Skip to main content

Las Vegas made a big, bad bet on casinos

By David Frum, CNN Contributor
updated 7:50 AM EDT, Tue April 1, 2014
David Frum says the recession hit Las Vegas hard and it hasn't fully recovered.
David Frum says the recession hit Las Vegas hard and it hasn't fully recovered.
STORY HIGHLIGHTS
  • Nevada senator says his state is "nowhere close to a normal economy"
  • David Frum: The state made a big bet on the lavish casinos of Las Vegas
  • Since the recession, crowds at the casinos have fallen off, hurting job market, he says
  • Frum: Families that benefited from refinancing their mortgages have had to cut back

Editor's note: David Frum, a CNN contributor, is a contributing editor at The Daily Beast. He is the author of eight books, including a new novel, "Patriots," and a post-election e-book, "Why Romney Lost." Frum was a special assistant to President George W. Bush from 2001 to 2002. The opinions expressed in this commentary are solely those of the author.

(CNN) -- The expensive casinos of Las Vegas look crowded. Tickets to the popular shows sell out. To the tourist, things look back to normal.

Yet as the state's junior U.S. senator lamented in February, "I can tell you right now Nevada is nowhere close to a normal economy." Nevada's unemployment remains the second-highest in the nation, nearly 9%. The housing market there still languishes. New Federal Reserve Chair Janet Yellen acknowledged to Nevada Republican Sen. Dean Heller that full recovery for Nevada glimmers "years away."

Nevada's troubles are more than a local concern. They reveal something important about the condition of the whole U.S. economy.

David Frum
David Frum

Nevada makes its living from tourism, the state's most important industry, and the tourists come -- or came -- for the casinos. Before 1990, the state of Nevada and Atlantic City, New Jersey, enjoyed something close to a monopoly on the casino industry.

As more states legalized casinos, the Nevada casino industry -- and especially the Las Vegas industry -- responded by moving up-market. Dazzling theme hotels housed lavish theatrical shows and outstanding restaurants. Las Vegas, once a rather seedy place, repositioned itself as a center of glamorous entertainment.

Building the new hotels generated jobs. The people who worked in the hotels needed places to live, and building those homes generated more jobs. All that construction shaped an unusual local economy: Here was a state with low average educational attainments (only about 22% of Nevadans have a college degree, 45th in the nation), yet a median income higher than the national average.

The Barrymore is pure, old-school cinematic Vegas, with handmade wallpaper, blue-tufted booths, and a ceiling lined with antique movie reels. The Barrymore is pure, old-school cinematic Vegas, with handmade wallpaper, blue-tufted booths, and a ceiling lined with antique movie reels.
The Barrymore
HIDE CAPTION
<<
<
1
2
3
4
5
>
>>
Las Vegas\'s best new attractions Las Vegas's best new attractions

Nevada's blue-collar prosperity was built on a faulty premise. All those glitzy Las Vegas hotels and resorts, containing typically up to 5,000 rooms each, depended on a huge influx of high-spending visitors.

So long as homeowners could pay for vacations with some of the proceeds of their home refinancings, all was well. But when the refi boom stopped, Las Vegas suddenly discovered it had built a destination too expensive for its customer base. Everything else going on in the city -- the jobs in the hotels, the homes for the people who worked in the hotels, the malls where those people shopped, the homes for the people who worked in the malls -- all that crashed around Las Vegas' ears.

And now, six years after the crash, it's hard to see a way forward from the disaster.

Nationwide, the casino industry has more or less recovered from the recession. Americans left behind $37.34 billion in casinos in 2012, only a shade below the 2007 peak of $37.52 billion. But they are spending that money in casinos closer to home. Gross revenues of Nevada casinos languish 20% below their 2007 peaks. Because of the higher cost of Las Vegas-style amenities, a 20% drop in revenues translates into a 50% drop in profitability.

So even as the industry nears recovery, the promise of a middle-class economy supported by gambling revenues has proven a mirage. Casino employment dropped in Nevada between 2012 and 2013. These were the best casino jobs in the country, which explains why total national casino wages lag 7% behind the 2007 peak even as industry revenues have nearly caught up to the 2007 level.

Nor is there much likelihood of any early return to the old ways. Americans have grown cautious about gambling. While only about 14% of Americans express a consistent moral disapproval of gambling, according to industry surveys, there has been a sharp increase in the proportion who reject gambling for themselves personally: 27% in 2004, 38% today. Unsurprisingly, 2008 was the year of the biggest change of national mind on this subject.

