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Follow the Money

Hal K. Rothman The late Hal K. Rothman was professor and chair of the Department of History at the University of Nevada-Las Vegas. He is the author of the widely acclaimed Neon Metropolis: How Las Vegas Started the 21st Century and co-editor of The Grit Beneath the Glitter: Tales from the Real Las Vegas. A leading expert on tourism, travel, and post-industrial economies, he was a frequent voice in the national media. He hosted a radio program, Our Metropolis, on KUNV radio in Las Vegas. Slate Magazine called him "the foremost guru of the new Las Vegas."


How would you describe the economics of a 1950s casino?

In the 1950s casinos made their money off of gamblers. If you were a good customer, the hotel would gladly give you a nice room, food, drink, shows, massages for your wife, golf, and any other amenity you might request. The people who came to Las Vegas were gamblers. My own grandparents, New Orleans restaurateurs, were typical. They would fly in, stay at one of the hotels, dress for dinner, see a show, and spend the night at the tables. They'd sleep it off the next day and start over at sunset. There was little of the conventional, mom and pop and the kids tourism at that time.

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What about today's corporate casinos?

In today's Las Vegas, entertainment is king. Hotels profit from gaming, shows, restaurants, and other amenities. Gaming remains the entrée, the single biggest piece of a property's revenue, but its share has diminished every year as the total revenue has risen. Las Vegas today is about entertainment; you can gamble anywhere in post-modern America. Las Vegas, people feel like they have to see. It has become the first wonder of the post-modern world.

The change is reflected in every dimension of the hotels. By the 1990s ITT-Sheraton, Hilton, and other major hotel chains owned major casino-hotels. Graduates of Wharton Business School made decisions, and the gaming industry developed a hierarchy that resembled any major multi-national corporation. Special training was required before anyone received the opportunity to lead. There was even a glass ceiling in gaming, but gender wasn't its defining trait. No longer could dealers work their way off the floor to management positions. In the large resorts, the upward mobility that being "connected" once assured disappeared. Pit Boss was now as high as a dealer or floor worker could expect to go. The management positions were filled by MBAs, professional businesspeople who did not truly understand the gaming industry. The personal side of gaming, the floor manager who recognized and took care of patrons, disappeared as gaming became an industry like any other.

Corporate entertainment culture had its advantages. The scope and scale of corporate wealth meant that Las Vegas could offer a new level of extravagance and fantasy. Between 1993 and 2001, Las Vegans were treated to the demolition of much of their recent history. Five hotels, the Dunes, the Sands, the Landmark, the Aladdin, and the Hacienda were all imploded to make room for new construction. The Bellagio and the Venetian replaced the Dunes and the Sands, substituting Italy for the desert, and with the construction of a faux Venice at the Venetian, Paris at Paris Las Vegas, and Sinatra's New York at New York, New York on the Las Vegas Strip. Las Vegas had replaced itself, becoming every city on the planet. It offered the tangible to accompany fantasy. Gambling had become gaming, then tourism, and ultimately entertainment.

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What happened when the Nevada gaming board made it impossible for a corporation to own a casino in 1955?

After 1955 one cardinal state regulation determined the pattern of investment in gaming: every stockholder of a gaming establishment must be licensed by the state. The regulation was part of a public relations blitz. To counter stories of shady games and illicit activity, blackmail and rigged cards, Las Vegas needed a shot of respectability to survive in a puritanical moment.

The 1955 regulation effectively barred large publicly held corporations from owning stock in the gaming industry, but it had a dramatic unintended consequence. Instead of freeing gaming from the influence of organized crime, the state inadvertently enshrined it. The efforts to keep Mob money out backfired. The law was supposed to keep seedy people out; it did not take into account that the kinds of investment Nevada coveted, hotel companies, corporations, and maybe even Wall Street, was owned communally, in shares. This meant that if a major publicly traded company wanted to own a casino, it technically had to qualify each of its shareholders.

Despite the fact that most companies simply would not bother to prepare dossiers on let's say, 300,000 shareholders, the Gaming Control Board, a five-person panel, was simply not in a position to evaluate so many applications. The result was a peculiar stalemate that enshrined Mob money as the only reliable source of investment income for casino development.

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When did it become possible for a corporation to own a casino?

