Panel: Calif. casino growth still not hurting LV

Thursday, Feb. 5, 2004 | 10:53 a.m.

The explosion of tribal casinos in California continues to hurt Nevada's second-tier markets, such as Laughlin, Reno and Lake Tahoe, but does not appear to be significantly cutting into business in Las Vegas, a panel of experts said at a conference in Las Vegas Wednesday.

Recent customer surveys show less than one-fourth of trips to California tribal casinos last year were trips that would have otherwise been made to Las Vegas, gaming industry consultant Stephen Szapor Jr. said on the final day of the two-day, industry-sponsored American Gaming Summit. Szapor is chief operating officer of The Innovation Group, which counts Strip casinos and hotel companies as clients.

The majority of trips to California casinos were made by customers new to gambling, he said. The casinos are "expanding the market," which bodes well for the industry as a whole, he said.

Those who are gambling in California also are visiting casinos more often, he said.

"Las Vegas actually will probably continue to benefit" from the expansion of gambling nationwide, said Andrew Zarnett, a bond analyst with Deutsche Bank Securities, one of the company sponsors of the event.

The gaming business remains "difficult" in Laughlin, and Reno in particular will continue to be hurt as casinos in Northern California expand, Zarnett said.

The projections come as California Gov. Arnold Schwarzenegger begins negotiations with at least seven tribes that hope to add more slot machines in exchange for increased revenue to the state.

Schwarzenegger's 2004-2005 budget includes an anticipated $500 million from gambling tribes.

Sacramento attorney Howard Dickstein, who represents a group of tribes negotiating with the governor, told the Las Vegas group that talks so far have been "constructive" and "hopeful."

Schwarzenegger is "comfortable with the legitimacy of tribal gaming and gaming in general" and is "willing to authorize the growth of tribal gaming" in return for tribal assistance to the state, he said.

Early discussions "have been conducted in an atmosphere of respect," in which the administration believes "there's nothing inherently suspect about tribal jurisdiction, he added.

Anthony Miranda, a member of the Pechanga Band of Luiseno Indians in Riverside County and an executive with the tribe's development company, said the Schwarzenegger administration is so far "doing what they are saying they are going to do."

"It wasn't until the Davis administration was backed into a corner ... that it started to negotiate," he said, referring to former Gov. Gray Davis.

Miranda said the Pechanga tribe -- known for its long history with gaming and its aggressive, Las Vegas-style operation -- isn't participating in the negotiating process.

Negotiators are hopeful that tribal compacts calling for new revenue for the state's general fund can be amended by July, though the Department of the Interior would also need to sign off on the result, Dickstein said.

"It means we have to move quickly," he said.

Panelists dismissed a controversial proposal to allow card clubs and racetracks in urban areas the right to offer up to 30,000 slot machines unless tribes agree to pony up 25 percent of their gambling revenue to the state's general fund.

The proposal is on shaky legal ground because it would impose state laws on tribes, which are federally regulated, Dickstein said.

"We are confident it will go down sooner rather than later," he said.

Some of the smaller tribes' casinos could be "put out of business" if they had to pay that much of their revenue to the state, he added.

Achieving universal agreement among tribes is near impossible, Miranda said. Observers also have grown skeptical of the proposal, he said.

The money raised by the initiative would go to local programs rather than directly into the general fund to help pay off the state's budget deficit, while racetracks would be allowed to stop or relocate their racing activities once they get slots, he said.

Panelists said they hadn't yet formulated a final position on two other recent ballot proposals that haven't yet been published by the state.

The Agua Caliente tribe in Palm Springs has proposed paying 8.8 percent of gambling profit in exchange for unlimited slot machines and casinos on tribal land. Another initiative by a casino watchdog group would cap slot machines at 3,000 per tribe and require tribes to offer employment rights to casino workers and negotiate with local governments to offset traffic problems and other environmental effects of their casinos. Both plans would allow tribes to maintain their monopoly on slot machines.

While some tribes have turned to Las Vegas companies or other well-financed gaming experts to develop and run their casinos, those contracts -- limited to 7-year increments by federal law -- often prove temporary as tribes eventually learn the business and operate casinos themselves, panelists said.

However, opportunities still exist for companies to develop and manage casinos for Indian tribes, Station Casinos Inc. Chief Financial Officer Glenn Christenson said.

Station Casinos last month struck its third management deal with a California tribe to run a small casino proposed near Chico. Station also has a contract with a Michigan tribe.

But Dickstein said casino opportunities are dwindling because little tribal land remains for casino development and the process for obtaining land in trust through the Department of the Interior is becoming more problematic. Only a handful of California tribes without reservation lands have managed to achieve recognition and obtain land for a casino through an act of Congress, he said.

Two of those tribes -- the Auburn and Graton tribes in Northern California -- have deals with Station Casinos.

The capital markets are now "wide open" for casino tribes and investors in California, Zarnett said.

Whether favorable conditions remain will be decided in the next few months as compacts are negotiated and analysts begin to understand what the market will eventually look like, he said.

Too many slot machines or casinos in a particular market could create a glut of competition that could make investors nervous, for example, he said.