Where did the MGM-Grand Reno go?

Some time during 2008 I wearied of the reports on economic decline, every gaming jurisdiction it seemed was struggling; all through 2009 I waited without success for better news; 2010 came and left us still wondering when things would improve.  The monthly gaming reports are not all bad these days, but only if you compare them to 2010, not if you look at 2006 or 2007.  Things are getting a little better and not every person or every business is still mired in the problems of the recession, but many are; and certainly every state and local government in the country is still struggling, trying to come to grips with reduced revenues.

Part of the reason that governments struggle is rooted in politics and part in law.  Most governments do an annual budget and are required to balance the budget every year; that means in good years government grows, services expand and everyone gets a raise.  In the down times, the process has to reverse, but that means real pain for all of the people hired, promoted and given bigger salaries in the good times (and of course it means political pain for the elected officials charged with balancing the expenses to the revenues – that is the legal part.  The other half, the political part is more complicated.  Politicians are hesitant to face any problem that can be avoided until after the next election; no politician likes delivering bad news, nor is it a successful strategy to back unpopular ideas like restraint or caution in good times and cut backs and new taxes in bad times.  The annual budget cycle is itself a problem that clouds the facts.

Think about property values, the basis of real estate taxation.  If we just go one year at time, reduced property values always come as a shock to the elected officials and the indignant reporters covering the story; if they looked at long-term trends it might not be such of a shock.  Today the Reno Gazette-Journal had a story about the sale of the Grand Sierra. The property sold for $42.5 million, a drastic decline from the $150 million it fetched at the height of the boom in 2005  But even that is not the real story, the property was built by MGM-Grand in 1978 – MGM sold the property in 1985 to Bally’s Gaming for, are you ready? – a total of $550 million.  After all it had 2000 hotel rooms, the largest casino in the country and the Reno market was at its peak, no one could even imagine a term like “Indian gaming” much less contemplate its impact on Reno.  In 1992, Bally filed for bankruptcy and sold the property at a fire sale to Hilton for $86 million, Hilton invested another $80-some million in upgrading the property.  By then it was already post-National Indian Gaming Regulatory Act and people in Reno were beginning to understand the implications of competition.

If you ever wanted to quantify the impact of Indian gaming on Reno, or just wanted to quantify the impact of external competition on any market – the Grand Sierra is a perfect model. In 25 years the once grand MGM Grand’s value fell by about 87 percent.  That is the real challenge of politicians in Reno (and all  of the state of Nevada), to re-frame the way gaming is viewed; casinos are still an important part of the local economy, but unlike 1985 they are no longer the most important part, nor is their importance growing.  It isn’t and it never again will be that important.  What will replace it?  I have no idea. History is good for understand the present, but not much good for predicting the future.