By Doug French*
“This place is amazing,” gambler Steve Rogers from Tuscon told the Las Vegas Review-Journal. “If you’re into sports, this place is like Disneyland. That’s a wall of TV right there. I didn’t expect it to be this big.”
The “wall” Rogers refers to is the new Circa casino’s three-story, 78 million–pixel, high-definition screen. “We’ve been hearing about this place for a year so we had to come check it out,” said Paul Lopez, 27. “I’m impressed. This whole setup is amazing. It’s beautiful. It’s the best sportsbook I’ve been to.” Lopez, his cousin, and his uncle left Riverside, California, at 4 a.m. in order to be at Circa for the first NFL Sunday 10:00 a.m. kickoffs at the book.
Circa’s construction started in February 2019 after the land was purchased in 2015, before covid-19 and the devastating downturn of the Las Vegas tourism economy.
Similarly, the announcement of the coming Empire State Building was made in August 1929, just months before the October stock market crash. Construction began on the building in March 1930 and was completed in 1931, with the country in the midst of the Great Depression.
Dr. Mark Thornton has established a theoretical link between important changes in the economy and the building of record-breaking skyscrapers. While a sportsbook is no skyscraper, Derek Stevens has taken the sportsbook beyond the legendary sportsbooks which came before: the Stardust’s sportsbook, the Hilton’s, and now Westgate’s Superbook, which features “2 Brand New LED Displays with 4K resolution, 58.9 million pixels and more than 4,250 sq. ft. of digital space!”
Writing about the Circa sportsbook, the Las Vegas Review-Journal’s Bailey Schultz points to the dichotomy between facility size and revenue: “Industry watchers say the glamorous new offering will put pressure on other properties to invest in their sportsbooks, even as the lion’s share of many sportsbooks’ revenue comes from online bets.”
Sports betting is all the rage, with some believing the “TAM,” or “total addressable market,” for the business is $30 billion. Nonsense, says Jim Chanos, president and founder of Kynikos Associates. Sports-betting revenue was just under $1 billion last year and will be $2 billion this year. Total gaming revenue was $80 billion and has been growing at 2 percent a year forever, essentially the inflation rate, according to Chanos. The belief that sports-betting revenue will grow to $30 billion is absurd.
Chanos points out that If Americans gambled like Brits or Aussies (the two most enthusiastic betting societies) sports-betting revenues might become $4 billion or $5 billion. However much sports betting revenues grow, it won’t be additive to gaming’s total revenues, according to the famous short seller. Instead, it will eat into the overall $80 billion gaming market. Chanos believes some bookies will be losing money five years from now, even during the oncoming growth phase.
During his interview on Hedgeye, Chanos pointed out the smallest, least attractive space in a casino is the sportsbook, because books make the least amount of money, earning 5–6 percent win as opposed to 13 percent for slots, and 9 percent for an entire property. Looking only at the numbers, Chanos told Hedgeeye’s Keith McCullough, “Sports betting is not a great business.” Chanos said it twice.
In a 2016 article entitled “Is There Such a Thing as a Skyscraper Curse?” for the Quarterly Journal of Austrian Economics, authors Elizabeth Boyle, Lucas Engelhardt, and Mark Thornton list the Cantillon effects “involving artificially induced structural changes that occur throughout the economy. The three effects work together to both cause an abnormally large expansion in the economy and the building of record-breaking skyscrapers.”
The first Cantillon effect “is the impact of the rate of interest on the value of land and the cost of capital.” Low interest rates drive up the price of land and thus developers must build higher to make a project economically feasible.
“The second Cantillon effect from artificially low interest rates is an increase in the size and scope of firms. A lower cost of capital encourages firms to grow in size and to become more capital intensive and to take advantage of new technologies and economies of scale.”
“The third Cantillon effect from artificially low interest rates is the development of new technologies and production processes needed to produce record-breaking skyscrapers.”
In this case, the new technologies produced a fancy, ubersized sportsbook.
Chanos is a legend for his successful shorts of Enron, Tyco, and many other failed companies. Among other stocks, Chanos is currently short some Las Vegas casino company shares, which he did not name. He pointed out that the peak in gaming win for Las Vegas was 2007. Now casinos have to compete with other cities with restaurants, pools, nightclubs, and millennials don’t gamble that much, he said.
“I’ve been a big bear on Las Vegas casinos for a while, not because of covid, although covid has made it worse,” Chanos said. “Vegas is a no growth market….If you look at the [casino] numbers, they are stunningly bad.”
None other than Las Vegas Sands majority owner Sheldon Addelson might agree, given the rumored sale of all Sands Las Vegas properties for $6 billion.
Mr. Stevens can be proud of his giant new sportsbook; however, the sports-betting capital of the country is now New Jersey, taking over the crown soon after the activity was legalized there a couple years ago.
“Over the past year, New Jersey has in many ways ascended to the center of the sports betting universe thanks largely to the Garden State’s embrace of mobile technology,” Jamie Shea, the head of digital sportsbook operations at DraftKings, a sports fantasy company, told the New York Times in 2019. “We have taken in over 20 million bets via mobile and paid out over $600 million in New Jersey alone.”
Using the skyscraper curse, the Circa sportsbook opening could be signaling a peak in sports wagering or the end of Las Vegas’s glory days.
*About the author: Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master’s degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.
Source: This article was published by the MISES Institute