Calif. slots could cut into Strip business

Cy Ryan and David Strow

Friday, Aug. 25, 2000 | 11:32 a.m.

CARSON CITY -- Casinos along the Las Vegas Strip could suffer a 10 percent to 15 percent loss of business if California Indian tribes are allowed to operate a full allotment of 113,000 slot machines, a gaming expert said Thursday.

The effect on downtown Las Vegas casinos, which have improved in recent months, could be as severe as a 20 percent to 30 percent decline.

William R. Eadington, director of the Institute for the Study of Gambling at the University of Nevada, Reno, said it was unknown whether the Indians would be permitted 45,000 or 113,000 slot machines. There are different interpretations of a compact signed by the tribes and California Gov. Gray Davis, he said.

The governor's office believes the maximum allowed is 45,000, but a legislative analyst's office thinks the tribes are entitled to 113,000. "This is a big deal," Eadington told a meeting of the Association of Gaming Attorneys.

"It's not out of the question" that the tribes could end up with 113,000, he said. And the impact would be greater than anticipated by analysts at Wall Street firm Bear Stearns, he said.

In a February report, Bear Stearns gaming analyst Jason Ader argued that the Strip -- "the gambling Mecca of the U.S., if not the world" -- would be relatively insulated from the introduction of tribal gaming in California. Ader projected that California casinos would divert just 0.6 percent of gaming revenues from the Strip.

"We believe Las Vegas is, and will continue to be, the leader in terms of the gaming experience in the U.S., and indeed in the world, thus insulating the market against a major decline, regardless of regional casino development," Ader wrote. "During periods of past expansion of gaming in the U.S., the development of regional casinos has had little or no impact on Las Vegas visitation from those regions."

However, Ader's projections for downtown were in line with Eadington's prediction: Ader projected a 23.4 percent decline in downtown revenue, and a 10.4 percent downturn in North Las Vegas.

Ader couldn't be reached for comment this morning.

Adam Steinberg, a gaming analyst with CIBC World Markets, called Eadington's predictions "aggressive."

"Nevada itself could suffer an impact, but the Las Vegas Strip has a number of things going for it," Steinberg said.

He noted that the Strip, with its billion-dollar casinos, still kept its reputation as the top gaming jurisdiction in the world. Moreover, he said, the Strip's casinos had the advantage of being in a cluster, allowing visitors to move from property to property with ease.

"If a person from California were to go to a California casino, they won't get the vacation they'd get at a Las Vegas casino," Steinberg said.

Steinberg predicted a 1 percent to 2 percent loss of revenues from California casinos along the Strip, but said that strong growth in Las Vegas should result in business increases that would offset any loss to California.

"The person less likely to come is the low-end gambler, who's there on a day trip," Steinberg said. "What they'll lose (in visitors) will be more than what Las Vegas will lose in revenues.

"Instead of 5 percent growth, you'll get 4 percent growth."

Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown, said that demand for rooms in Las Vegas now outstrips supply by more than 2 to 1.

"The issue is how do we ensure that people can get to Las Vegas," Zarnett said. "Clearly, they want to come, they just need to get here. This market clearly can grow over the next five years, so that 10 percent decrease really doesn't impact Las Vegas."

The tribes held a secret drawing on May 15 for allotment of gaming devices. But the results have not been made public.

Under the compact between the governor and the tribes, Eadington said the Indians have until March 7 to use their individual allotment of slot machines. If they don't use it, they lose it, he said. There will be a lot of Quonset Huts used as clubs while the main casinos are being built, he predicted.

This compact, Eadington said, will be renegotiated in March 2003, and "I would not be surprised to see it (the number of slots) negotiated upward."

If the 113,000 slots machines are permitted this year, he said there could be a future 20 percent to 30 percent loss of business in Laughlin; a 20 percent to 30 percent downturn in Reno and more than a 15 percent loss at Lake Tahoe.

In 1999 Nevada casinos raked in $7.8 billion from slot machines. It was an average win of $102 per day per machine. He estimates that Indian casinos will win $250 a day from slot machines if the smaller 45,000 units are allowed. If the maximum 113,000 slots are permitted, they will yield an average of $200 per day.

These Indian casinos cannot have roulette, craps or wheel of fortunes. But they are allowed card games such as blackjack.

And a "new Strip" may emerge along Highway 101 north of San Francisco where a number of tribes have reservations near the road, Eadington predicted. Instead of a four-hour drive to Reno or Lake Tahoe, Bay Area residents would be able to reach an Indian casino in 40 minutes without going through the mountains or snow.

In 25 years, the advent of Indian gambling, Eadington said "will be viewed as a threshold event that changed the role of gaming."

A number of partnerships have been announced already between gaming companies and the tribes.

Station Casinos and the United Auburn Tribe plan a $100 million casino near Roseville in Northern California; Harrah's Entertainment and the Rincon tribe are involved in a $100 million venture and Anchor Gaming and the Pala Tribe plan a $90 million complex in San Diego County; and Donald Trump and the Twenty-nine Palms tribe are working on a $60 million resort in Palm Springs, Eadington said. And these casinos will be more like Las Vegas clubs, rather than the early Indian gambling halls, he said.