In 1967, at the behest of William F. Harrah and Baron and Conrad Hilton, with the active support of Nevada Governor Paul Laxalt, the state passed the Corporate Gaming Act, which eliminated the requirement that each stockholder had to pass a Gaming Control Board background check. Governor Grant Sawyer fought this law while in office, believing it would only institutionalize organized crime, but Laxalt, who succeeded Sawyer in 1966, had no such qualms. Passage of the law opened the door for an infusion of corporate capital and raised the stakes in gaming. Corporations could invest, inaugurating a new capital regime that brought Las Vegas closer to the primary avenues of capital formation in late-twentieth century America.

The first purchases by major multinational hotel chains quickly followed. In 1970 the Hilton Corporation purchased the Flamingo and the International from Kirk Kerkorian, another self-made multi-millionaire who sought to make Las Vegas his own. Kerkorian made his money in crop-dusting and airlines, moving into gambling with the purchase of a small piece of the Dunes Hotel in 1955. He bought raw land across from the Flamingo and sold it to Caesars Palace before acquiring the Flamingo and the International. The two hotels were prelude to his dream of a new, world-class resort, the MGM Grand Hotel, which was to be the biggest hotel in the world.

Selling the Flamingo and the International moved Kerkorian closer to his goal as it fully inaugurated the newest capital regime. With the arrival of Hilton and its enormous success in Las Vegas -- by 1976, 43% of the gross revenues of the 163-hotel chain came from its Las Vegas operations -- legitimate capital became widely available. Holiday Inn and Ramada followed close behind Hilton, and a new financing supported the development of Las Vegas.

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Who were the front men in Las Vegas? How did the Syndicate operate there?

The front men were usually very closely tied to organized crime, not remote from it in the way that someone like Wilbur Clark was. Many mobsters owned parts of casinos in public ways as well as private ones and many other owners were known to law enforcement as close connections to organized crime. These were the real front men, the people whose names were on the papers of incorporation, who had their own money invested, and who served as the legitimate face of the industry.

Mobsters operated in a variety of ways. They invested in casinos above ground and below, being paid regular dividends and other typical investment returns while at the same time collecting on their "points," the pieces of hidden ownership that allowed them access to the skim. The ledgers of ownership of Nevada casinos in the 1950s, 1960s, and 1970s show that a significant number of the owners were people well acquainted with the underworld and with long and close association with underworld figures. You could live well as a Mob front man in 1960s or 1970s Las Vegas.

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How has skimming changed between syndicate-run and corporate-run casinos?

Skimming was eliminated during the revolution that began in the 1970s and continued for a decade and a half. In a 15-year period, from roughly 1975 to 1990, the mob was run out of Las Vegas by a combination of police and investigative work, changing economics, and the emergence of gaming in the American mainstream. Corporate capital, the FBI, and the decline of the Italian mob, already a dinosaur in the changing world of drug-fueled organized crime, combined to make the old ways irrelevant. The pressure was fierce, the consequences dire, and the speed of change certain and relentless. Added to the closer scrutiny was the investment of publicly traded companies in Las Vegas and new IRS regulations about cash.

These combined to make it nearly impossible to get cash out of the casinos as had been done in the old days. What did change, though, was that even with IRS regulations governing cash transactions that required a form any time $10,000 changed hands in cash, money launderers attempted to use Las Vegas to legitimate their cash as gaming winnings. So the appeal of easy money didn't disappear. It merely shifted its locus; the struggle ceased to be between the Mob and law enforcement; it is now between casino corporations and the drug world, which is always trying to legitimate its money in all kinds of businesses.

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Is it possible to beat the casino as a gambler?

The only way to make money in a casino is to own one. It's not hard to make money in a casino; it's only hard to keep it.

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Which games are most favorable or least favorable?

Twenty-one gives you the best chance to eliminate the house advantage, but over time that advantage is enhanced. Roulette is almost as bad as a lottery.

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What is the ratio of cost to profit for cheap drinks and food versus what is taken at the tables?

First of all, slot machines are the real source of profit in gaming, not table games. And food is not cheap in Las Vegas these days. It has become the gourmet center of the nation, with every major chef in the world with at least one restaurant here. Drinks remain free on the casino floor and buffets are prevalent, but the real action today is in high-end dining, with the world's greatest chefs as your host.

