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Gaming Guru

Rod Smith
 

California Deal With Tribes Unlikely to Hurt Las Vegas

22 June 2004

The new tribal casino compact agreements signed by Gov. Arnold Schwarzenegger on Monday likely will have no effect on the gaming industry in Las Vegas and little in the rest of the state, industry insiders and experts said.

Schwarzenegger signed new gambling compacts with representatives of five California tribes in a deal that's estimated to bring in at least $1 billion for the current budget and annual payments afterward of between $150 million and $250 million.

The new deal also allows the five tribes to increase their casinos' number of slot machines beyond the current 2,000-per-tribe cap. Those extra machines are expected to help pay the $1 billion this year and the annual payments until 2030.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson, however, noted that getting the OK for more slot machines -- should the tribes decide to buy them -- will not necessarily translate into added customers.

Only Thunder Valley Casino, which is operated by Station Casinos, is really crowded, he said, and other tribal casinos in California have plenty of capacity for added customers without more slot machines.

"We already have unlimited slots in Las Vegas. It means good customer service because (gamblers) won't have to wait for a machine to play," Thompson said.

Furthermore, Hal Rothman, chairman of the history department at the University of Nevada, Las Vegas, said, historically, new casinos between San Diego and Las Vegas have not siphoned off customers because the Strip represents a leading entertainment opportunity and Indian casinos offer only limited gambling experiences.

"What they do is increase the importance of I-15. If traffic becomes more impenetrable, it could become a problem for operators (here)," he said.

He said the added slots could pose more of a problem for operators in the Reno area, which offers casinos very similar to tribal casinos in Northern California.

And he doubted the new compacts will have any effect on the Laughlin area, which historically has been a largely independent market.

The Pala Band of Mission Indians, the Rumsey Band of Wintun Indians, the United Auburn Indian Community, the Viejas Band of Kumeyaay Indians and the Pauma Band of Mission Indians each signed new compacts with California.

Under the new deal, they'll get to add thousands of new slot machines to their casinos. The last compact, signed by then-Gov. Gray Davis in 1999, limited tribes to 2,000 slot machines.

The tribes will pay a licensing fee to the state for each additional slot machine above the current limit -- and the more machines a tribe adds, the higher the fee, up to $25,000 per machine.

The deal limits the slot machines to Indian land casinos that are already open.

Thompson said the compact agreements are a great deal for Schwarzenegger because it shows he's working to solve the state's incapacitating budget crisis.

He said it's also a good deal for the tribes because Schwarzenegger has agreed to fight efforts by magazine publisher Larry Flynt to legalize slot machines in California's card rooms.

Deutsche Bank analyst Marc Falcone also called the compacts a good deal for Las Vegas-based Station Casinos because it will boost revenues and cash flow at the Thunder Valley Casino, which Station manages for the United Auburn Indian Community.

He said it is likely Thunder Valley will add 800 to 900 slot machines, which should contribute another 8 cents to 10 cents to Station's annual earnings per share.

Falcone said the new agreements will also help Reno-based International Game Technology and other slot makers, who should be able to start shipping additional machines into California before the end of the year.

Caesars Entertainment, which signed an agreement in September with the Pauma Band of Mission Indians to develop a Caesars-branded casino on tribal lands in Southern California, could also get a boost from the agreements, Falcone said.

The Las Vegas-based gaming company also has a preliminary agreement with the Big Sandy Band of Western Mono Indians to develop and manage a $200 million tribal casino near Fresno, Calif.

However, Falcone and other analysts said it is unlikely added slot machines at tribal casinos in California will have any noticeable impact on the competitive balance for casino operators in Las Vegas.

Schwarzenegger hopes to have new agreements with as many as a dozen Indian tribes, but not all are receptive to the reworked deals.

The Rincon Indian Tribe in San Diego County sued earlier this month to block Schwarzenegger from reworking the compacts.

Another tribe, the Aqua Caliente Band of Cahuilla Indians, has sponsored a ballot initiative that would expand Indian gaming in return for tribes paying the state 8.8 percent of their net income.

The Associated Press contributed to this report.