LV gamers team with Indians

David Strow

Tuesday, Oct. 12, 1999 | 11:12 a.m.

If you can't beat 'em, join 'em.

Station Casinos Inc. became the first major Las Vegas casino operator to take that approach today, announcing a deal to develop and operate a $100 million tribal casino northeast of Sacramento. The 200,000-square-foot casino, with room for more than 1,500 machines and 50 table games, is expected to open in 2002.

"This is a bigger, more powerful entity in the industry, working in partnership with the tribes, creating competition for the Northern Nevada market," Bear Stearns Senior Managing Director Jason Ader said. "They're not talking about a dinky little casino here.

"This is a very interesting and important transaction for this company and the California Indian gaming industry."

Station will receive 22.5 percent of the casino's revenues, as well as a fee for the use of the Station brand. Station's management contract with the United Auburn Indian Community is initially for seven years. Station will assist the tribe in lining up financing, but will not take on debt with the project.

"This situation fits very well into our strategy of finding opportunities with local markets," said Glenn Christenson, executive vice president and chief financial officer of Station. "It's no different from Kansas City or St. Louis ... we're applying our local market strategy to Sacramento.

"We're examining a lot of different things, but you can expect it to be a typical Station property."

It is seen as a particularly lucrative deal because, unlike Southern California, little gaming competition exists in Northern California -- and the new Station casino will be the closest to the California capital. In addition, the San Francisco Bay area is just 90 minutes away by car.

"This will obviously be immediately (additive) to 2002 earnings," Ader said. "This is a potentially lucrative leg of growth for this company. Without a lot of investment, they're entering into a transaction that should be quite valuable to their shareholders."

Station operates the Palace Station, Boulder Station, Texas Station, Sunset Station and Wild Wild West hotel-casinos in Clark County. It also operates casinos near St. Louis and Kansas City. The California casino will be a bit larger than the Wild Wild West, Christenson said, and considerably smaller than the other Station properties in Las Vegas, Kansas City and St. Louis.

It is the second California deal announced by a Las Vegas company in two weeks. In late September, Las Vegas-based Anchor Gaming Inc. said it would build a $90 million tribal casino near San Diego. Though Anchor owns and operates casinos in Colorado and New Mexico, its main business is slot machine manufacturing.

Station does have five casinos in the Las Vegas market, but they're focused primarily on the locals market -- meaning legal gaming in California isn't seen by Station as a threat.

"We didn't view this in the same fashion as the guys on the Las Vegas Strip," Christenson said.

Analysts said other Las Vegas operators will soon follow suit.

"They are going to make sure their flank is covered," said Stuart Linde, a gaming analyst with Lehman Bros. in New York. "Now they're coming to the conclusion that it's reality, it's full scale gaming. So you want to make sure you're tapping your brand into those markets."

"California gaming is going to exist in the near future," Ader said. "As a natural hedge to your business in Nevada, why wouldn't you consider an investment in the California market?

"I think each company will take that decision as it's presented to them, but those discussions are going on in every Las Vegas corporate boardroom."

Linde said the most likely Las Vegas company to next announce a California pact will be Harrah's Entertainment, which operates a number of Indian casinos nationwide. In fact, Harrah's recently had its management contract for the Phoenix Ak-Chin Casino renewed -- the first time a company had successfully renewed a tribal casino.

"It would be a natural for them," Linde said. He added that he sees Park Place Entertainment Corp. as a possible candidate to move into the California market.

After the California Supreme Court overturned a voter-approved proposition legalizing gaming earlier this year, tribal leaders quickly negotiated a new gaming compact with California Gov. Gray Davis. That compact would take effect if voters approve an amendment to the California constitution allowing Nevada-style gambling in the state. That will be on the March 2000 ballot -- and most political observers expect it to pass handily.

Las Vegas casino operators poured tens of millions of dollars into fighting the passage of Proposition 5, fearing the damage that could be caused by legalizing gaming in Nevada's largest market. Now, as California gaming becomes more and more inevitable, tribal leaders may be starting to realize they need Las Vegas companies as allies.

Indeed, the Auburn tribe said it needed Station's financial help and operating experience.

"We particularly admired the company's financial depth and stability, many years of success in the gaming industry, and impeccable credentials," tribe chairwoman Jessica Tavares said in a statement.

As in the Anchor deal, Station will assist the tribe in finding cash, rather than financing the casino.

"Financing will be the issue for many of these tribes," Linde said. "With these big companies, financing becomes a lot easier."