Economic Diversification in Las Vegas 8 pages

Economic Diversification in Las Vegas


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The study analyzes the aspects of economic diversification. The study aims to evaluate the structure of economy of Las Vegas. The study also examines the various possibilities of economic diversification for Las Vegas.

The goal of every country of the world is to create a growing, strong and sustainable economy which improves the standard of living through creating employment and wealth, enhancing technology, encouraging knowledge and guarantying political stability. A diverse economy is based on a wide range of profitable sectors. Such economies are not dependent upon only one sector. There’s a strong connection between economic diversification and economic sustainability. The diversification helps in reducing the volatility. It also is responsible for increase in the performance of the economy. (Sylvian Arthur, 2003)

Las Vegas was heavily dependent on their accommodation industry. They were making large profits from the industry due to their global reputation and heritage. The accommodation industry is closely related to tourism, disposable income and financial conditions. Due to the economic recession the industry had to face major losses. Since Las Vegas had relied on the accommodation industry for a number of years they had to face major issues. Las Vegas economy relied on the tourism industry, and the tourism industry was jolted by the economic crisis which led to the decline of the Las Vegas’ economy. Las Vegas needs to diversify their economy through education, technology and research. (Benjamin Spillman, 2008)

Background Information

Las Vegas is famous internationally as a resort city for shopping, casinos, gambling and dining. It is also known as “The Entertainment Capital of the Word.” It all started in the early 20th century when a few big businessmen of the country opened up a few casinos and that was mostly limited to their own private parties. It was illegal back then. However in 1930s Las Vegas had to face major economic challenges which led the legalization of gaming. The hotel and gaming industry prospered over the years because of a significant geographic location which suited the gambling industry. The primary drivers of the economy of the Las Vegas are gaming, tourism and accommodation which fed the other industries like retail and food industry.

The rise in the disposable income and the economic boom led to a rise in the travelling industry and this had a direct impact on the economy of the Las Vegas. During the 90s there were rapid expansions in the accommodation industry in Las Vegas. The commercial and non-commercial sectors were on a boom and a lot of jobs were created for the locals as well as people from other states. (Benjamin Spillman, 2008) A lot of money was flown in from various parts of the country and many foreign investors brought the money in Las Vegas. Las Vegas was the fastest growing city for U.S. In the 1990s.

In the past decade the Las Vegas had lost its economic charm. One of the main reasons was the expansion of the gaming industry internationally and nationally. This was initially considered to be a good move for the Las Vegas industry as increased condition would have led to better productivity and improved performances. During this decade the prices increased of home related purchases and it was considered to be an expensive city as compared to other cities, this meant migrants to move away from Las Vegas. The hotels were pretty expensive in Las Vegas and the economic crisis meant that people preferred to stay in less expensive hotels. The housing bubble affected Las Vegas pretty badly. The housing prices in Las Vegas peaked in 2006 and 2007 and recently have reached a new high in 2012. Online gaming meant that people who were solely interested in gaming not the whole experience, they decided not to go to Vegas instead online gaming provided them a much cheaper and profitable opportunity. The decline in the income levels and inflation meant that caused less gambling and spending. (Oskar Gracia, 2011)

Now the question arises that how can the economic success of Las Vegas be repeated? Will the gaming sector see another boom? How much investment is required? How much human capital is involved? How can new job opportunities be generated? The answer to all this would be economic diversification. The Government has implemented some of the policies which have been instrumental in diversifying the economy and has helped in regaining the lost market share.

Reason 1:

Las Vegas’ economy has been heavily dependent on the travel industry of the U.S. Many rich billionaires fly from Middle East and Europe to take part in Casino’s and gambling of Vegas. However in the last decade after the 9/11 attack the travel industry of the U.S. was halted the number of people working in this sector declined drastically. The following graph will help in understanding the decline of the tourism industry of USA.


Spending on U.S. Travel and Tourism (as a %age)























The above chart is based on the findings of the U.S. Department of Commerce. This shows that the tourism industry since 9/11 have not been performing well and has lost its charm. Therefore for an economy to rely heavily on tourism industry which Las Vegas is; this is quite risky.

Las Vegas has been able to survive the previous economic meltdowns over the years. This should encourage the casino owners of Vegas that still they can be earning big profits if they can hang in there in the tough times. Another argument is that although the tourism industry is declining but still Las Vegas seems to be one of the most famous tourists spot for the foreigners and if they have limited budget they would still want to visit Las Vegas. (Oskar Gracia, 2011)

Las Vegas despite of being one of the hottest tourist spots have also suffered from the recent decline in the tourism industry. Las Vegas despite of its past heritage has encountered the decline in the number of tourists because of the expensive and luxury hotels that there is which have caused the tourists to travel to lesser expensive cities. (Barboza David, 2009) Therefore Las Vegas now cannot rely completely on the number of tourists to lead to profit generation in other sector and now need to diversify their economy.

