Station in surprise Indian gaming agreement

By Liz Benston (contact)

Wednesday, April 23, 2003 | 11:10 a.m.

Las Vegas neighborhood casino operator Station Casinos Inc. surprised local officials in California today by announcing an agreement to develop and manage an Indian casino 50 miles northeast of San Francisco.

If approved, the Sonoma County casino would be the second to be operated by the Las Vegas casino giant, giving Station Casinos the lead in operating the most California casinos of any local gaming company.

The project is subject to several government and regulatory approvals.

The Federated Indians of Graton Rancheria don't yet have a compact with the state of California to operate a casino. The tribe also doesn't yet have land for a casino and would need to have land put into trust by the U.S. Department of Interior before it could begin construction. Station Casinos' management contract with the tribe would also require approval by the National Indian Gaming Commission, the federal regulatory agency that oversees gaming tribes.

The tribe intends to donate more than 1,000 acres of tribal lands for environmental conservation, contribute money to support the county's educational programs and provide resources to help fund a local police and fire sub-station, said tribal chairman and Loyola Marymount University English professor Greg Sarris.

The tribe has signed a "pledge of cooperation" that it is forwarding to local officials and has written letters to California Gov. Gray Davis expressing its interest in working closely with government agencies to further the project, tribal adviser Chris Lehane said.

Lack of cooperation has been a major sticking point for several casinos in California, where residents have accused tribes of pushing through projects without concern to their effect on safety and traffic in surrounding communities. Local governments also have opposed several casinos on the grounds that tribes lack the authority to build casinos on land acquired for that purpose. Tribes maintain that they are sovereign nations that aren't subject to local rules and regulations.

The casino development is a surprise to Sonoma County administrators, who were not aware of it and were also under the impression that the tribe -- recently re-established through federal legislation -- wasn't interested in gaming, said Gayle Goldberg, a deputy county administrator.

Goldberg said the county will reserve its support of the project until it has reviewed the tribe's plans. The county appreciates the tribe's apparent willingness to cooperate with government officials, however, she said.

Sarris had said he wasn't interested in casinos when Congress was considering re-recognition of the tribe, Lehane said. But the tribe changed its mind after completing a recent economic development study.

"It became pretty clear that gaming was by far and away the option that presented the greatest economic opportunity for the tribe."

Sonoma County is wrestling with the introduction last year of the Dry Creek Band of Pomo Indians' controversial River Rock Casino. The casino, which recently underwent an expansion, has faced forceful opposition from nearby residents.

The project is the only casino in California that has triggered a "meet and confer" process with Gov. Davis to work out local differences, Goldberg said. Tribal casino compacts struck with the state give the Governor the right to open up discussions with tribes about their casinos.

The federally recognized Graton Rancheria Tribe consists of 500 members.

Station's management agreement has a seven-year term and carries a 22 percent management fee.

Some analysts were bullish on the announcement, saying the project has a good chance of success because of Station's experience developing the Thunder Valley Indian casino project near Sacramento. That casino is opening in June.

"The Auburn tribe's groundbreaking took four years from the time of its deal with Station, but this tribe may be better positioned since it has already been federally recognized by Congress with the right to receive land in Sonoma/Marin county," Lehman Brothers analyst Joyce Minor wrote in a research note to investors today.

"While revenue-sharing is not mandatory, we believe that California's dire financial position may make the governor more likely to sign a compact if the tribe agrees to some sort of gaming tax," analyst Joe Greff of Fulcrum Global Partners wrote in a research note.

Davis is in the midst of pursuing compact negotiations with the state's gaming tribes in an effort to raise more than $1 billion in needed tax revenue. Gov. Davis has proposed allowing tribal casinos to expand their slot machines, supposedly in exchange for a cut of machine revenues.

Thunder Valley has 2 million potential gamblers within a 50-mile radius, while Sonoma has a potential 4 million customers, Prudential Securities analyst Bill Lerner said in a research note.

The casino is proposed on more than 1,600 acres at the intersection of Lakeville Road and Highway 37 in Sonoma County. It would be in a rural area about 50 miles northeast of San Francisco and near the Sears Point Raceway motorsports venue.