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What are the crowd-drawing efficiency and ultimately the economic impact of Vanity theatre? Celine Dion, for example?

It's not Vanity Theater at all; it's a hard-nosed translation of fan base into consistent dollars. I never believed Celine Dion could draw 20,000 people a week, every week, but she has. When Elton John fills in, he sells out too -- at phenomenal ticket prices. You get a theater in Las Vegas when you have already captured the wide middle of the market. Cutting edge doesn't succeed in Las Vegas; Elvis bombed here when he was young, ripped, and taut. He succeeded when he returned as a man in his 30s, with a parallel audience.

Las Vegas doesn't create entertainment. It packages music, art, and like it or not, culture to a wider audience than those concepts could otherwise reach. This became the paradox and promise of the City of Entertainment. Las Vegas doesn't nurture entertainment; it only buys it. An artist can hold the town, can become it, and be it, but Las Vegas will push you as an artist and compromise you at the same time.

Las Vegas does to entertainment exactly what it does to experience: it planes off its rough edges, the unique traits that give it critical acclaim, and repackages it as fashionable. The result is a place where mainstream entertainers can be off the road, but on it, with all the money and the cachet that status entails.

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Do Las Vegas casinos actively try to compete with Atlantic City?

It's actually the other way around. Las Vegas is the pinnacle of post-modern experience; Atlantic City is a collection of crowded grind joints. Nobody ever went to Las Vegas and said: "gee, now that I've been here, I really need to see Atlantic City." Atlantic City and spread of Indian gaming have served as spring training for Las Vegas. What Las Vegas does better than anyplace else on the planet is plane off the rough edges of a visitor's experience and make the traveler, however ordinary, the center of the story.

Here's the secret to Las Vegas in a nutshell: it can always be whatever you want it to be as long as you're willing to pay for it.

Entertainment has become king in American society, and no place, not New York, not Hollywood, and especially not Atlantic City offers more of it in more forms than Las Vegas. It is entertainment and not gaming that has redefined Las Vegas. The dollars from gaming grease the wheels, but since 1996, they have comprised less than fifty percent of the city's income. In 2000, the net win from tribal gaming finally surpassed Nevada's total, but more visitors gave Las Vegas more profit than ever before. In 2004, 42% of the city's profits came from gaming; 58% came from non-gaming source - shopping, meals, shows, rooms, and the like.

The new lifeblood is the spectacle of Las Vegas and its unmatched ability to make you who you want to be -- to entertain, amuse, and make you, the visitor, feel special. Las Vegas gives the middle-class visitor a luxury experience at a middle-class price. That is its genius. So what if the features aren't real? Everyone knows that. But they are Las Vegas, the emblem of the postmodern city. For the same reasons that Americans of wealth and taste once toured Europe, the middle class of the age of media come to Las Vegas. It contains the spectacle for their world, the first wonder of post-modernity.

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Can casino owners stand firm against the unions and withstand the lose of revenue?

Las Vegas' greatest need has always been consistent, dependable labor. Without a consistent supply of labor, without a hinterland to draw from, hotel owners were prepared to make an exchange to secure reliable workers. They accepted the union in return for the constant supply of labor in a town that was not big enough to generate its own workers. Labor was in such demand that the union established a hiring hall in Las Vegas, an anomaly in a right-to-work state. With legal restrictions against union-only or closed workplaces, a hiring hall seemed extraneous, but demand so far outstripped supply that the union could line newcomers up and send them out in the morning for a good job.

In return, the union screened workers and vetted their credentials, weeding out undesirables at little direct cost to the industry. It wasn't in labor's best interests to send out drunk or addicted workers, nor was in the hotel's best interests to hire such people. The synergy was stunning and the relationship smooth. The hotels needed the union as much as the union needed the hotels.

The value of labor is preserved in Las Vegas because what the city offers can only be had there. Unlike a factory, management can't send the work overseas for cheaper rates and get the same product; unlike trendy retail, you can't get the feeling of Las Vegas from the Internet. "Service" means personal attention and it is at its smoothest when contented people deliver it. People protected by the union are happier than other workers and they work better as a result.

