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Rod Smith
 

Schwarzenegger's Gaming Plan Criticized

9 January 2004

LAS VEGAS -- California Gov. Arnold Schwarzenegger's plans to expand tribal gaming could further hurt already struggling smaller markets in Nevada and drive up costs in Las Vegas, industry experts said Thursday.

The new governor on Wednesday addressed tribal gaming issues for the first time since his State of the State address when he named a former official of the administration of Gov. Pete Wilson, Daniel Kolkey, to head negotiations on new tribal gambling agreements with Indian casino operators in California.

In his Tuesday State of the State address, Schwarzenegger said his negotiators would be charged with the mission of making sure "California receives its fair share of gaming revenues." During his campaign, he also said he wanted to add $1 billion to $2 billion to state coffers from the California tribes.

Together, the moves show Schwarzenegger is serious about moving ahead quickly on expanded tribal casinos and gaining added state revenues from the tribes, said Bill Thompson, University of Nevada, Las Vegas professor and casino industry expert.

"He said he respects their sovereignty, but if he is asking them for their revenue, he does not respect the Indian gaming law, which prohibits states from taxing Indian gaming by any name. It would be nice to see the governor respect federal law," Thompson said.

The two moves also promise a substantial expansion of tribal gaming in California under Schwarzenegger, he said.

"It seems Schwarzenegger is going to continue the (Gov. Gray) Davis philosophy of letting the Indians have everything they want even if it goes beyond the law. The name of the game is money," he said.

He said any expansion will help cripple gaming in Reno and Laughlin, which are already struggling because of Indian gaming competition.

Further, Thompson said more Indian gaming will force major operators in Las Vegas to invest added funds in developing and expanding casinos in Las Vegas, increasing their cost of doing business in Nevada.

"Some 30 percent (of Las Vegas business) is drive in from California. As we face cracks to replace it with fly-in people, we need the spectacular and that will increase the cost of the industry (and cut tax revenues) here," he said.

Opinion on Wall Street was mixed on whether the new governor and Kolkey will be successful negotiating with tribal interests.

"It seems clear that he intends to negotiate with the tribes to get a portion of their gaming revenues into the state's coffers, in an attempt to alleviate California's fiscal crisis," said Deutsche Bank analyst Marc Falcone.

Falcone agreed that including the tribal negotiations in his first State of the State address was a sign that Schwarzenegger is serious about pursuing new agreements to expand gaming.

"Upon taking office in mid-November, Gov. Schwarzenegger indicated that one of his top priorities for his first 100 days (in office) was to negotiate with the tribes. Just over halfway through those first 100 days, we expect negotiations to intensify over the next two to three months," Falcone said, which may indicate more clearly where tribal gaming is headed in California.

However, Bear Stearns analyst John Mulkey was more guarded because of Kolkey who, like Wilson, clashed with the tribes over expansion.

He said the tribes in California disliked Wilson and his opposition to tribal gaming, which may not bode well for the upcoming negotiations.

Kolkey is expected to start talks with tribes next week to get the tribes to disburse up to 25 percent of their slot-machine revenues to the state, an amount the tribes have said they won't agree to.

Total tribal revenues in California have been estimated at $3.5 billion to $4 bllion, although the volume of play has been increasing rapidly.