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April 16, 2014

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Neighborhood Draw

The journey from Frank Fertitta Jr.'s casino pit 30 years ago to the new South Coast isn't easy to trace on a map, but anyone who wants to understand Las Vegas needs to try.

Fertitta opened a small casino in 1976 merely to give co-workers a place to relax after their shifts. What he unwittingly tapped was a new market -- Las Vegans who wanted casinos of their own, places they could go to off the Strip.

At first, that serendipitous discovery led to a niche market: the local, or neighborhood, casino. But as is obvious from the splendor of South Coast, which opened Thursday, and its immediate ancestors, especially Green Valley Ranch Station, the local casino is no longer a niche market, or strictly local.

More and more, those casinos are rivaling Strip resorts in the quality and array of amenities. And with the opening of the immense and elaborate Red Rock Resort in the spring, the idea that casinos built away from the Strip are for locals only might be gone forever.

But some say it all started with one-time blackjack dealer Frank Fertitta Jr. His Bingo Palace on Sahara Avenue begat Sam's Town at Flamingo Road and Boulder Highway three years later, opened by Sam Boyd.

Crosstown rivals

The Bingo Palace and Sam's Town were on the edges of town, not far from the Strip but far enough that skeptics predicted failure.

"It was pretty much desert," Frank's son, Lorenzo Fertitta, recalls about the location of Bingo Palace. "People thought he was crazy."

If so, they should take note of Lorenzo Fertitta's position today -- president of Station Casinos, the biggest locals casino operator in Las Vegas.

As for Boyd's venture, skepticism came from some of his closest friends, son Bill Boyd says. "You wouldn't believe how much there was," he said. "They said, 'Are you out of your mind? You're going to lose everything. There's no way that place can be successful.' "

For the record, Bill Boyd is chief executive of Boyd Gaming, the valley's No. 2 locals operator.

At the time, residents had found a place to hang out -- downtown Las Vegas. But access had become a problem because most had to drive miles from their homes in the newly sprawling city. Casinos closer to their neighborhoods gave people a place to gamble and meet friends after work.

As the new market developed, so too did the competition. Michael Gaughan, who owned the Barbary Coast on the Strip, opened the Gold Coast on West Flamingo Road in 1985.

Inside were the first casino movie theaters and a meeting and convention center. It also featured a bowling alley, an amenity that would become a staple of future locals casinos.

Naysayers criticized Gaughan, as they had the Fertittas and Boyds.

"Every place I ever built, other than the Barbary Coast, people told me I built too big," said Gaughan, who leads Boyd's Coast Casinos subsidiary.

"When I built the Gold Coast, they said it was too big. When I built Suncoast, people said, 'What are you doing?' "

Investors also cluck-clucked. George Maloof, who opened the Fiesta in North Las Vegas in 1994, waited three years to obtain financing. "It was tough to put it together," Maloof said. "A lot of people questioned the location.

"I looked at the growth in the area and was convinced it could work. I just had to convince other people."

The Fiesta expanded three times before being sold to Station Casinos in 2001 -- and it survived the opening of Station's Texas Station across the street.

The neighborhood market was clearly exploding. "We figured out quickly that it was too small when we opened," Maloof said of the Fiesta. "Texas struggled a bit when they opened, and then they were able to do fine."

Station later expanded the Bingo Palace and transformed it into Palace Station. The company opened Boulder Station in 1994, not far from Sam's Town.

"It was substantially different from Palace Station," Fertitta said. "People said we overspent, that it was too nice and too fancy. But that's been a common theme at Station. We try to exceed people's expectations. We want to get the oohs and aahs and wows."

Another milestone in the locals market also belonged to Station -- in the form of the first locals casino costing more than $200 million. Some analysts called Sunset Station risky "missionary work" when it opened in Henderson's growing suburbs.

At more than 130,000 square feet, Sunset Station is Las Vegas' largest suburban casino, located in one of the busiest commercial corridors in the valley. The structure includes a stained glass atrium above a bar in the center of the casino.

The casino floor, as well as the one at Sam's Town, is bigger than those at Luxor and Mirage on the Strip.

The most profitable of the Las Vegas-based casino operators, Station attributes its high return on investment to repeat slot machine play. Despite the addition of retail stores and movie theaters, slots account for about 80 percent of the casino revenue at Station properties.

