By John Stearns - Reno Gazette-Journal
It’s not a matter of if, it’s a matter of when -- and how much.
This area’s projected lost revenue to tribal gaming hinges on a number of factors. Among them:
- How quickly will the California Indian casinos build? How swiftly will existing tribal casinos expand and improve?
- What will be the quality level of the unbuilt or expanding facilities?
- How many slot machines ultimately will wind up located next door in California, encouraging Nevada’s neighbors to the West to stay home and gamble?
Economic impact estimates range from virtually zero to outright painful.
Bear, Stearns & Co. Inc. of New York has offered a worst-case scenario.
Citing Reno’s lack of must-see attractions, its location and quality of its casinos, Bear, Stearns estimated that Reno-Sparks is the Nevada market with the most to lose from Indian gaming: as much as 21.6 percent, or $231.6 million of gaming revenues by 2004-05. Bear, Stearns estimated that $355 million in other revenues, including lodging, shopping and recreation, also could be lost.
That’s how much the rate of growth is likely to settle out over the next few years, not an immediate cut off the top, said Bear, Stearns gaming analyst Jason Ader.
“For Reno casino operators, it’s a risk,” Ader said.
For slot machine manufacturers or casino operators doing business in California, it’s an opportunity, he said. “But nevertheless, it’s coming. To ignore California would be . . . imprudent.”
For Lake Tahoe, Bear, Stearns estimated that gaming revenues lost to Indian casinos would amount to 15.4 percent, or $50.1 million, and there would be a loss of $241.9 million of other revenues.
Most experts feel that Reno has more to lose than Lake Tahoe, where astounding natural beauty, world-class redevelopment projects and other features are expected to help the area retain its appeal. Both communities rely on tourism as the premium gas to run their communities.
“Reno’s in a tougher situation because Reno is still downtown (and) everybody I talk to from throughout the world who comes to Reno says it’s tired,” said Bill Eadington, director of the Institute for the Study of Gambling & Commercial Gaming at the University of Nevada, Reno.
Eadington is reluctant to estimate the revenue impact on the Reno-Sparks market, but says well-financed, well-managed, well-designed California casinos are expected to look a lot like many of the top casinos in Reno. Many of Reno’s best casinos are stand-alone facilities outside of downtown, he said.
“If that happens, you have to put yourself in the position of the typical visitors to the Reno area,” Eadington said. “How would you choose, given equal (amenities and gaming) but 2 1/2 hours less time and not having to worry about driving home on a Sunday in a snowstorm?”
He pointed to a California map of existing and proposed Indian casinos, specifically along the U.S. Highway 101 corridor north of San Francisco. There are 16 casinos nearby that are either operating, planned or expanding.
“From San Francisco to Ukiah is two hours, San Francisco to Reno is four hours, the arithmetic’s not tough,” Eadington said.
Even more so in winter, he added. “The (Highway 101) freeway is very comparable and the drive’s prettier. You put all those things together and it really says, ‘OK, these markets could be as significant as Reno is fairly quickly.”
One of the more attractive casino sites in the 101 region is a planned project by the Dry Creek Pomo Indians in the Alexander Valley wine country.
The tribe -- with its Las Vegas partner Mark Advent, who designed Vegas’ New York-New York hotel-casino -- had planned a $100-million, 1-million-square-foot casino-resort. That remains the long-term goal, but the tribe plans to start with a smaller gambling hall that it wants to open in May.
Eadington wonders, too, if downtown projects -- from the river redevelopment, to the Cordish retail-entertainment plan and the proposed events-convention center and the expanded Reno-Sparks Convention Center -- are enough to stave off the hurt from California Indian gaming.
“You’ve got some issues that are actually somewhat disconcerting because if gaming revenues fall and certainly as (cash flow) falls, there is a strong case the casinos can make to lower their property tax obligations, which has been done in the past,” Eadington said.
When that happens, “you really do have a slippery slope problem in financing all of these either public-private partnerships or public-sector undertakings . . .”
The worst-case scenario would be that large, top-notch Indian facilities are operating in the next 12 to 18 months, he said.
Robertson Stephens in New York estimated a year ago that the cash flow of public gaming companies in Reno-Lake Tahoe could decline 15 percent to 20 percent in 2001, recovering later as California’s large population and healthy economy absorbed the new gaming supply.
The timing of the impact depends on when the casinos roll out and numerous other variables, said Smedes Rose, an analyst with Robertson Stephens. “I’ve got to believe that in the winter months, markets like Reno and Tahoe . . . that’s going to impact them,” he said.
Paul Alanis, president and chief executive officer of Pinnacle Entertainment Inc., which owns and operates Boomtown Hotel Casino in Verdi, is optimistic about Reno’s future because of what he says are mostly less-desirable locations for gaming in Northern California.
“If people think the sky is falling, then I think they are exaggerating,” Alanis said. Even with the planned Station Casinos project off Interstate 80, “Reno’s not going to dry up and disappear,” he said.
While Pinnacle isn’t crying wolf, it is taking a cautious approach toward development at Boomtown until it can gauge the California impact. A $500-million expansion that has long been on the drawing board is likely to be significantly scaled back. The first project is likely to be a golf course.
Richard Wells, president of Wells Gaming Research in Reno, thinks Wall Street’s impact estimates are high, unless the number of slot machines in California goes well beyond the roughly 45,000 that the state of California’s agreement or “compact” with tribes appears to allow.
“If that (slot number) were to double or triple, then you might see some stronger impacts, but still, there aren’t that many opportunities (for good casino locations) in Northern California,” Wells said. “I think you would still see most of those (slots) in Southern California.”