Local 226 in Las Vegas is the Culinary Union's single biggest affiliate and the most important local in the country. Beginning in the 1970s, unionism in the U.S. declined and the membership of the Hotel Employees and Restaurant Employees International Union (HEREIU), the Culinary Union's international umbrella organization, followed the trend, declining from 421,000 in 1975 to 258,000 in 1995. HEREIU was beset by organized crime scandals during that time and was considered the most mobbed-up union in the country. Its troubles made it irrelevant in most communities. As HEREIU slid, Culinary Union Local 226 grew from the mid-20,000s to almost 60,000 in 2005.

The transformation of Las Vegas, its growth from about 25,000 hotel rooms in the mid-1970s to more than 130,000 in 2005 created endless opportunity for more workers. The mega-resorts that characterized the Mirage phase hired thousands upon thousands of housekeepers, new restaurants and buffets needed cooks and food servers, and the millions of visitors needed bellmen and porters. Even as membership in the international union declined, Las Vegas' growth served as counterpoint to a changing workplace climate. In a culture that elevated the meaning of experience as self-definition, service that made experience special, something Las Vegas excelled at, was essential.

In Las Vegas, the cost of labor added to the bottom line. The mega-resorts offer two successful models, union and non-union. In the union hotels, labor and management have a partnership because both have a stake in success. Union contracts assure that there are enough workers to do the job well. Service differentiates desirable properties from less popular counterparts. Because the heart of visitor experience is labor-intensive service, labor is a drag a property's bottom line that has to pay for itself in quality. Non-union hotels try to save costs by using three people to accomplish the work of four at a union property. It can work, but it is a long-term risk. In a competitive market, complaints from guests don't bode well and bad service defeats the purpose of paying $300 a night to feel special at an upscale resort.

The union today is a far cry from its demographic origins. Women make up a majority of the union, almost 70%, and better workplace conditions are particularly important to them. In 1997, 36% of culinary workers were Anglo; 36% were Latino; 15% African American and 12% Asian. The influx of Latinos is the most pronounced trend. Asians, especially Thai, Vietnamese, Chinese, and Filipinos make up the other most rapidly growing segment of the workforce. The presence of both results from changing immigration policies after 1965, the changing demography of the nation as a whole, and conversely, the increasing emphasis on education, especially a college degree, as a way up the socioeconomic ladder for Americans.

For people who don't follow that route or who can't afford it for their children, unionized service in the Culinary Union is among the best opportunities in a post-industrial economy. The Culinary Union in Las Vegas provided some of them with a chance to pull themselves out of the morass of minimum wage work in a maximum-consumption society.

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Do slot machines by the door pay off more, or more frequently?

This might be my favorite Las Vegas myth. In some cases, I'm sure they do and the slot payout throughout a casino varies, but most Strip hotels do not rely on walk-in traffic for their business. Most are set far back from the street, so its unlikely passersby could see someone winning a jackpot in the first row of slots. So while it may happen, generally this is folklore.

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Who is Steve Wynn and how did he figure in the new Las Vegas?

Steve Wynn is the progenitor of the Mirage, Treasure Island, the Bellagio, and now Wynn Las Vegas, the single individual most responsible for the transformation of Las Vegas. He was the guy who developed ideas that created access to the nearly unlimited capital that public financing could generate. Wynn, a protégé of 1950s financier Parry Thomas, raised the ante of casino financing, laying the foundation of a new and presumably competition-proof Las Vegas. Large-scale funding meant that Las Vegas could become more than the Mecca of glitz and excess.

Once its capital came from the mainstream, its attractions could be shaped to the tastes of the mainstream audience. Las Vegas had always provided a luxury experience at a middle-class price; now it offered its attributes to the entire middle class. The gradual easing of the stigma of gaming and the willingness to merge gaming with conventional post-war attractions on the scale of Disneyland increased Las Vegas' reach. Not only did gamblers come to the transformed desert town, so did people who wanted to see the spectacle and have a vacation in a classic but updated sense of the word. Sin City became more palatable and maybe even marginally less sinful.

