The Business Times , 17 May 04

Lessons from Las Vegas
by Vikram Khanna

A look at the bountiful spinoffs that the resort and gaming industry has reaped for the city and Nevada's state coffers

'THE super-casino is to tourism what the pentium chip is to technology,' said Glenn Schaffer, president of Circus Circus - one of Las Vegas' mass-market focused casino-resorts, in 1996.

Tourism magnet: visitors are drawn to Las Vegas not only by its super-casinos, but also by its glitzy entertainment, its reputation as a conventions city and ostentatious resorts Las Vegas is the pioneer, and still the leader by far, of the super-casino. Dotted along a four-mile section called 'The Strip', these mega resort hotels are deliberately, garishly, in-your-face ostentatious - 'expressly designed', as Mr Schaffer put it, 'for the purpose of gawking'.

The most upscale of the lot, The Bellagio, built at a cost of US$1.7 billion - more than four times the cost of Singapore's Esplanade - boasts dancing fountains on a 3.2 ha lake. Inside, is a botanic garden, health spas, an art gallery displaying such works as Picassos, Monets and Rembrandts. There are also plush bars with live bands, restaurants featuring celebrity chefs, entertainment venues with sellout shows like O by Cirque du Soleil. And of course, a vast gaming area.

Replicas of world wonders abound on the strip. The resort Paris features lookalikes of the Eiffel Tower, the Bridge of Seine and the Arc de Triomphe. New York-New York reproduces the Manhattan skyline. Venetian is surrounded by a canal, complete with gondolas and gondoliers, and The Luxor boasts a collection of exact replicas of ancient Egyptian treasures. At night, The Strip is a dazzle of shimmering neon, visible from miles around. The tourists love it.

Last year, Las Vegas, a city of 1.6 million people, had 35 million visitors, each staying an average of just under four days. They don't come only (or even necessarily mainly) for the gambling. They also come for the shows: in one week alone, it's possible for a visitor to hear performances by such stars as Celine Dion, Elton John and Al Martino. They come for the spas. And they come to shop and to eat. 'People eat more here than they normally do, they drink more, they sleep less ... You can have a fabulous time without even putting a quarter into a slot machine,' says Rob Powers, vice-president of public relations at the Las Vegas Convention and Visitors Authority, which promotes tourism to the city.

Las Vegas is the biggest convention centre in the world, offering nine million sq ft of meeting space. In the month of May alone, it hosted more than 100 conventions, with some - like the National Hardware Show from May 10-12 - attracting as many as 50,000 visitors alone. Mr Powers points out that the casinos - plus the hotel, entertainment, restaurant and retail businesses - benefit from the traffic from conventions which thrive on weekdays, while the casinos do best on weekends. Each industry reinforces and feeds off every other.

Over the years, the casino industry has become less dependent on gamblers. While in the late 1970s, about 80 per cent of their revenues came from gaming, today, most resort hotels earn more than half of their revenues from non-gaming activities, such as rooms, entertainment, food and beverage, retail and spas. At more expensive resorts like the Bellagio, non-gaming revenues are as much as two thirds.

Economically, the spinoffs from the resort industry have been bountiful for Las Vegas and the state of Nevada. Apart from the fact that each resort results in thousands of construction jobs at the outset, each hotel room (and Las Vegas has 120,000) when built, creates about two jobs.

The gaming, travel and tourism industries directly account for one-third of the state's employment and indirectly for another one-third. Sixty per cent of Nevada's budget is funded by the resort industry alone, based largely on gaming taxes; there is no income tax in the state.

Many of the jobs in the resorts are high-paying, even if they don't require high levels of education. According to Jonathan Galaviz, an investment adviser and gaming industry consultant, a hotel public relations manager can earn US$100,000 a year, while croupiers, dealers and even parking valets can make up to US$50 an hour just on tips. For these relatively low-level employees, incomes of US$75,000 a year in salary and tips are not uncommon, he said.

But lucrative as the resort industry may be, it makes Las Vegas dependent on tourism, which can sometimes take a hit - as it did following the terrorist attacks in the US in September 2001. 'Nine-eleven brought home to us the fact that we're not bullet-proof,' says Somer Hollingsworth, president and CEO of the Nevada Development Authority (NDA), which promotes economic development in the state and is now focusing on diversifying away from the resort industry. The progress has been moderately good.

Las Vegas is already the top disaster backup recovery centre in the United States, attracting companies like Citibank and Ford Motor Credit. Moreover, over the last five years, the state has attracted about 250 new companies. The reasons: lower taxes (including no state income tax) and fewer regulations than neighbouring states, particularly California; a workforce used to serving in establishments that are open 24 hours, seven days a week (like the resorts), which has produced a high proportion of workers willing to work night shifts; high computer literacy (the city's casino-resorts are big users of information technology) and a relatively new telecom infrastructure. Also underway is the building of a major cancer research centre - aimed at being the top R&D and treatment centre in the US - as well as an arts centre.

However, Nevada has not succeeded to the extent it would like in attracting high-technology companies - partly because of the dearth of research universities compared to many other states, particularly California.

Observers like Mr Galaviz - who has lived in Singapore - point out that Nevada and Singapore share some similarities. Both have relatively small populations. Both are forced to create something out of nothing - Nevada has few natural resources and is not blessed with good weather for much of the year, being a desert state. And both have little choice but to be business and investor friendly.

But they face diametrically opposed challenges: Nevada is trying to diversify away from the resort and gaming industry, while Singapore is considering entering the industry, diversifying away from the some of the activities Nevada wants to attract.

In meeting this challenge, it is Singapore that is seen as having the easier shot. 'You want to get into gaming?' asks Mr Hollingsworth. 'Why reinvent the wheel when you have the mecca right here. Heck, just copy it.'