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Through the late 40's and 50's, organized crime groups from throughout the nation invested in Las Vegas casinos. They gravitated to Las Vegas because gambling operations in other parts of the country were being shut down or severely restricted by the legal authorities. Despite popular perception, organized crime was not efficiently run. The instability of relationships that accrues when individuals are in association outside established social norms was apparent in these organized crime groups. Typically, they invested in groups called syndicates. They pooled their money and provided the funding to build or expand the casinos. Not all casinos were involved with criminal syndicates. However, the well known Strip casinos had funding from these sources.
Casinos used this source of funding because traditional sources were not willing to make loans or investments. The risk of casinos was twofold. First, the control of the cash and cash equivalents in order to avoid theft and
embezzlement was a daunting task. In addition, a bad run of luck could have a substantial impact on profit. There were other industries with less operational risk. The second source of risk was the viability of the industry. Gambling had only been legal since 1931 . There was no guarantee that gambling would remain legal.
In addition, the cost to build a casino which could compete with the existing casinos had risen considerably. Crime syndicates were finding it increasingly difficult to invest and individuals rarely had adequate resources. It was becoming clear that other legitimate sources had to be found because the popularity of Las Vegas as a destination was increasing.
The Nevada law legalizing casino gaming came from an era where individuals owned and operated casinos. There was no provision for licensing corporations or investor groups known as syndicates. Consequently, members of organized crime groups would find a front man for their syndicate of investors who could qualify for a gaming license. The members of the syndicate would not be subject to licensing because they were not involved in the day-to-day operation. At least, that was the impression given on paper.
In reality, they were involved to varying degrees. Regardless of any other involvement, they all skimmed money from the operations. Money skimming is achieved by removing cash from the accounting cycle before it is counted. Essentially, the drop was counted after an amount was diverted to the pockets of the syndicate. For example, if the drop was 100,000, maybe 10,000 was diverted to the organized crime investors and 90,000 was reported as drop.
This was significant to the State because the gaming tax was levied on revenue, not profit. If the casinos were reporting less in drop, they were reporting less in hold. Hold is termed revenue for public reporting purposes. Hence, reported revenue was less than actual revenue and the State was losing tax revenue correspondingly.
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When the state of Nevada legalized casino gambling in 1931, it was an attempt at economic development. The hope was that jobs would be created and a source of tax revenue generated. There was no vision that the state would become an exemplar of regulated gaming activity. The initial legislation established the Nevada Gaming Commission. The purpose of this body was to address issues facing gaming activity in the state as they arose.
The primary responsibility for regulating gaming activity fell to the county sheriff. While this seems nave today, it was more than adequate for the first 15 years of legalized gaming in Nevada. Casino operators were local residents. In the smaller towns, a casino was really just a couple slot machines and tables in a saloon. In Reno, the largest city in the state, casinos lined Virginia Street from the Truckee River north to the railroad tracks. However, these were modest affairs. Again, the bar featured prominently. However, there were a greater number of slot machines and table games. Bingo and keno were offered as well.
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Billy Wilkerson from southern California felt he could build a luxurious casino on The Strip along the lines of the Beverly Hills Hotel whose target market were the wealthy elite of Los Angeles. However, his personal capital was inadequate
and he could not fully fund the project. He turned to Benjamin Bugsy Siegal for funding. Siegal was a member of an organized crime outfit in New York. He was known for his violent temper and womanizing.
When Wilkerson came to Siegal, Siegal fronted for other investors, primarily his organized crime outfit including Meyer Lansky. He soon pushed Wilkerson out of the project and brought in The Del Webb Company, an up and coming construction and development company based in Phoenix, Arizona. He became intimately involved in the design and construction of the casino resort. He worked from his knowledge of gambling operations in New York and Los Angeles and what worked for the El Rancho Vegas and the Last Frontier.
However, he took Wilkerson's concept of luxury and elegance even further. He wanted nothing but the best and envisioned bringing the glamour of Hollywood to the desert. The cost for the project originally was estimated at 1 million, an extraordinary sum in the 1940's. Due to changing and often erratic demands on Siegal's part as well other factors, the cost ballooned. The exact cost is not known, but estimates range from 3 million to 7 million.
The casino opened on December 26, 1946 . By all accounts, it was a disaster. Although the top movie stars of the day were invited, only secondary celebrities attended. The motel rooms were not ready for occupancy. Casino guests gambled, but stayed elsewhere. To make things worse, the inexperienced dealers made many mistakes and the gamblers won. Since they could not stay at The Flamingo, they went to the El Rancho Vegas and Last Frontier where they gambled their winnings away. The casino lost money.
The casino closed its doors in order to complete construction. It reopened in March, 1947 . It quickly became profitable. However, Siegal was murdered in June, 1947 . The murderers have never been identified nor their motive. Legend has it that his crime outfit ordered his death due to the cost overruns and alleged skimming by him and Virginia Hill. It is equally possible that an enemy from his past ended his life. He antagonized many people in his crime career who might want to seek his death. Some have even speculated that other Nevada casino operators recognized that Siegal's reputation and behavior might attract greater law enforcement. This might have been motivation enough to have Siegal killed.
The mythology surrounding Benjamin Bugsy Siegal is legendary. His reputation has been immortalized in books and movies. He is credited with being the first to envision the completely self-contained casino resort on The Strip. He is also credited with conceptualizing a luxurious casino resort with a Hollywood connection. As we see above, the El Rancho Vegas and the Last Frontier were ahead of Siegal by five years in building self-contained casino resorts on The Strip. The idea of building a luxurious casino resort with a direct Hollywood connection came to Billy Wilkerson first. Siegal took his idea
and made it a reality. But only after creating exorbitant cost overruns and displaying inept management skills.
While it is clear Benjamin Bugsy Siegal does not deserve credit for creating the modern casino resort, he was part of a wave of criminal underworld influence in Las Vegas. While this created headaches for the State of Nevada, it resulted in the model regulatory environment for government sanctioned gaming.
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In the early days of Nevada, Reno was a tourist destination because it was situated better than any other Nevada city. San Francisco and the Bay area are only 200 miles away. In the days before air conditioning, the climate was more hospitable than the climate of southern Nevada. In addition, Lake Tahoe had been a summer vacation spot for many years. However, the center of tourism activity started to shift in the 1940's. The construction of Hoover Dam brought an influx of workers and their families who stayed after the completion of the dam because there were jobs and economic opportunity. The construction of the dam also had led to the building of infrastructure, especially roads.
In 1941, the El Rancho Vegas opened on what would become The Strip at Sahara Avenue. A central building held the casino, restaurants, and other public spaces. Wings off the central building contained 65 motel rooms. There were surface parking lots to accommodate the cars of locals and visitors from southern California. The Last Frontier also opened in 1942 . It was a Wild West themed casino resort which included the standard casino, motel rooms, restaurants, etc. However, it also featured a western town recreated to resemble a typical town from the Wild West era. The town included a museum, retail shops, jail, saloon, post office, and train cars.
Both resorts were located over two miles from downtown Las Vegas. At that time, Las Vegas consisted of only the downtown business/casino district and residential neighborhoods surrounding it. There was open desert between downtown and the two casino resorts. Cars were only beginning their rise to the preeminent form of transportation. The American mentality was still oriented toward walking and other slower means of travel such as bicycles and public transportation. The general perception was that these resorts were taking a huge risk. Why would people drive to visit just one casino when they could park downtown and visit numerous casinos on foot? However, The El Rancho Vegas and the Last Frontier were commercially successful.
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The city of Las Vegas was founded in 1905 . It was a Mormon outpost in the Mohave Desert. The train ran through the Las Vegas valley and acted as a lifeline for the community.
Las Vegas would remain a dusty sleepy town until the construction of Hoover Dam between 1930 and 1935 . The dam was designed to retain water for use by the lower Colorado River states, generate electricity, and enhance flood control. It was an engineering marvel at the time. It was the highest dam in the world when completed. It contains more masonry than the Great Pyramid at Giza. Its remote location makes this accomplishment all the more impressive.
The influx of 16,000 men and women over the construction period provided economic activity for Las Vegas. All business benefited including the saloons with their gambling. Even after the dam opened in 1935, many of the men and women decided to stay. Employment opportunities elsewhere were still limited due to the Great Depression.
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