As the apocryphal story goes, Wynn parlayed a small share of the Frontier and a liquor distributorship into the purchase of the only piece of land that Howard Hughes ever sold. Hughes never sold land, but once the young Wynn showed him that it cost him money to keep it, the tycoon's representatives relented. The tract was a parking lot next to Caesars Palace. Wynn sold the property, netting a $766,000 profit, large enough to let him buy a controlling interest in the downtown Golden Nugget. By June 1973, he became vice-president and ran the casino. In 1978, Wynn bought into Atlantic City, securing the backing of his cousin's college roommate, financier and later convicted felon Michael Milken, and the Wall Street firm of Drexel Burnham Lambert. Wynn's casino became the most profitable in Atlantic City, securing his ties with a major source of capital.

Milken supported Wynn's plan to transform gaming. Throughout the 1980s, Wynn marshaled his resources and planned a monumental project. In 1989, Wynn opened the $630 million Mirage resort. Through Milken and Drexel, Burnham, Lambert, Golden Nugget Inc., the parent company of Wynn's enterprises, borrowed $535.1 million to finance the Mirage in what observers of the financial markets called "a work of art," engineered through junk bonds Milken sold. Wynn's equity came from the sale of the Nugget in Atlantic City. With "fantasy become reality" as a theme and a fiery volcano that erupted hourly cooled by water in a desert locale, the Mirage embodied the essence of what Las Vegas could offer a tourist: an invented reality that only occasionally demanded the suspension of disbelief. Siegfried and Roy and their famed white tigers were part of this ambience, as were a tank of live dolphins, and later, the nouvelle circus, Cirque du Soleil.

The "Mirage Phase," the rush to build that followed Wynn's announcement of the Mirage, altered not only the skyline of the Strip but the culture of Las Vegas as well. Wynn led; corporate planners followed. In the decade after the opening of the Mirage, Las Vegas doubled the number of hotel rooms in the city. The skyline of the Strip in 2000 was dominated by eleven major resorts that had not been there ten years before. These resorts redefined what Las Vegas meant to visitors. By 1998, 300,000 people per day walked along the Strip near its intersection with Tropicana Boulevard. In 2005, the city anticipated 40 million visitors, a level that exceeded the number of pilgrims who annually went to Mecca.

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Is Las Vegas' future as bright as its recent past?

Almost by accident, Las Vegas has become the place where the twenty-first century begins. Las Vegas has a peculiar cachet. It genuinely was the first city of the consumption of entertainment, and to be first at anything in a fluid culture is to have a claim on being significant. Las Vegas offers an economic model to which cities, states, and regions look to create their own economic panacea -- even as they hold their nose. Its consistent reinvention, once scorned as flimsy and fraudulent, shaped its transformation from peripheral to paradigmatic and has become a much-envied trait. Las Vegas had become normal; even more, it points to the twenty-first century. What people see in Las Vegas today, as they do in Los Angeles, New York, and Miami, is what they can expect everywhere in the near future.

Las Vegas now symbolizes the new America, the latest in American dream capitals. Las Vegas tells us what has happened to American society and what we now aspire to, simple possession of the ethos of status. It articulates what we value, our freedom and legal restraint of others. Las Vegas is rewriting the relationship between law and power as it privatizes public space and splits the definition of the First Amendment along public-private lines.

There are obstacles to this rosy picture. Global warming could make the desert entirely uninhabitable -- it's close as it is -- the U.S. Department of Energy could site all the nuclear waste from every nuclear power plant in the country about 100 miles away at Yucca Mountain, and Americans and the people of the world could embrace a culture of self-denial, could react with puritan fervor against entertainment, pleasure, and self-indulgence. Any or all of these could make Las Vegas an anachronism, a version of the mining ghost towns scattered throughout Nevada and the rest of the interior West.

In Las Vegas, ordinary people feel special; people who feel that they are special can be catered to in a manner that suits their self-indulgence. Las Vegas anticipated the transformation of American culture not out of innate savvy but as a result of a lack of other options for the city. The reinvention of American culture as purely the self catapulted Las Vegas to prominence. The city took sin and made it choice, a sometimes ambiguous choice that many in American society from the privileged to the ordinary couldn't handle, but choice nonetheless. Combined with a visionary approach to experience that melded Hollywood and Americans' taste for comfort and self-deception, Las Vegas grew into the last American frontier city, as foreign at times as Prague but as quintessential as Peoria. In Las Vegas, you can choose your fantasy; in the rest of America, you don't always get to pick.

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