burger King, but the Mirage can't advertise "Blackjack!" to distinguish itself from Harrah's.

What the Mirage can and does advertise instead is itself. Las Vegas is often described as the future of America because its entire existence depends on a service economy. In another way, though, the city has already defined America's present. From the start, since casinos couldn't compete on price or essential product, they competed on the basis of their brand names. Nike vs. Reebok is a global version of Caesars vs. the Tropicana.

Branding, in fact, has driven the curious evolution of Las Vegas from gamblers' paradise to neo-Orlando. The casino industry has certainly supported endeavors like MGM Grand's theme park and Excalibur's medieval jousts (and its restaurant called Lance-a-Lotta Pasta) as a way of attracting visitors who might otherwise gamble at their local riverboats. But a more important factor behind Las Vegas' ever-more-elaborate themed casinos is the competitive pressure to set oneself apart. I'm not convinced that knowing that there's a 150-foot replica of the Statue of Liberty in front of the New York, New York casino makes the experience of playing blackjack inside any different, but the statue is not the product. The statue is just the advertising.

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A nd it's advertising that has worked very well. Much as we Rat Pack nostalgists might mourn the loss of the Flamingo and the Sands, there's no quarreling with Las Vegas' economic performance. The city has led the nation in job growth for each of the past 15 years. Casino revenue from gambling has risen every year since 1982-1983, and casinos are now deriving a greater percentage of their revenue from their hotel and restaurant business. Something like $10 billion in new construction projects are currently underway in the city, including Paris, which will feature a 50-story replica of the Eiffel Tower. Unlike Atlantic City, where casinos have struggled for profitability since the mid-1980s, Las Vegas has proven itself almost impervious to recession.

In part, this is because Las Vegas has itself become one of the world's most powerful brand names. And in part it's because Nevada's business climate is a supply-sider's dream: no corporate income tax, no personal income tax, no local earnings tax, no inventory tax, no capital-stock tax, no franchise tax, no admissions tax, no inheritance tax, low property tax, and a right-to-work state. Difficult not to make money when you're the only game in town in a Third World city-state.

It's a flippant comparison, to be sure, but it's one that illuminates the reasons why gambling has not been an economic panacea for other parts of the country, parts where the New Deal actually had an impact, for example. More than that, the comparison also gets at what may be the most interesting thing about Las Vegas, namely that it's the economic equivalent of an exporting powerhouse. In this particular case, the buyers come to Las Vegas to purchase the goods rather than having them shipped out of the city, but the economics are the same. Casinos thrive not because of the business they do with local customers, but because of the business they do with people from around the country and around the world. Call Las Vegas a Far West Tiger, and you wouldn't be too far off the mark.

Branded, service-driven, globalized, and unhindered by the state, the Las Vegas casinos do sound uncannily like models for the economy into which we appear to be moving. Hunter S. Thompson once said of Circus Circus, the casino where craps players and flying trapeze artists mingle beneath a billowing canopy, that it was what hepcats all over the world would be doing on Saturday night if the Germans had won World War II. But it might be that Circus Circus is already a version of what we all do, not just on Saturday nights but rather every day of the week. All of us but the Navajo, that is.