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Rod Smith

California Deal Helps Las Vegas Group

20 August 2004

LAS VEGAS -- George Maloof, owner of the Palms, and Jerry Turk, former owner of Fitzgeralds, were the big winners in California Gov. Arnold Schwarzenegger's latest wager on expanded tribal gaming to solve his state's budget woes.

Schwarzenegger on Thursday announced new gambling compacts with five Indian tribes that will pave the way for California's first urban casino, which will be even bigger than the casino in the MGM Grand.

The Maloof family and Turk, along with the Rumsey Band of Wintun Indians and the Pala Band of Mission Indians, are the major owners of California Indian Gaming Development and California Indian Gaming Management, the limited liability companies that will develop and operate the $450 million Lytton's San Pablo Casino in the San Francisco Bay area.

Besides the compact with the Lytton Band of Pomo Indians, which will own the Bay area casino, Schwarzenegger also reached agreements with the Fort Mojave tribe in Needles, the Coyote Valley Band of Pomo Indians near Ukiah, the Buena Vista Band of Me Wuk Indians in Ione and the Ewiiaapaayp band of Kumeyaay Indians of east San Diego County.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said the new casinos likely will cut into visitor counts in Northern Nevada and downtown Las Vegas but should not have any effect on Strip operators.

"Casinos on the Strip are different. They have an energy even a huge casino (like Lytton's San Pablo) can't copy," he said.

Still, California is an underdeveloped gaming market, and the new casinos will give it an edge in developing business that would otherwise go to non-Strip markets in Nevada.

Maloof, who has been involved in the casino business for 15 years in Colorado and Nevada, said he is anxious to get rolling on the new development.

"It's part of the business we're in and this is what we do. I'm excited to be involved in the project," he said.

Turk, who also developed the Pala Casino north of San Diego, said he is excited about the San Francisco area casino project because it offers a challenge to build a facility that will help the tribe lift itself out of poverty while also benefiting the local community and state.

"Our objective is to build a project the tribe, city and state are all proud of and that contributes to the local economy as well," he said.

The project still requires approval from the state Legislature and the Bureau of Indian Affairs. It will also require completion of an environmental impact statement, which is under way, Turk said. The Legislature is expected to approve the compacts before it recesses next week.

The new casino will be a massive expansion of Casino San Pablo, a Contra Costa County card room owned by the Lytton Band of Pomo Indians, a 259-member American Indian tribe in Sonoma County that regained federal recognition in 1991.

Turk said the 450,000-square-foot entertainment complex, which has been criticized in California for its size, will have a 200,000-square-foot casino, a 150,000-square-foot events center and a 100,000-square-foot administrative area on a 9.5-acre site less than 20 miles from San Francisco.

It will have 4,000 slots, compared with 2,900 at the MGM Grand, 150 to 200 table games and seven restaurants, he said.

"What you don't want to happen is for the surrounding community to become your parking lot," he said.

Turk said the partners expect to break ground within a year and open the casino in 2007.

The compact signed by Schwarzenegger has been criticized for giving the Lytton tribe exclusive casino rights within a 35-mile area, but Turk called the criticisms unfair.

Instead of exclusivity, Turk said the compact stipulates that if the state grants anyone else the right to operate a casino nearby, the tribe will not pay the state its 25 percent cut of the winnings on a proportion of the slot machines and gaming tables.

Otherwise the Lytton tribe agreed to pay the state 25 percent of its profits at the San Pablo casino over the seven-year term of the compact.

The San Pablo casino is expected to generate more than $600 million in annual profits.

"I think the (25 percent) is fair. When you focus on the location, the size of the market and the other elements, I think it's fair. Any negotiations with the state involves a give and take, and this one came out fair all the way around," Turk said.

Schwarzenegger said in a statement he was very pleased with the financial contribution the tribes have agreed to make to the state.

Schwarzenegger has won new agreements with 10 Indian tribes, keeping a pledge from his campaign to wrest more revenue from tribes that entered agreements with former Gov. Gray Davis. The latest agreements alone are expected to boost California's revenue by about $200 million a year.