LV casinos to battle expansion of Indian gaming in California

Strange bedfellows, indeed.

Las Vegas casino operators are joining forces with, among others, some of gambling's most vociferous opponents in a bid to convince California voters to vote against expansion of Indian gaming there.

The reason?

Passage of the so-called California Indian Self-Reliance Initiative in November could cost Southern Nevada casino operators hundreds of millions of dollars in lost business.

"In a nutshell, if the initiative passes, more than 100 Native American tribes could establish casinos in California of similar scope to Foxwoods in Connecticut," said Harry Curtis, senior gaming analyst at BancAmerica Robertson Stephens.

"The potential loss to Las Vegas casino operators could be $200 million to $300 million in cash flow annually, or 15 to 20 percent of the total," Curtis said.

Curtis and Mike Sloan, general counsel of Circus Circus Enterprises Inc., discussed the likelihood of the initiative's passage during a conference call with investors Tuesday.

While they pegged the chances at less than one in eight, Curtis and Sloan were clearly kicking off a concerted effort by some Nevada-based casino companies and their investors to make sure the initiative fails if, as expected, it is on the November ballot.

Circus Circus is one of several Las Vegas casino operators likely to suffer from a sharp drop in business if full-scale casino gambling becomes the norm in the neighboring state that supplies about 30 percent of Southern Nevada's tourists.

Circus, Primadonna Resorts Inc. and Boyd Gaming Corp. could be "the most exposed major operating companies in Nevada," according to a new research report by Bear Stearns & Co. Senior Managing Partner Jason Ader.

Circus, Mirage Resorts Inc. and Hilton Hotels Corp. are gearing up to help finance opposition to the initiative, though they haven't disclosed the size of their commitments.

Sloan said Tuesday California tribal leaders are expected to spend $20 million to $30 million to garner support for the initiative. "I would think the opposition, which would involve a broad base of people, would be competitive" in the amount it spends, he said.

That "broad base of people" includes not only traditional gaming opponents, but labor unions, members of the California League of Cities, church groups, lottery officials, racetrack and cardroom executives, as well as "some support from Nevada casinos," Sloan said.

The unlikely alliance is glued together in part by the perception that the initiative, which would allow tribes to establish full-scale, Las Vegas-style casinos without approval from the California governor, would give an unfair advantage to a small group of people.

"It's a matter of concern to us that these activities would be untaxed at both the state and federal level and prove very lucrative to very few individuals," Sloan said. "There are only 25,000 Indians in a state with more than 30 million people, and only 10,000 of those Indians are in tribes currently operating casinos."

Sloan and Curtis said they believe that once California voters become aware of the taxation and other issues, current polls showing that the initiative could pass will change.

"The thing that jumps out at you is that this is not on the radar screen of many people in California," Sloan said. "There's a lot of good will toward Native Americans, but I think the voters will take a closer look at the issues after Labor Day."

The initiative surfaced after California Gov. Pete Wilson signed a compact with the Pala Band of Indians that restricts the types of games and potential size of casinos on tribal lands. Leaders from several other tribes launched efforts to scuttle the agreement, but the Legislature balked at their proposals. As a result, state and federal authorities have threatened to crack down on illegal slot machines and other games operated at some Indian casinos.

The initiative would allow the proliferation of gaming on more than 100 additional reservations, more than quintupling the tribes' current annual revenues to nearly $3.9 billion, according to Bear Stearns' Ader. And, as Sloan pointed out, that figure wouldn't be subject to state or federal taxation.

Even if the initiative passes, Sloan and the analysts said, it is likely to face court review. Sloan and Curtis expect the legal challenges to drag on for up to 10 years, while Ader said lawsuits could delay implementation of the initiative for at least three years.

Ironically, even tribal victories at the ballot box and in the courts could prove self-destructive for Indian gaming, Sloan said.

"There are a number of tribal leaders who are worried that it could lead to too much Indian gaming," he said.

"Since the tribal casinos don't pay any taxes to the state, the commercial gaming industry in California -- the racetracks and card clubs-- as well as Nevada casinos might then push to legalize gaming throughout California, which could put the tribes out of business because they have such bad locations."

archive