Reno’s vulnerability to Station casino in California debated

David Strow

Thursday, Oct. 21, 1999 | 11:04 a.m.

Station Casinos Inc. of Las Vegas won't open a casino in Northern California until at least 2002, but it's already causing some jitters in Reno.

"From our standpoint, it is definitely a shot over the bow, so to speak, and certainly not a positive announcement in our feeder market," said Gary Carano, general manager of Reno's Silver Legacy hotel-casino. "It certainly won't be the last. I anticipate more down the road."

With 1,500 machines and 50 table games, Station's property won't be a large casino by Nevada standards -- and analysts aren't convinced it's a sure thing that it will open. But it has thrown open the gate to development in Northern California, Northern Nevada's lifeblood market.

"The impact of casinos of increased capacity in and around Sacramento cannot be a good thing for the Reno-Tahoe market," said gaming analyst Harry Curtis of BankAmerica Robertson Stephens.

Station's proposed development, in conjunction with the United Auburn Indian Community, would sit just 7 miles from Interstate 80, the freeway that carried most of the 1.5 million Northern Californians that visited the Reno-Lake Tahoe area by car in 1998. That's nearly 30 percent of the area's entire visitor total, according to the Reno-Sparks Convention and Visitors Authority.

Glenn Christenson, chief financial officer of Station, said Reno has little to fear from Station's project.

"You're talking about a single casino," Christenson said. "The most slot machines we can have is 2,000, and there's no guarantee we'll ever have 2,000 at that facility.

"It's not much of a threat, compared to the destination resorts you have in the Reno-Tahoe area."

And it isn't a sure thing that Station will actually succeed in its efforts near Sacramento. California voters must still approve a March referendum that would amend the state constitution to allow tribal casinos.

In addition, hundreds of residents of nearby towns Rocklin, Roseville and Lincoln have lashed out against the development, fearing increases in crime, drug and alcohol abuse and problem gambling. City councils in all three towns have passed resolutions against the casino.

"Vegas, that's where I think this stuff should stay," said Roseville Mayor Harry Crabb, according to the Associated Press. "The things that gambling brings, we all know what happens. We don't like the idea that it's so close to the churches and schools in our communities."

Christenson said the tribe is currently trying to change the attitudes of its neighbors.

"We hope to assist in that process by explaining more about the project, how our company operates its business ... so they can make a better and more informed decision," Christenson said.

Curtis believes the odds of Station's casino becoming reality are about 50-50.

"This is a landless tribe that has only been recognized recently by Congress as a tribe," Curtis said. "So the land they've been designated would have to be deemed appropriate for a casino."

Curtis estimated the casino could potentially capture 1 to 2 percent of the Northern Nevada market.

But development is not expected to end at one casino. Analysts expect other casino operators, particularly Harrah's Entertainment Corp., Park Place Entertainment Corp. and Lakes Gaming Inc., to follow Station into California.

"One facility is going to have a negligible impact, but a meaningful proliferation of Indian casinos in Northern California could have a significant impact on the Reno-Tahoe market," said Jason Ader, senior managing director at Bear Stearns. "We're estimating a 5 to 10 percent reduction (in Northern Nevada gaming revenues).

"You will see less of an effect on Vegas (from Southern California casinos), because Vegas has almost $60 billion in tourism infrastructure that's impossible to duplicate. That's far different from the Reno and Laughlin markets."

The Station project's favorable location near Sacramento could entice many drivers from San Francisco, Fresno or San Jose to make an early stop, observers say. That risk rises in the winter, when drivers may decide to stop in Sacramento, rather than risk the drive over the snowy Sierra Nevada mountain range.

"So if you put a casino down there, down in the pass ... that is the equivalent of a Sunset Station, how can it not impact that market in Northern Nevada?" said Dave Ehlers, chairman of Las Vegas Investment Advisors. "I would be shocked if it did not."

Ehlers said the effect may be similar to what Laughlin experienced when tribal casinos started opening in Arizona and Southern California. Laughlin went on a downward spiral that lasted seven years, and is only now starting to recover -- over the 12 months ending June 30, Laughlin's gambling win was up 5.5 percent, to $510 million.

"It almost put (Laughlin) under," Ehlers said.

The Reno market is the second-strongest in Nevada, but it is dwarfed by Las Vegas.

Washoe County's nonrestricted casinos reported win of $1.04 billion in the 12 months ending June 30, a 4.2 percent increase, according to the Nevada Gaming Control Board. The Carson City area's win was $84.7 million, a 10.8 percent rise.

By comparison, the Las Vegas Strip alone reported win of $4.12 billion over the period, a 9.6 percent rise. Clark County's total win was $6.7 billion, up 8.48 percent.

Stuart Linde, gaming analyst with Lehman Bros., doesn't believe the Reno market will be crippled by an explosion of gaming in Northern California, but added, "if you have 30 casinos in California, it could hurt."

"The Harrah's, Park Places, Mandalays, they have less risk," Linde said. "If you have $850 million in cash flow, it's not significant. When you're sitting out there with $40 (million), it's significant."

But as Laughlin recovered before, so would Reno, Linde said.

"There's no doubt it would cannibalize existing customers, and Laughlin is a perfect example of that," Linde said. "But people go back to where they feel comfortable. It creates more gamblers ... and they want more of a total weekend experience."

The Carano family is well aware of the risk that's developing. As owner of Reno's Eldorado and part owners of the Silver Legacy, the family is heavily invested in Northern Nevada, and is moving to protect its investment.

"It might encourage us and others to get off our butts and enter into the same type of arrangements with a number of Native American tribes in Northern California," Gary Carano said. "We're looking for opportunities to join Native American tribes in Northern California.

"The Northern Nevada market has two ways to combat this: you join ... and also continue to improve our product in Northern Nevada. If we continue to market Northern Nevada as a total destination resort, we can definitely compete with this project that Station is bringing forward."