Harrah’s, Boyd in tribal gaming deals

David Strow

Wednesday, Jan. 19, 2000 | 11:02 a.m.

Two Las Vegas Strip casino operators separately announced plans Tuesday to pursue development of tribal casinos in huge population centers on opposite sides of the country.

Harrah's Entertainment Inc. of Las Vegas, which already operates three tribal casinos, said it would open a fourth -- a $100 million casino near San Diego, developed in partnership with the Rincon San Luiseno Band of Mission Indians.

The announcement made Harrah's the third Nevada company to announce its entry into the California market, though Harrah's is the first operator of Strip properties to announce it will make the move.

Several thousand miles away, the Narragansett Tribe announced its desire to partner with Las Vegas-based Boyd Gaming Corp. in developing a casino in Rhode Island. Boyd replaced Phoenix-based Capital Gaming Development, the tribe's partner since 1993.

The tribe hopes to open a $250 million, 250,000-square-foot casino, an effort that's been under way for eight years. But a Boyd spokesman said no final agreements have been signed.

"We were there to offer our support and demonstrate our interest in looking into this development opportunity," said Rob Stillwell. "It is purely an exploratory thing from our standpoint."

Analysts had been anticipating Harrah's would move on California, given its successful tribal properties near Phoenix, Topeka, Kan., and western North Carolina. Two Las Vegas companies -- Anchor Gaming Inc. and Station Casinos Inc. -- have already announced deals to enter California, but Harrah's is the first Strip operator to do so.

"Harrah's is one of the most successful managers of tribal casinos in the country," said Harry Curtis, gaming analyst with Robertson Stephens. "They've got the deepest management team capable of managing tribal casinos, very strong relationships and an outstanding reputation.

"I think that the Rincon location is one of the best in the San Diego market. There are 1 million people within 25 miles of this facility. It should be fairly successful, we think."

Robin Farley, gaming analyst with Deutsche Bank Alex. Brown, estimates the casino could produce $16 million in annual cash flow for Harrah's -- about 6 to 8 cents per share.

"That's with the caveat that we're a long ways off," Farley said. "I wouldn't expect anything before 2001, maybe even 2002. Even if (California gaming) is approved, it remains to be seen what the structure of the California regulatory system will be."

California voters are set to vote on Proposition 1A in March. This proposition would permit the establishment of tribal casinos throughout California, and is expected to pass easily.

The fact that Harrah's didn't oppose the 1998 campaign to legalize gambling, known as Proposition 5, played a big role in the tribe's decision to go with Harrah's.

"After evaluating several other companies, we felt Harrah's commitment to Indian gaming was unparalleled," said John Currier, tribal chairman. "Important in our decision is that Harrah's did not oppose California Proposition 5."

Cross-branding may be the most valuable aspect of the deal, one analyst said.

"In the scope of things for Harrah's, it won't be that dramatic (financially)," said Lehman Bros. analyst Stuart Linde. "(Cross-branding) is why Harrah's would do it. Phoenix is a large market for Las Vegas as well, and they've been successful cross-branding there."

Linde anticipates Harrah's may try to open a second casino in Northern California, in order to cross-brand its Reno product to that market.

Linde said he expects to see Boyd Gaming and Minnesota-based Lakes Gaming announce deals in the near future, given their penetration in the tribal casino market.

Boyd is already moving in that direction on the East Coast. If successful, its Narragansett casino would be the first Las Vegas-style casino in Rhode Island, located closer to Boston than the current casinos operating in Connecticut and Delaware. As proposed by the tribe, the casino would feature 3,000 slot machines and 300 table games.

"If they can get it done, it would be great," Linde said.

But that "if" is a huge one. Although West Warwick voters overwhelmingly approved plans to develop a casino in their town in June, approval must still come from the state.

First, the Rhode Island Legislature would have to approve a bill authorizing a statewide referendum on tribal gaming. Then, the legislature would have to approve the establishment of a state gaming regulatory commission.

Even if legislators approve those bills, one huge hurdle remains -- Rhode Island Gov. Lincoln Almond has vowed he will veto any bill authorizing casino gambling.

"The arguments for him remain the same regardless of who the partner is," Almond spokeswoman Lisa Pelosi told the Providence Journal. "Is this best overall for the quality of life in Rhode Island? Is this best for economic development in Rhode Island? Is it best for property values in West Warwick?"

"That's a large enough hurdle for me not to believe that it will be a meaningful casino any time soon," Curtis said.

Stillwell acknowledged that political barriers remain, but expressed guarded optimism.

"If we thought there wasn't a chance, we wouldn't be wasting our time," Stillwell said.