Four years ago on March 17, the governor of Nevada at the time, Steve Sisolak, ordered all casinos in the state, as well as restaurants, bars, and other nonessential businesses, to close. The rest of the country followed suit and by the end of March, all casinos in the United States were closed. The casinos in Nevada remained shuttered for 78 days. Other states had their own timetables. But by the end of 2020, most casinos had reopened.
It was expensive. Nevada casino revenue dropped 25 percent from 2019, a loss of $6 billion. In Las Vegas, 26,000 workers lost their jobs and the Nevada unemployment rate hit 33 percent, higher than during the Great Depression. Nationally, the results were pretty much the same: gross gaming revenue in 2020 was $30.7 billion, down 31 percent from $44.9 billion in 2019.
The gaming industry recovered quickly, reaching $52.9 billion in 2021, $60.5 billion in 2022, and $67.5 billion in 2023. Nevada followed the same pattern, setting a new revenue record each of the last three years.
At first glance, the spread and impact of COVID on the worldwide economy seem to have passed. Gaming is just one industry and not all rebounded with such strength, but they did rebound. The pandemic feels like a bad dream, and unreal.
Except that many things have not recovered. The pandemic disrupted the entire economy. People stayed home, learned new skills, rethought their lives, and altered their behavior. Governments, educational institutions, and businesses went through a comparable process.
The workforce was one of the first post-pandemic places where new trends were visible. In February of this year there were 8.5 million unfilled jobs in the country. That is down from 12 million in 2022. Nearly every business has had a difficult time filling available jobs. During the pandemic, people began to work from home and some still have not returned to a brick-and-mortar workplace, nor do they seem in a hurry to do so. It has been reported that a significant percentage of people over 60 took early retirement; one study said 24 percent of those in that age group threw in the towel.
Those early retirements have hit many professions. Doctors, nurses, airline pilots, engineers, teachers, and other professionals left the economy. The extreme shortage of doctors, teachers, and pilots matches the lack of bartenders and waitresses. The absences have increased the cost of most services. Wages have increased as employers compete for workers.
Labor, of course, is not the only cause of increased costs. During the pandemic, supply chains broke. There was not enough production, transportation, or distribution capacity. Those shortages also drove up prices.
With the cost of labor, production, transportation, and distribution going up, the cost of living increased significantly. For the gaming industry, those inflated expenses have put pressure on the bottom line; it is a common narrative on earnings calls. The effect of inflation has been gradual. In 2020, casinos operated with a reduced capacity and reduced costs. In 2021, the industry was extremely profitable; casinos and other gaming operations used fewer employees, operated at reduced capacities, and achieved higher profits.
In 2022, the situation began to change. The costs of labor, supplies, and interest diminished profitability. Added to the increased costs, casinos, like other service industries, struggled to hire enough people to take advantage of the potential opportunities. The difficulties have led to some interesting outcomes.
Post-pandemic in Las Vegas, Red Rock Resorts (Station Casinos) reevaluated each of its operations. Three never reopened; they were eventually demolished and the land sold. In Reno, an icon died: the Little Nugget closed, and the beloved Awful Awful burger ended its 60-year run. The Little Nugget was characteristic of the casinos that succumbed to coronavirus. Each was small and underfinanced and stood little chance of surviving the shutdown. The future was too uncertain and risky, unlike the case with Red Rock, which could plan for a new future with new locations and business models.
In fact, one could argue that the pandemic gave Red Rock the opportunity to rethink, retool, and reengineer the company. The initial coverage of its first new offering, Durango, indicates the process has been very successful. Lorenzo Fertitta called the property a “smash hit.” The Little Nugget and Durango represent opposite ends of the dilemma faced by business in the aftermath of the pandemic.
Four years ago when the economy shut down, every business was subjected to extreme pressures. In the words of Professor Scott E. Page of the University of Michigan, the “landscape danced.” Under government restrictions, most businesses closed, then operated at reduced capacity. Two years later, they were being squeezed again with labor shortages, increased costs, and a consumer base whose preferences and behaviors had also changed.
According to Nassim Taleb in his book, The Black Swan, the only certainty in the world is uncertainty and the impending disruption and chaos that will come. By Taleb’s definition, the pandemic is a black swan. The businesses that survived it had to be strong with a good balance sheet and loyal customers. But the future will require more. Those businesses that prosper in the future will need financing and imagination to adapt; 2024 and beyond will not be like the pre-2020 era. When the entire economy came to a sudden halt, it led to a new economy emerging. The nature of that emergent economy is still hidden from us. Be prepared to adapt.
