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Originally published Friday, December 26, 2008 at 12:00 AM

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Recession tests Las Vegas bet on luxury's lure

Gaming revenue on the Strip fell 25.8 percent, and the average daily room rate tumbled 14.3 percent, a huge blow to casino profits.

Los Angeles Times

LAS VEGAS — Las Vegas has staked its future on 320-thread-count linens, 2,200-square-foot suites, filet mignon, Chanel, seaweed wraps and $5,000 bets on slot machines.

The latest batch of megaresorts revels in luxury; thrift mostly vanished with showgirls and the Rat Pack.

Some observers are wondering whether that was a wise bet.

The recession has hobbled Las Vegas casinos, once lauded as impervious to the economy's ups and downs.

Comparing October to the same month last year, most everything plummeted: the number of visitors, hotel occupancy, the number of conventions.

Gaming revenue on the Strip fell 25.8 percent, and the average daily room rate tumbled 14.3 percent, a huge blow to casino profits.

At Encore — the Steve Wynn leviathan that opened Monday — rooms start at $159 in January. When Wynn Las Vegas debuted in 2005, $250 was a bargain.

"You know, the world has changed and we've changed with it," Tom Breitling, senior vice president of strategy and development, said during a media tour of one of Encore's 2,034 plush suites.

Analysts said Las Vegas Boulevard — now pocked with empty lots and stalled construction projects — should bounce back once the credit crisis wanes and tourists begin splurging on vacations.

But while previous downturns passed as quickly as a thunderstorm, economists expect this squall to linger through 2009, push Clark County's unemployment rate as high as 10 percent.

Tourism is Nevada's primary breadwinner, and the Strip, with more than $6.8 billion in gaming revenue last year, is the biggest cash machine of all.

How its high-end image plays during and after the recession will affect the state.

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"People might want luxury, but are they willing to pay for it?" said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas (UNLV). "We might have missed our brand."

Las Vegas has thrived on showmanship and glitz but was purposely affordable in decades past. Benny Binion, who launched the World Series of Poker, talked about making "little people feel like big people" to get rich.

The creator of Caesars Palace reportedly declined to name it "Caesar's" because he wanted every guest to feel like an emperor.

The idea of Las Vegas as cheap, if somewhat tacky, carried it through other economic slumps, Schwer said.

Steve Wynn changed things: His Mirage resort and casino, which opened in 1989, introduced high-end boutiques and gambling palaces. Bellagio was even more lavish.

The latest Strip projects — including MGM Mirage's 76-acre CityCenter, scheduled to open in 2009 — take their cues from Wynn Las Vegas, a bronze skyscraper with no theme, no sidewalk gimmicks and no expense spared.

$2.3 billion Encore

The $2.3 billion Encore is similarly palatial: Red chandeliers resemble licorice twists; Fernando Botero artworks anchor a restaurant; a jewelry store showcases the 231-karat pear-cut Wynn Diamond, and the centerpiece nightclub is named XS.

Hundreds of people waited outside this week for Encore's opening, many merely to ogle.

"I can't afford to stay here. If I had money I would. A lot of money," said Julia Dziegelewski, 62, visiting from Palm Bay, Fla., where she said she is struggling to sell her home.

In 2003, one-tenth of Las Vegas visitors made at least $100,000 a year.

Last year, one-quarter did, according to research done for the Las Vegas Convention and Visitors Authority. During the same period, people making less than $60,000 fell from half of all visitors to 28 percent.

In recent months, tourists and locals have objected in newspapers and online that the Strip caters to the bourgeoisie.

"If casinos want people back, they need to offer value," said one letter. "If they balk at the idea of $3 beers, cheaper food and fewer shakedowns, then perhaps they can try paying their debtors with a mountain of their own folly."

The visitors agency has tweaked its marketing to woo the cost-conscious. "Vegas Right Now" aims to fill hotels with discounted rooms, show tickets and spa packages.

Tourism officials recently flew in 120 residents of Cransfills Gap, Texas — population 351 — and filmed them sky-diving, golfing and patronizing nightclubs.

The resulting ad blitz intends to paint Vegas as a quick, affordable getaway for Middle America.

At the same time, marketers and hoteliers have tried not to dull the Strip's glitterati appeal.

"You don't want to build a brand in today's market based solely on price that backs you into a corner," said Terry Jicinsky, the visitors agency's senior vice president of marketing.

In some ways, analysts said, the slowdown might be good for existing Strip casinos.

Months ago, Dennis Forst, an analyst for KeyBanc Capital Markets, suggested some jet-setter resorts might have to cut rates or scale back luxury offerings.

"Even in a good economy, you don't need 20 Il Mulinos in town," he said, referring to an expensive Italian restaurant.

Bill Lerner, a Deutsche Bank analyst, said there were plans to add about 51,000 hotel rooms in Las Vegas, many of them high-end.

With several projects on hold because of the recession — Echelon, across from Encore, was halted midconstruction — that number is expected to drop to about 25,000.

"For a while, there was this idea that the Bellagio and the Venetian were going to be midtier properties and everything else would go up a notch," said Kathy LaTour, who studies hospitality marketing at UNLV. "But we're not going to be Dubai. We're not going to charge $1,000 a night."

Copyright © 2008 The Seattle Times Company

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