Experts disagree on whether Calif. gambling expansion will hurt Vegas

David Strow

Friday, Feb. 4, 2000 | 10:43 a.m.

In the weeks before California voters considered Proposition 5 -- a proposal that would have legalized Indian gaming in that state -- Nevada casinos poured more than $27 million into an effort to defeat it.

By comparison, descendant Proposition 1A has drawn nary a peep or a cent from the Strip. Three Las Vegas operators -- Harrah's Entertainment Inc., Station Casinos Inc. and Anchor Gaming Inc. -- have even announced plans to operate tribal casinos in California, should the proposition pass next month.

Despite that lack of opposition, some observers -- including Nevada's top gaming regulator -- feel Proposition 1A is actually more of a threat to Nevada than its predecessor. Where Proposition 5 merely legalized a "grey" industry, they say, Proposition 1A would drastically expand it.

"It will dramatically increase the number and type of games available in California tribal casinos," said Brian Sandoval, chairman of the Nevada Gaming Commission. "Proposition 1A will expand what was contemplated under Proposition 5.

"If you can get the same kind of entertainment in California as you can get in Nevada, it's going to be very attractive to locals who otherwise come to Nevada."

A California casino executive agreed.

"Prop 1A is more threatening," said Michael Harrison, chief executive of Eagle Mountain Casino, a central California property. "That's the way Nevada ought to be perceiving Proposition 1A."

Harrison spoke to a group of Las Vegas casino executives at a recent meeting of the Casino Management Association.

At the moment, Harrison said, 41 California tribes now operate casinos, which are technically illegal under California law. These casinos now operate an estimated 43,000 machines, as well as player-pool card games. Proposition 5 would have legalized these operations.

In anticipation of the passage of 1A, 57 tribes have signed compacts, while another 16 are negotiating.

The games now in existence in California are markedly inferior to Nevada. Since the casinos aren't allowed under Nevada law, Nevada gaming license holders are now prohibited from dealing with the casinos.

"We can't get the sophisticated equipment now," Harrison said. "If you sell to us, you lose your license."

That changes under Proposition 1A. Since the tribes will hold formal compacts with California, Nevada slot manufacturers would be free to sell to the tribes. Casino companies will also be free to operate the casinos, as Harrah's, Station and Anchor plan to do.

"We'll now have games with more player appeal," Harrison said. "We'll have your slot machines, not these grey machines. We'll be able to offer a better product than we did before.

"If you have a (gaming) operation in your own backyard, you're more likely to spend more time there than drive 300 or 500 miles away."

How many slots will be added to California's inventory is anybody's guess. The maximum number any tribe will be allowed to have is 2,000. But a rapidly escalating licensing tax on these machines -- and no clear answers on how that tax will be levied -- means it's unclear how many slots will go into operation.

That leads to widely varying estimates. Bill Thompson, a UNLV professor and gaming expert, estimates California would see no more than 25,000 new slots. Sandoval believes the potential is more like 100,000 -- giving California only 60,000 less slot machines than Nevada. Harrison said he's even heard some speculate California would match Nevada's slot total of 200,000 -- 2,000 for each of California's tribes.

Table games will also improve markedly. Today, California players participate in player-pooled blackjack games. Player bets are pooled and paid out to winners. Rather than collecting a profit on losing bets, the house makes money by taking a cut of the pot -- the same system used now by Nevada poker rooms.

Under Proposition 1A, the games will be "house-banked," with the players going head-to-head against the house. Moreover, there's no cap on the number of table games permitted under Proposition 1A, as there are with slots.

Thompson believes that California casinos could cut into Nevada's table game business by offering house-banked blackjack. But he disagrees with the conclusion that Proposition 1A is anything threatening.

"They'll pick up some blackjack, but for the amateur player, it'll be the same game," Thompson said. "Anything we lose, we'll pick up, because they'll be promoting gambling to more Californians.

"They'll be jam-packed with locals that are low rollers, and they'll be happy to get them, because they'll suck their $50 out of them every time. They're not going to compete with us."

One market California casinos will have to themselves are players between 18 and 20 years of age. These players have been barred from Nevada casinos since gambling became legal here in 1931 -- but under Proposition 1A, anyone over the age of 18 is permitted to play.

"In California, (the minimum age) will ultimately be determined by the tribe," said Harrah's spokeswoman Jan Jones. In Arizona, home of Harrah's Ak-Chin casino near Phoenix, the minimum age is also 18 -- but it's 21 at Ak-Chin, because alcohol is served on the floor.

Experts generally agree the Reno gaming market is more vulnerable than the Las Vegas market to expansion of gambling in California because of Reno's dependence on the big Northern California market.

But Las Vegas is becoming less dependent on Southern California day-trippers, one analyst said.

California remains the largest single source of Las Vegas visitors, but their per capita financial impact is not as significant as wealthy visitors flying in from East Coast and international locations, said Dave Ehlers, chairman of Las Vegas Investment Advisors.

One high-roller from the east, Ehlers said, can have the same economic impact as hundreds of California day-trippers.

"A full half of our visitors are coming by air, and we'll see that go to 60 percent," Ehlers said. "So we're less dependent on people driving in from California, and more dependent on the distant air markets."

Like Thompson, Ehlers is also doubtful California casinos would be able to cut into Nevada's market share.

"There is just no way that you're ever going to duplicate Nevada in California," Ehlers said. "I would just be very skeptical that this is ever going to be real competition for Nevada. I just don't believe that's in the cards.

"Nevada's advantage is an integrated and diversified destination resort economy. I believe it's too late for somebody to establish a beachhead that can materially impact our overall economy."

Ironically, Harrison's casino may not be participating in the new wave of expansion. Shortly after his CMA talk, a federal judge in California ordered the Tule River Indians -- owners of Eagle Mountain -- to shut down most gambling at the casino by March 14. The judge made the ruling because the tribe didn't sign a compact with California last year.