California initiative may ignite spending by Nevada casinos

Wednesday, July 1, 1998 | 9:18 a.m.

"This initiative campaign will be the most expensive in American history outside of a presidential campaign," said I. Nelson Rose, a professor specializing in gambling law at Whittier Law School in Costa Mesa, Calif. "(The Nevada gaming industry) will be willing to put up tens of millions of dollars to oppose it."

Rose delivered his comments during a Monday conference call for investors that was sponsored by the Wall Street investment banking firm of Bear, Stearns & Co. Inc.

California's 37 Indian casinos now offer poker and a variation of Las Vegas slots, but blackjack, craps, roulette and most other Vegas-style games are illegal.

That would change if California voters adopt the ballot measure, forcing the state's governor to approve scores of tribal casinos.

Bear, Stearns gaming analyst Jason Ader estimates that could mean the loss of as much as $300 million in yearly gaming revenues in southern Nevada. In 1997, the state of Nevada generated a gambling win of $7.8 billion, including $6.15 billion in the Las Vegas area.

Ader said in a recent report that casino operators catering to low- and mid-market gamblers are likely to be more affected than those catering to high-end players.

Among the potential Nevada casino-industry victims identified by Ader: Circus Circus Enterprises Inc., Primadonna Resorts Inc. and Boyd Gaming Corp.

BancAmerica Robertson Stephens analyst Harry Curtis believes the lost revenue in southern Nevada would be closer to $600 million annually.

"We estimated 8.5 million visitors from California travel to Las Vegas annually, representing estimated casino revenue of approximately $1.5 billion," Curtis wrote in a recent report. "More conveniently located casinos in California with comparable casino games and noncasino amenities is likely to reduce trip frequency, particularly midweek, by 30 percent to 50 percent."

Much of Monday's conference call linking Rose and Ader focused on the likelihood of the ballot measure's passage.

"In November, the voters will not approve the initiative," Rose predicted. "The voters' minds will not let them accept the idea of widespread, wide-open casinos in the state of California."

In recent months, the Las Vegas gambling industry, led by Circus Circus executive Mike Sloan, has begun to oppose the measure. Casino executives also are banking upon a coalition of California tourism executives, restaurant owners and union members to defeat the plan.

One powerful opponent could be the California Teachers Union, whose statewide membership could fear the loss of lottery revenue to expanded Indian casinos. Like many states, Californians rely on their state lottery to generate revenue for schools.

"Unions are in a funny position," Rose said. "I don't know how the teachers' union would come out on this (or) what this would do to the California state lottery."

Rose also said the November ballot measure has "provisions that are probably illegal. There would be lawsuits over this initiative for years."

BancAmerica Robertson Stephens' Curtis echoed that sentiment in his recent report.

Curtis said the California Constitution has a prohibition against Las Vegas- or Atlantic City, N.J.-style casinos. As a result, an Indian gambling initiative would have to be linked to a change in the state's constitution, and the November measure is not.

"As a practical matter," Curtis wrote, "if the initiative passes, then the issue is likely to be litigated for an extended period, possibly three years."