Today, neighborhood casinos reap more than $2 billion from gamblers a year. That's more than the entire gambling markets of most states except for California and New Jersey.

By 2010, locals gaming revenue will climb to $3.2 billion, according to Wall Street analyst Joe Greff of Bear, Stearns & Co.

Much of the success can be laid to the astounding population growth in the Las Vegas Valley over the past two decades. Clark County's population has grown more than 123 percent since 1990 and more than 270 percent since 1980, when some of the first big neighborhood casinos were gaining ground.

What's more, many who move to Las Vegas are older and retired -- people who are cashing in on investments elsewhere and have money to burn.

Yet as always, the future of the locals market is ultimately determined by the Strip. Every new job there counts as another set of feet inside a locals casino.

This year, roughly $2.7 billion in construction projects are creating more than 3,700 hotel, condo and time-share units on or near the Strip, according to Bear Stearns. That's expected to grow to $3.8 billion next year and $11.8 billion by the end of the decade.

Social club

For area residents, the neighborhood casino is more than a business concept. For better or worse, it's the cultural and social lifeblood of the valley.

"For a lot of the older people moving to town, the locals casino becomes their venue of choice," said Bill Thompson, UNLV professor of public administration. "They have low-cost buffets. You can see movies there, play bingo. Those people are lonely, and they have money. They don't have obligations."

The valley's construction boom has also created another class of casino customer: construction workers, Thompson said.

"They don't have roots in Vegas," he said. "They're single men or men with families in other states. They're here during the week or maybe they'll stay here for months at a time. They need something to do when they're not working."

Like major retail malls in other cities, casinos also have become anchors for commercial development. They have become shopping, dining and entertainment centers, drawing crowds away from stand-alone retail stores, movie theaters and other entertainment venues that have become riskier to build.

"You'd have to be crazy to build a stand-alone movie theater in this town," said Gaughan, whose $600 million South Coast has 16 movie screens and the latest digital technology.

They reflect the growth of their surroundings.

"If you want to know where Vegas is expanding, look at where the last (locals casino) opened and where the next one's going to be," said Anthony Curtis, publisher of the Las Vegas Advisor, a gaming newsletter. "They've gotten very good at timing these places."

They also reflect their neighborhoods. Coast's Suncoast, one of the most profitable casinos in town, is in an affluent enclave. Station's Green Valley Ranch, which opened in 2001 near the upscale Anthem community, cost $300 million and features a spa, lounge and fancy poolside terrace designed by nightclub developer Rande Gerber.

"The people who live there don't consider it a casino," Thompson said of Green Valley Ranch. "It's a luxurious place to go for an evening out."

Station will break the record again when it spends at least $925 million -- about what it cost to build Mandalay Bay in 1999 -- to open Red Rock Resort next year. Station executives say it's a reflection of the Summerlin neighborhood as well as more expensive amenities.

But the fancy new locals are by no means aimed only at the wealthy. "We've really tried to target every demographic," Fertitta said. At Green Valley Ranch, "we wanted to have something for everyone so that someone could be wearing a suit and a tie at a table game next to someone wearing cutoff jeans. If we can do that, we've succeeded."

The template for success starts with easy access from a major thoroughfare and lots of parking. Modestly priced food and a buffet are important, as are low-minimum table games, penny, nickel and quarter slots and higher payout percentages than the Strip. Entertainment offerings also change more frequently to keep locals coming back.

Both Station and Boyd Gaming have perks to lure back frequent gamblers -- Station with credits redeemed at slot machines and Coast with cash. Like the big resorts, they comp customers with free meals and shows.

Increasingly, it's not just locals who want a piece of that action. Gaughan and Maloof, with their Orleans and Palms properties, were among the first operators to open properties that split revenue fairly equally between locals and tourists.

South Coast will also be fed by tourist traffic off Interstate 15. "We have everything you can find at a Strip casino but we have $5 tables," said Patrick Fitzgerald, a casino manager at South Coast. "That's who we are -- that's our brand. It's affordable luxury."

It's also still mind-boggling, especially for those who were around in the beginning. "I think when this whole thing started my father couldn't have imagined the sheer size of what the operation has turned into," Fertitta said.

"If he had known his two sons were going to build a billion-dollar casino miles from the Las Vegas Strip, it would have shocked him."

Liz Benston can be reached at 259-4077 or at [email protected]

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