Wells is high on Reno’s chances to weather the California storm, noting that Washoe County’s growth rate has accelerated over the last three years, even with significant competition already in place in Reno’s feeder markets. He cited what he considers to be the nine most significant existing Northern California casinos in Reno’s feeder market, plus Indian casinos in Oregon and Washington and noted that Washoe County gaming revenues increased 2 percent in 1997, 3 percent in 1998 and 4.8 percent in 1999.
New gaming in California will be incremental and staggered, adding to competition that Reno already has been surviving, he said. “A lot of people that have been estimating impacts appear to have treated it as if it’s all brand new (gaming) and they sort of ignore what’s already there,” Wells said.
Wells’ company estimated that the nine existing California casinos in Reno’s feeder market did about $151 million in gaming revenues last year.
There are four other casinos slated to open in Reno’s primary feeder market, of which three are likely to happen, he said. Their openings are expected to be spread over three to four years, he added. Including the four new casinos, total revenues generated among the 13 casinos in Northern California that Wells considers most competitive would range from $232 million to $564 million, he estimated.
How much of that is incremental gaming revenue vs. revenue taken out of northern Nevada’s $1 billion annual gaming revenue total remains to be seen.
The resulting impact on Washoe County gaming revenues depends on when the additional casinos open, but could range from no real impact to a 2 percent negative growth rate for a couple of years, Wells said. The worst-case scenario would last perhaps one-to-three years, he predicted.
The impact, though, is most likely to show up in a reduced growth rate more than a negative growth rate, Wells said. The casino openings are likely to be spread out enough so that the growth rate slows for two to four years until the new capacity is absorbed, he said.
“Given what appears to be on the horizon, it just doesn’t look like the Draconian impacts that some people have feared or do fear,” Wells said.
That doesn’t mean Reno should relax, he said. Dennis Conrad, president of Raving Consulting in Reno and who has consulted for numerous Indian tribes, raised another possibility: There could be positive fallout, he said.
People feared the impact that Atlantic City, N.J., would have on Las Vegas when it legalized gaming in 1978 and the impact that the riverboat casinos would have on Las Vegas when they began opening in the early and mid-1990s, he noted.
In fact, Conrad notes, Las Vegas has continued to grow at astounding rates, fueled largely by must-see mega-resorts.
“There’s a possibility . . . that there’s some factor going on that helps to create more gamers (in other states) and whets their appetite” for Nevada, Conrad said.
Phil Satre -- chairman and CEO of Harrah’s Entertainment, which has hotel-casinos in Reno and Stateline and manages three Indian casinos in the United States -- rebuffs any suggestion that public companies are hurting Nevada by taking business opportunities in other states.
“Harrah’s is a stronger company for being a company that has diversified its investments across multiple markets,” he said.
Satre added that Harrah’s has been around for 63 years because it has aggressively identified business opportunities. In fact, Satre said, the company has been able to develop relationships with its Indian casino customers and knows that they also visit the company’s Nevada properties.
Going to California is no different than opening casinos in Atlantic City or Chicago -- it’s diversification, he said. Harrah’s didn’t see any opportunities to manage casinos in Northern California, but will manage one for the Rincon Band of Luiseno Indians, north of San Diego.
The Rincon Indians have a temporary casino on track for a January opening. The permanent facility is expected to open in early 2002.
“You can’t let yourself be a victim,” Satre said of Reno’s concerns about California. Instead, the city needs to stay on its improvement track.
While some Nevada companies might publicly fear what’s coming in California, plenty are apparently privately sniffing around for opportunities. Some of those companies are based in Reno and Lake Tahoe.
Howard Dickstein, a Sacramento lawyer who represents eight mostly Northern California tribes, including the United Auburn Indian Community, said Nevada firms are courting the tribes all the time.
“I’m not going to name any names, “ said Dickstein, “but I’d say I get a call once a week from a company that you would have heard of interested in Indian country in California.”
William Thompson, professor of public administration at the University of Nevada, Las Vegas, said Nevada has proved resilient to competition. He noted Las Vegas’ continuing strength in the face of more gaming than ever throughout the country. Clark County gaming revenues increased 13.6 percent last year over 1998, to a record $7.2 billion.
Thompson, like Conrad, believes more gaming creates more gamers.
Research conducted by Thompson for a group that was opposed to the United Auburn Indian Community’s casino along Interstate 80 found that California gamblers -- including those inclined to try tribal casinos -- will still visit Reno.
Bay area people, once they were on the road, would continue to Reno rather than making Roseville their destination, Thompson said.
If he were living in Sacramento, Thompson said he wouldn’t give up a weekend away in Reno “to go the 20 miles to the grind joint.”
Reno still needs to improve its product, air service and link with Tahoe, but the California competition is incremental and small enough “that if Reno’s on top of it, they can adjust,” he said.
Eadington said the impact on Nevada will hinge greatly on how many slot machines ultimately end up in the state. Estimates on the number allowed under the California compact that Gov. Gray Davis signed with the tribes range from about 45,000 to 113,000. A guideline in some countries is to have one slot machine per 100 people, Eadington said. That means California could handle about 340,000 slot machines.
At 45,000, that’s a “drop in the bucket” in satisfying that demand, Eadington said. But 113,000 would satisfy about a third of that theoretical demand, he said.
Nevada’s nightmare would come if tribal compact renegotiation and other gaming expansion pushed the state into the 300,000 range.
In that event, Eadington said, the California slots would absorb a lot of the demand for gambling that people now have to drive to Nevada to fulfill.
Bear, Stearns’ Ader estimates California will end up with about 50,000 to 60,000 machines -- a figure consistent with tribal leaders’ estimates.
Doubling that figure might lead Reno to an economic impact similar to the firm’s worst-case scenario for the area.
©2000 Reno Gazette-Journal
