Locals casino market continues to expand

David Strow

Sunday, Feb. 6, 2000 | 9:14 a.m.

Neighborhood casinos keep springing up in the Las Vegas Valley for one simple economic reason -- they're serving one of the fastest-growing gaming markets in the United States.

But the fact that local operations keep popping up and growing is making it more difficult than ever for locals casinos to continue making a profit. One casino operator estimates only six locals casinos out of 20 show sizable profits.

Locals casino operators have two advantages Strip operators do not. First, they are not at all reliant on so-called "high rollers," and as a result, their profitability doesn't tend to take big swings. Second, their target market is growing by 6,000 people a month -- faster than any other urban area in the United States -- and this market is more accepting of gambling as entertainment than any other American demographic.

"We believe that the Las Vegas locals market has the best fundamentals of any gaming market in the country," said Glenn Christenson, chief financial officer of Station Casinos Inc., which operates four big locals casinos in the Las Vegas Valley.

Taking a look at numbers from the Nevada Gaming Control Board shows just how hot some local markets are.

While the Strip enjoyed historic annual returns through November 1999, recording 16.14 percent growth in casino win, it was actually outpaced by North Las Vegas, a market that saw 16.25 percent growth in gaming win over that period. Over the same period the Boulder Strip's win grew 11.3 percent. Compare that to downtown Las Vegas, which saw win fall 2.3 percent.

That doesn't mean the locals casinos will challenge Strip casinos anytime soon in total revenues -- the Strip's casino win over the 11 months was $4.4 billion, compared to $548.7 million on the Boulder Strip, and $219.5 million in North Las Vegas. But it does mean that those operators that do well can be very profitable -- something not all Strip operators can say.

Station is the largest locals casino operator in Las Vegas. It launched its first local casino in 1976, bucking conventional wisdom that Las Vegas residents did not gamble. As it grew, it expanded to new parts of town, putting its casinos within easy reach of virtually every Las Vegas Valley resident. Station's four big properties are in Las Vegas, the Boulder Strip, North Las Vegas and Henderson.

In 1999 its four Las Vegas casinos generated $584.9 million in revenues, up 11 percent from 1998. The cash flow of these casinos -- a rough measure of the operations' profitability before interest and other costs -- rose 21 percent to $192.6 million.

But it would be a mistake to assume that every locals operator does that well. Recent entrants in the locals market, such as the Reserve and the Resort at Summerlin, have struggled financially. Arizona Charlie's struggled as well before it was taken over by New York investor Carl Icahn.

Next to open will be Suncoast, a Summerlin resort developed by Coast Resorts Inc., generally considered Station's closest rival in the locals market. That casino is set to open by year's end.

More competition than anticipated can create problems in meeting projections. And since most casino developers must borrow tens or hundreds of millions of dollars at high interest rates, missing projections can cause an operator to bleed red ink.

"Not everyone will be successful with a locals casino," said Robin Farley, analyst with Deutsche Banc Alex. Brown.

That makes customer service even more vital, said George Maloof, president of the Fiesta hotel-casino in North Las Vegas.

"You have a core base of players there five to six times a week," Maloof said. "You lose one of them, it's like losing 50 customers."

The Fiesta is the Maloof family's only casino -- however, the family plans to build a second locals casino on Flamingo Road near the Rio.

There are different philosophies on how to keep the customers coming back. Station's philosophy, for example, includes the consolidation of a huge array of retail options for local residents.

"We want to be the complete entertainment destination for locals," Christenson said. "There is so much more to do at Station properties than just gamble."

The other common strategy is a casino focused on serious gamblers -- and attracting these players with relatively favorable odds. It's a philosophy used by such casinos as the Fiesta and Sam's Town -- but both casinos are moving in Station's direction.

"We are kind of an alternative (to the modern locals casino)," Maloof said. "We cater to the serious gambler, the local who feels they have a better chance at winning here, because we don't have all the amenities."