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July 31, 2014

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Small casinos team up to play like the big boys, stay in loop

In the shadow of luxury condo towers and giant north Strip casinos sits the Eureka Casino, where the big news is not a posh nightclub or high-limit lounge but the remodeled Teddy's Restaurant (home of the Thunder Burger and $4.44 breakfast specials), hand-paid jackpots and the opportunity to chew on your club sandwich while you sit at the slot machine.

But the most interesting aspect of the Eureka, which boasts 264 slots, a 24-hour cafe and plenty of parking around in the back, are the people who own it. The Lee family - Ted and his wife, Doris, and sons Greg and Ernest - have owned and operated the Eureka since 1988. With the rise of luxury resorts and big locals joints, the family-run casino, once the primary ownership type in Nevada, is a dying breed.

That's one of the reasons Greg, who is also president of the family's larger Eureka casino in Mesquite, decided to join the fledgling Independent Gaming Operators Coalition.

In a state where the economic engine is driven by fewer than two dozen Strip resorts, Nevada is in many ways a state of small-casino operators like the Lee family.

About 85 percent of Nevada's 369 gaming license holders earn less than $50 million a year in gaming revenue, which is the cutoff the coalition uses for membership. That group accounts for about 20 percent of statewide casino revenue.

Although the Eureka and other Las Vegas Valley casinos are benefiting from Clark County's booming economy, many of their Northern Nevada counterparts are a few slot machine bills away from losing their shirts. The gap between the haves and the have-nots is widening as already hurting operators fall deeper into a financial hole.

That's why the coalition began in Northern Nevada, where most of the group's 80 members are . That area, without the allure and marketing muscle of the Strip, has been hardest hit by competition from California's tribal casinos. Revenue in Washoe County and surrounding rural counties has fallen by at least 20 percent in the past decade.

The Nevada Resort Association, the industry's premier lobbying group, represents all casino operators. But the largest casino companies, with their own lobbyists and attorneys, have the biggest voice in Carson City, frequently addressing issues specific to them.

As a result, the resort association is inclined to take on broad gaming issues, which may overlook and sometimes oppose issues significant to independent operators.

The small-casino coalition stepped into the spotlight in 2005, lobbying to adjust downward gaming tax brackets on behalf of the small operators. It would, they say, adjust for the inequity of being lumped together with the biggest Strip resorts.

But the resort association, concerned about the political ramifications of lowering casino taxes even for mom-and-pop casinos, and wanting to protect the industry's image as the state's primary taxpayer, killed the proposal.

The Nevada Resort Association "gets nervous whenever people start talking about tinkering with the tax structure," said A.J. "Bud" Hicks, a Reno gaming attorney who helped organize the small-casino coalition. "If one segment pays less taxes, someone has to make it up. That's a legitimate concern."

The coalition and the resort association compromised with Senate Bill 381, which would give small casinos that pay better than minimum wage and offer health insurance a tax credit of $150,000 for improving their properties.

Even with its most positive spin, the bill will be a tough sell in Carson City.

Discussions about forming a coalition began in 2001 and heated up in 2003, when the Gaming Control Board began the process of requiring casinos to offer electronic slot machine accounting systems. Although the systems were initially viewed as a burdensome cost for tax-collecting purposes, even small operators realize the secondary benefits , such as tracking player spending habits and allowing casinos to tailor marketing offers.

Smaller casinos complained that, mostly because of their own inattention, they were largely unaware of the rule until it had been enacted, forcing them to adjust to an unforeseen expense.

"Most of these operators are so busy running their businesses that they don't know what's going on," said Ryan Sheltra, owner of the Bonanza casino in Reno and coalition president. "You take the law as it comes and assume that there's going to be fairness. In some cases, things could be more fair."

Besides asserting itself in the Legislature, the coalition is considering a purchasing group and, using attorneys, a lobbyist and other advisers, has begun spreading information about new gaming laws and other regulations.

"We are starting to enjoy the fruits and successes of being part of a unit," Sheltra said. "For as long as I've known them these guys have been very independent. Everyone stayed out of the way because they didn't want to get run over."

Although small-casino operators in urban Clark County don't necessarily agree with their northern neighbors on all issues, they feel some kinship , Greg Lee said.

"It's like taking a snapshot of history," he said. "For some of these towns in Northern Nevada, there really isn't growth and the casino is all they have."

The coalition isn't the first effort by independents to rally around a cause.

In 1991 a handful of operators halted a proposal to increase state-mandated staffing requirements for smaller casinos' accounting departments. Big casinos backed across-the-board increases that would have hurt the smallest properties.

Ted Lee is among those who argued against the staff increases, saying they were unnecessary given the smaller casinos' relatively low earnings.

"The big casinos have tried to pass laws that would have put us out of business or make it more difficult to get a license," he said.

One of his pet peeves is a rule, adopted in 1991, requiring certain casino owners to have at least 201 hotel rooms, a bar and a restaurant. Pushed by the resort association to prevent the spread of small-slot locations, the rule has effectively prevented small casinos such as the Eureka, which doesn't have the space to build hotel rooms, from adding slots.

Some independents have thrown in the towel.

John Woodrum, owner of the Sunset Klondike casino in Henderson, is another veteran of the 1991 battle . But he hasn't joined the coalition.

"I'm not in a position to go out and fight the wars anymore," said Woodrum, who recently sold his Klondike casino on the Strip to developers. "Let the younger guys do it."

The group that stuck together in 1991 has splintered as operators died, retired and cashed out, he said.

"We're all dinosaurs. It's just a matter of time before we die out."

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