Business

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Ronda Churchill/AP
Alicia, a prostitute at the Chicken Ranch brothel, Pahrump, Nevada.

Prostitution Is Latest ‘Sin Sector’ Business Hit by Economic Downturn

November 14, 2008 06:53 AM
by Anne Szustek
High fuel and food prices have cut into truckers’ budgets for Nevada brothels, adding “working women” to the list of supposedly recession-proof businesses to get pinched.

Sluggish Economy Leaves Brothel Employees Idle

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Donna’s Ranch, a Nevada brothel located some 180 miles west of Salt Lake City, has seen a 20 percent decrease in its business, owner Geoff Arnold told the Los Angeles Times. From 2006 to 2007, the business, which operates legally in Nevada, reported a growth in revenue of 7.6 percent, pulling in nearly $1 million. Arnold believes the brothel will earn about $200,000 less in 2008.

Long-haul truckers, who account for roughly 75 percent of the brothel’s clientele, point to higher gas and food prices as the cause of their shrinking budgets for prostitution.

“It costs me in gas what it takes for me to spend a half-hour with you,” one of the regulars told brothel employee Marisol, according to the Los Angeles Times. Marisol says it used to take her weeks to make $5,000; now it takes months.

Other Nevada brothels have reported similar signs of an economic downturn. The Moonlite Bunny Ranch offered special deals to people using their economic stimulus checks to pay for services. The Mustang Ranch has reported steady business, but can’t provide enough work for all the women looking there for employment. “Even a 74-year-old applied,” writes the Los Angeles Times.

Gambling, another industry for which Nevada is renowned, is also struggling in the current economy. From Las Vegas to Atlantic City—and at casinos in between—consumers are betting against spending their dwindling leisure funds on gambling and gaming, as evidenced by the financials of gaming sector giants.

Atlantic City-based gaming company Trump Entertainment Resorts reported net third-quarter losses of $139.1 million, or $4.39 a share. For comparison, Trump Entertainment Resorts raked in $6.6 million in profits last year, a gain of $0.21 per share.

“The negative effects of the slowdown in the U.S. economy, especially consumer spending, had a significant adverse impact on our results during the quarter,” Trump Entertainment CEO Mark Juliano was quoted as saying in Forbes magazine.

The Market Vectors-Gaming exchange-traded fund, or ETF—a type of investment vehicle based on a basket of stocks in a given sector—has lost 59.1 percent of its value between the start of the year and Friday.

At French Lick Casino, located in Indiana, a destination for Chicagoland residents looking to gamble nearby, September earnings on slots and table games are down $2.7 million year-on-year from $78.9 million at that time in 2007.

Michael Hicks, an economist at the Center for Business and Economic Research at Indiana’s Ball State University told the Associated Press it is unlikely that any of Indiana’s 13 gambling sites are going to have to shutter outright during this economic downturn. But newfound risk aversion among American consumers who’ve seen their retirement savings frittered away in investments that have gone down in value has potential spillover into gambling.

“A big loss in wealth may be something that the gaming industry is finding tougher to deal with,” Hicks told the AP.

Las Vegas, arguably America’s gambling capital, is also feeling the country’s re-awakened penchant for penny pinching. Gaming industry titan Las Vegas Sands announced last week that it is at risk of infringing on debt covenants. Unless Sands ramps up sufficient capital, its $80.1 million budget shortfall could put the company’s major projects, including a $4 billion resort and casino complex going up in Singapore—as well as the survival of the company itself—in peril.

Background: How ‘sin sector’ stocks are faring during this economic downturn

Historically, “sin sector” stocks, which include alcohol, gambling and tobacco companies, traditionally have been a safe bet in bearish financial markets; however by and large this year they have slumped. Shares of tobacco conglomerate Altria dropped 11 percent from the start of the year to July 25.

Shares of Diageo, the world’s largest alcoholic beverage company, including foreign beers Harp and Guinness, showed a 16 percent decrease over the first seven months of 2008.

Sales for domestic beer have been on the upswing though. U.S. beer sales for the first seven months of 2008 are up 1.4 percent since the start of the year, with more than 16 million barrels of domestic beer sold in the country during July alone, according to statistics from lobbying group Beer Institute.

Higher sales were reported across price segments. According to statistics compiled by Nielsen Research this summer, sales at grocery and convenience stores of “superpremium” beers, which include Michelob and Rolling Rock, have shown increases in the double digits. Budget beer sales were up some 4.8 percent, and “below premium” beers were up 3.3 percent in sales volume year-on-year.

Market observers attribute the trend to several factors, including more people entertaining at home. Lofty oil prices and a weaker dollar have translated into less attractive prices for foreign beer. A similar trend has been seen in wines.

A 2007 study entitled “The Price of Sin: The Effects of Social Norms on Markets” suggests that organizations that, out of public relations concerns, do not include “sin sector” stocks in their portfolios stand to lose financially. Given the requirements for public disclosure of stock holdings, banks, pension funds and universities are less apt to invest in tobacco stocks, argues the study, led by the University of British Columbia’s Sauder School of Business. Because “sin stocks” have fewer institutional investors, individuals, hedge funds and some mutual funds may buy into the lower-demand securities to take advantage of the subsequently higher risk and reward.
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