Las Vegas Reveals Its Future (Hint: It's Not Casinos)

By Markets Fool.com

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Megaresorts like Wynn and Palazzo have made The Strip the heart of Las Vegas, but the city will need more than gambling to have solid footing for the future. Image owned by The Motley Fool.

Las Vegas is famous for being the gambling capital of the United States. Originally incorporated in 1911, Vegas saw itself rise to prominence following World War II as huge casinos were built thanks to the state's favorable gambling laws. The rest, as they say, is history. However, it has not always been easy for the "City of Entertainment" as Las Vegas has constantly had to rejuvenate itself over the years. This constant rejuvenation, first transitioning away from small-town casinos to larger hotel/casino complexes, and then again to the mega-casinos and complementary entertainment we see today, may about to take a new turn. A turn away from gambling, and towards two industries in particular, represents a total reinvention of Las Vegas, Nevada.

Las Vegas' design for the future
Last year, the city hiredRTKL, a global architecture, planning, and design firm, to develop a master plan for the "reuse and redevelopment" of downtown Las Vegas, which is in dire need of rejuvenation. Early plans are for a core area that connects The Strip, convention locations, and the nearby medical district to draw in new businesses.

The Medical District, representing the first of two major industries that Vegas is targeting, itself provides an interesting growth opportunity. Las Vegas' booming (and aging) population has created a need for increased medical care, and there has been a concerted effort to bring facilities into a single zone. In 1997, the city created the Las Vegas Medical District, a 674-acre area near downtown that houses hospitals, schools, and research centers. City leaders hope to build on the districtas part of the master plan and are meeting with residents, students, and medical professionals to get input on this effort.

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It's ironic that casinos will be used to help fund growth outside of gambling in Las Vegas. Image is in public domain.

Another booming business in Las Vegas is technology. The city is within a day's drive of 51 million people, meaning it has close proximity to growing business and personal data needs. Switch, the private data center and technology ecosystem company actually based in Nevada, is investing $2 billion in new infrastructure in the region that will support companies like Cisco, Dell, and eBay house huge amounts of data in centers just miles from the Vegas strip.Low land costs, abundant on-site solar energy potential, and low taxes also make Las Vegas an attractive place to build data centers.

The plans are impressive, but to succeed Las Vegas will have to draw businesses from elsewhere or -- better yet -- grow them organically. That's easier said than done.

Funding Las Vegas' transformation
Ironically, casinos will be used to pay for Las Vegas' business diversification away from gambling. Taxes from resorts accounted for over 45% of state General Fund revenue in 2014, according to the Nevada Resort Association. These taxes allow Nevadato keep taxes low, including no state income or business income taxes.These low taxes then become a draw for other industries and act as not only a draw but a source of revenue for basic services that every city must offer.

Not only is gambling revenue taxed, but so are hotel rooms, live entertainment, and even rental cars.So it's really visitors to Las Vegas who are supporting the city's growth initiatives.

Detroit failed to diversify beyond the auto industry, and when carmakers left the city was in shambles. Image source: Wikimedia.

Moving beyond gambling isn't just a good idea, it's a necessity for Las Vegas. There are plenty of cautionary tales of cities that were too reliant on a single industry and paid the price when that industry went through hard times. You don't have to look further than Detroit to see how an industry can both build and destroy a city. Motor City was a boomtown in the early and mid-1900s as the auto industry grew and Ford, GM, and Chrysler employed hundreds of thousands of people. But as the major automakers slowly moved operations to other locations, the city failed to adapt and ended up in shambles.

Cities, states, and countries around the world are starting to see the value of diversifying their business exposure. Dubai and Abu Dhabi in the United Arab Emirates are using oil money to fund expansions in entertainment, trade, technology, and other industries. Texas is making a similar push to draw in high-tech businesses. They all know that the riches from oil will only last so long and revenue will eventually have to come from somewhere else.

Las Vegas isn't dependent on a commodity like oil, but being too reliant on gambling and entertainment is a similar risk to the city's economy.

The key to growing industries organically
One challenge in moving beyond gambling is that the government can only do so much to spur business and economic development. Entrepreneurs and innovators that really drive growth.

Look at Silicon Valley as a perfect example. It became a tech hub, in part, because it contained a highly educated workforce, venture capital financing, and a culture of risk takers who happened to come up with a few world-changing business ideas. That's not something anyone can create by snapping their fingers.

A decade from now, Las Vegas might be a very different city than it is today, but its heart and soul will likely still be entertainment and gambling. Moving beyond the bright lights of The Strip is a necessity for Las Vegas, but having a master plan is just a start.

The article Las Vegas Reveals Its Future (Hint: It's Not Casinos) originally appeared on Fool.com.

Travis Hoium owns shares of Cisco Systems and Wynn Resorts, Limited. The Motley Fool recommends Cisco Systems and eBay. The Motley Fool owns shares of eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.