Meanwhile, those who do gamble are gambling in new ways that don't support the style of industry for which Las Vegas is famous. Younger gamblers are attracted to online forms of gambling, which create jobs only for computer programmers. Older gamblers increasingly prefer bare-bones casinos that offer free transportation and cheaper meals.

Las Vegas' opulent palaces for the affluent gambler seem increasingly unsupportable in a country where more and more people have less and less disposable income. That's a social trend that should concern us all, however we feel about this particular pastime.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

ADVERTISEMENT
Part of complete coverage on
updated 9:42 PM EST, Fri December 19, 2014
Conservatives know easing the trade embargo with Cuba is good for America. They should just admit it, says Fareed Zakaria.
updated 8:12 PM EST, Fri December 19, 2014
We're a world away from Pakistan in geography, but not in sentiment, writes Donna Brazile.
updated 12:09 PM EST, Fri December 19, 2014
How about a world where we have murderers but no murders? The police still chase down criminals who commit murder, we have trials and justice is handed out...but no one dies.
updated 6:45 PM EST, Thu December 18, 2014
The U.S. must respond to North Korea's alleged hacking of Sony, says Christian Whiton. Failing to do so will only embolden it.
updated 4:34 PM EST, Fri December 19, 2014
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
updated 2:51 PM EST, Thu December 18, 2014
Jeff Yang says the film industry's surrender will have lasting implications.
updated 4:13 PM EST, Thu December 18, 2014
Newt Gingrich: No one should underestimate the historic importance of the collapse of American defenses in the Sony Pictures attack.
updated 7:55 AM EST, Wed December 10, 2014
Dean Obeidallah asks how the genuine Stephen Colbert will do, compared to "Stephen Colbert"
updated 12:34 PM EST, Thu December 18, 2014
Some GOP politicians want drug tests for welfare recipients; Eric Liu says bailed-out execs should get equal treatment
updated 8:42 AM EST, Thu December 18, 2014
Louis Perez: Obama introduced a long-absent element of lucidity into U.S. policy on Cuba.
updated 12:40 PM EST, Tue December 16, 2014
The slaughter of more than 130 children by the Pakistani Taliban may prove as pivotal to Pakistan's security policy as the 9/11 attacks were for the U.S., says Peter Bergen.
updated 11:00 AM EST, Wed December 17, 2014
The Internet is an online extension of our own neighborhoods. It's time for us to take their protection just as seriously, says Arun Vishwanath.
updated 4:54 PM EST, Tue December 16, 2014
Gayle Lemmon says we must speak out for the right of children to education -- and peace
updated 5:23 AM EST, Wed December 17, 2014
Russia's economic woes just seem to be getting worse. How will President Vladimir Putin respond? Frida Ghitis gives her take.
updated 1:39 AM EST, Wed December 17, 2014
Australia has generally seen itself as detached from the threat of terrorism. The hostage incident this week may change that, writes Max Barry.
updated 3:20 PM EST, Fri December 12, 2014
Thomas Maier says the trove of letters the Kennedy family has tried to guard from public view gives insight into the Kennedy legacy and the history of era.
updated 9:56 AM EST, Mon December 15, 2014
Will Congress reform the CIA? It's probably best not to expect much from Washington. This is not the 1970s, and the chances for substantive reform are not good.
updated 4:01 PM EST, Mon December 15, 2014
From superstorms to droughts, not a week goes by without a major disruption somewhere in the U.S. But with the right planning, natural disasters don't have to be devastating.
updated 9:53 AM EST, Mon December 15, 2014
Would you rather be sexy or smart? Carol Costello says she hates this dumb question.
updated 5:53 PM EST, Sun December 14, 2014
A story about Pope Francis allegedly saying animals can go to heaven went viral late last week. The problem is that it wasn't true. Heidi Schlumpf looks at the discussion.
updated 10:50 AM EST, Sun December 14, 2014
Democratic leaders should wake up to the reality that the party's path to electoral power runs through the streets, where part of the party's base has been marching for months, says Errol Louis
updated 4:23 PM EST, Sat December 13, 2014
David Gergen: John Brennan deserves a national salute for his efforts to put the report about the CIA in perspective
updated 9:26 AM EST, Fri December 12, 2014
Anwar Sanders says that in some ways, cops and protesters are on the same side
updated 9:39 AM EST, Thu December 11, 2014
A view by Samir Naji, a Yemeni who was accused of serving in Osama bin Laden's security detail and imprisoned for nearly 13 years without charge in Guantanamo Bay
updated 12:38 PM EST, Sun December 14, 2014
S.E. Cupp asks: How much reality do you really want in your escapist TV fare?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT