Wednesday, February 23, 2000
Some Nevada Casinos Could Be Big Losers
A few gaming companies expect to profit from Proposition 1A, but others have been warned to expect a significant drop in revenues if it is approved, as expected.
By TOM GORMAN, DAN MORAIN, Times Staff Writers
LAS VEGAS--Some of Nevada's biggest gambling companies--including casinos and slot machine manufacturers--are ready to join the next California gold rush, which some say will be triggered by the anticipated passage of Proposition 1A, the Indian casino measure on the March 7 ballot.
But a number of casino companies--especially those doing business in downtown Las Vegas, Reno and Laughlin--have been warned to brace for a $626-million dip in gambling revenue from Californians if the measure passes.
Such is the two-edged sword that Proposition 1A poses for the Nevada gambling industry, the nation's largest.
If approved, Proposition 1A will allow tens of thousands of Nevada-style slot machines on California tribal reservations, as well as house-banked card games and other games of chance, except for roulette and craps.
Nevada casinos currently take in 35% of their $7.7 billion in annual revenue from Californians. With the introduction of slot machines in the Golden State, revenue from California gamblers will plummet by about 20%, according to a recent analysis by Bear Stearns, a New York investment firm.
Overall Nevada casino revenue will drop 6.9% because of the diversion of California wagering to its own tribal casinos, according to the firm's analysts. The impacts in Nevada will vary by region.
The mega-resorts on the Las Vegas Strip will not be hurt by Proposition 1A because the Strip's concentration of must-see tourist attractions will not be replicated in California, analysts predict. But smaller casino operations, popular among slot players who don't look for the full entertainment package, may lose customers to Indian casinos, which will offer the same one-armed bandits, the Bear Stearns report concluded.
Once the Indian casinos are fully operating, in about four years, downtown Las Vegas casinos will be the hardest hit in Nevada. Those gambling halls have long struggled to compete with the big Strip casinos. The downtown casinos are expected to lose about 23.4% of their business, or about $155.3 million a year, according to Bear Stearns.
Casinos in the Reno-Sparks region can expect to lose 21.6%--or $231.6 million--in annual revenue, the analysts projected.
Laughlin casinos should brace for a 15.8% loss--amounting to $88 million, and the Lake Tahoe region will lose about 15.4%, or about $50 million, according to Bear Stearns.
In 2004, Bear Stearns predicts, Californians will gamble about $2.5 billion in Nevada--and almost twice that much, or about $4.7 billion, in California tribal casinos.
Some Nevada casino executives, however, project stiff upper lips. "I always marvel at these analysts," Mike Sloan, senior vice president of Mandalay Bay Resorts, said cynically. He suggested that entertainment venues in California--ranging from bowling alleys to amusement parks--will suffer more from money being diverted to Indian casinos than will Nevada companies.
The Bear Stearns report is based on a marketing analysis of Californians' gambling habits in Nevada and the likelihood that they will now patronize Indian casinos instead.
The analysis helps explain why Nevada firms spent about $25 million in 1998 to oppose Proposition 5, which would have permitted the expansion of Indian casinos in California--but without the use of Nevada-style slots.
Voters overwhelmingly approved Proposition 5, but the California Supreme Court ruled it violated the state's constitutional ban on Nevada-style casinos. Gov. Gray Davis and the Legislature answered with Proposition 1A, a constitutional amendment giving Indian tribes exclusive right to operate Nevada-style slot machines and card games in California.
This time, Nevada companies are not fighting the casino measure. Instead, casino operators are gearing up with new marketing campaigns to secure their place as the mecca of gambling.
"We've proven we can compete with anyone," said Sloan, whose company owns not only four of the largest casinos on the Strip, but two others in Laughlin and one in Reno.
"If we have to move more into non-gaming activities to attract people, we will," he said. "We'll become even more competitive with conventions and entertainment."
He noted that Nevada's gambling industry has continued to thrive, even with the expansion of gaming elsewhere in the country. Laughlin, for instance, has rebounded from the competitive threat of Indian casinos in Arizona by marketing to retirees from Canada and to young people drawn to play on the Colorado River, as well as by sponsoring various motorcycle- and western-themed events.
Las Vegas casinos, Sloan said, will continue to fine-tune their foreign marketing efforts and work with airlines to develop nonstop flights from overseas to Las Vegas "hopscotching right over California."
Many casino executives believe that while Nevada may take a short-term hit, Californians who are introduced to gambling at Indian casinos may have their appetites whetted to visit Nevada.
That's partly behind the decision by Harrah's Entertainment to get in on the action in California. The Las Vegas-based company has struck a deal with the Rincon Indian tribe in northern San Diego County to build and manage a $100-million casino.
The company, which was neutral on Proposition 5, "looks for strategic opportunities, and we think California is a great market," said Jan Jones, the former mayor of Las Vegas, who is now a Harrah's senior vice president. Harrah's is a partner with three other tribal casinos in the United States.
Harrah's hopes to make money not only in California, but also in Nevada by extending its brand name to new customers, Jones said.
"If you first try gambling near San Diego--or Kansas City or Joliet, Ill.--that may eventually bring you to Tahoe or Las Vegas," she said.
The risk to stockholders of gaming companies entering the California market is minimal, she noted, compared with decisions to build $1-billion casinos in Las Vegas.
Two other Nevada-based companies--Station Casinos, which owns off-Strip casinos, and Anchor Gaming, which operates slot machines at non-casino sites such as grocery stores--have signed deals with two other California tribes to open casinos. One is near San Diego, the other near Sacramento.
Other Nevada companies are said to be negotiating with tribal leaders to run casinos in California--but are lying low until after the election.
G. Michael Brown, former president of the Indian-run Foxwoods Resort Casino in Ledyard, Conn.--the world's largest casino--told a recent meeting of gaming executives in Las Vegas that passage of Proposition 1A will prompt "the biggest gold rush California has ever seen.
"When you combine experienced companies with energetic tribes, you can develop casino resorts with all the amenities--and you won't have to fly there. You can drive there in an hour," he told the audience.
Slot-machine manufacturers also are queuing up for the explosive sales potential that the March 7 vote is expected to unleash.
There are about 477,000 slot machines in the United States and Canada, and 70% of them were built by Las Vegas-based International Game Technology. Company vice president Ed Rogich said he'd be delighted to capture 70% of the new California Indian market.
Under agreements signed by Gov. Davis and 58 tribes, each tribe will be allowed as many as 2,000 slot machines. The cap on slot machines in California is in some dispute; the Davis administration says the limit is about 45,000 slots, but because of ambiguous language, other analysts say as many as 113,000 slots are authorized. In any event, the agreements can be renegotiated.
Slot machines cost about $8,000 each and are replaced every three to five years, Rogich said.
"We hope to garner as much business as we can," he said.