Reason 2:

The main attractions for the tourists for coming to Vegas are the casinos. Las Vegas is famous all over the world for its luxurious casinos and gambling festivals. The ambience of the casinos is what differentiates Las Vegas’ casinos from casinos of other cities. As discussed earlier that the number of tourists have decreased in the past few years which automatically will mean a decline in the gambling industry of Las Vegas. However that’s not the only reason. Las Vegas now faces stiff competition from other cities especially from Atlantic City. The hotels and living expenditure in Las Vegas are pretty expensive as compared to other cities which mean that in the time of recession people are more likely to travel to cheaper cities. The following two charts will help us in comparing the performance of Las Vegas and Atlantic City. (Baraboza David, 2009)


























The charts are made on the basis of the records of U.S. Chamber of Commerce. This is quite obvious from the charts that the gambling industry is on a decline. The revenues have dropped a great deal for Las Vegas. In 2005, the revenues generated from the gambling industry were around $10 billion and now have dropped to $4.25 billion.

It’s not just Las Vegas that has lost its share in the gambling industry as you can see from the chart that Atlantic City also has lost its revenue. The revenues have dropped from $4 billion in 2005 to $2.75 billion in 2011. This is also because of the rise of the online gambling which offers a better package and experience for gamblers and is much easier and trustworthy.

Although the gambling industry has declined worldwide and other states have also suffered but the drop in Las Vegas has been far greater than the loss suffered by other states. The decline in the gambling industry means that Las Vegas now will have to move away from its reliance on the gambling industry completely in order to have a reliable and sustainable economy.

Reason 3:

When the tourism industry and gambling industry are on a decline, the economy needs some other industry to keep the economy relatively healthy. The mining industry of Vegas has been also pretty profitable and has been delivering profits for a number of years. However not much of an investment has been made in that sector. In case the state supports more projects in the mining and coal industry the economy might find some stability. Las Vegas is blessed with many natural resources as a few researches have highlighted. These reserves must be explored.

Shifting the focus from tourism and gambling industry will involve a risk. Last Vegas is renowned worldwide for its casinos and the ambience which is unique and cannot be found anywhere in the world. The worst case scenario would lead to a further decline in the tourism and gambling industry of Las Vegas which will lead to an even worse decline in the economy of the city.

The tourism and gambling industries are declining and steps must be taken to shift the economic burden from them to other sectors. In case the focus is not shifted then the economy would have less capital to spend for the exploration of natural resources which could prove to be a bad move. In order to have a sustainable economy they need to immediately shift the economic burden from the two industries to other sectors and at the moment the mining industry seems to be the best possible option available.


Economic Diversification can be best described by saying that “All eggs should not be kept in one basket,” this means that there must be a number of investments in order to reduce the risks. Economic diversification allows a number of economic outputs all combined to produce a better and healthier economy. When there is income from a number of sources which are not related to each other the economy is said to be diversified. (Sylivian Arthur, 2003)

Las Vegas has suffered from the lack of diversification. The economy of Las Vegas is dependent on economic outputs which are related to each other. The economy depends on accommodation, tourism and gambling. All of them are related to each other and are the major sources of income for the economy. In the past decade, the performance of these industries has been hampered due to various reasons which were mentioned earlier. Therefore a need for a diversified economy has now increased and many strategic moves are required to be taken.

Economic Diversification will help keeping the economy healthier even if the major industries are not performing well. Steps must be taken to generate investments in other sectors such as mining industry. The state also needs to spend heavily on the education and technology in order to generate more employment. The economy at the moment seems to be fragile but if the correct measures are taken then there is a potential that other industries might be able to lift the economy as a whole and that might create an increase in the declining profits of the tourism and gambling industries.


“Las Vegas, Nevada 2011 Census Profile.”

“The First 100 Persons Who Shaped Southern Nevada — John C. Fremont.”

“Downtown Gaming.” Official City of Las Vegas website

“GAMING REVENUE REPORT.” Nevada Gaming Control Board.

“TRAVEL AND TOURISM: As market reels, room rates less than $100 — way less — abound.”

Benjamin Spillman (Dec 1, 2008). “Downtown may lose a casino or two, analyst says.” Las Vegas Review-Journal.

“Getting Around Las Vegas.” Frommer’s. The New York Times

Garcia, Oskar (11 March 2011). “Frugal travel: Vegas offer fun at low stakes.” Associated Press.

Barboza, David (2007). “Asian Rival Moves Past Las Vegas.” The New York Times.

Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey, Pearson Prentice Hall. pp. 273

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