Station urged to consider Northern Nevada needs

By Liz Benston

Friday, May 23, 2003 | 11:50 a.m.

In its last opportunity to meet with Station Casinos Inc. executives before the company opens a major tribal casino near Sacramento June 9, the Nevada Gaming Commission Thursday urged the Las Vegas company to consider the implications of opening a casino along a key artery feeding the already-struggling Reno market.

Some commissioners also suggested that Station Casinos look to expanding its Las Vegas casino empire to Northern Nevada, which is taking a direct hit as gamblers choose to patronize a growing number of Indian casinos in California.

"You may be able to create (a new market in Northern Nevada) rather than react to growth in Southern Nevada," Commission Chairman Peter Bernhard said.

Station Casinos expects to receive about $50 million a year over the next seven years for managing Thunder Valley Casino, which is owned by the United Auburn Indian Community. The casino will open with about 1,900 slot machines and will eventually feature a variety of restaurants and two private gambling salons. It is about 25 miles northeast of Sacramento and a few miles from Interstate 80, Reno's primary feeder route from San Francisco and Sacramento.

The company also has struck another management deal with a California tribe to open a second casino near San Francisco.

Commissioner Arthur Marshall urged executives to "keep an open mind" about Northern Nevada. "Reno and Lake Tahoe do have a lot to offer," he said. "You might find that there's a lot of opportunity and a lot of success to be had."

Station Casinos is likely one of the only companies that has been openly warned by Nevada regulators for entering California's estimated $5 billion market, experts say.

Harrah's Entertainment Inc. became the first major Las Vegas casino company to manage a California casino when it opened the Harrah's Rincon Casino and Resort last August in San Diego. But that company wasn't criticized by regulators for entering the market, representatives say.

Other Nevada companies invest or profit from Indian gambling in California. They include big slot machine suppliers International Game Technology and Alliance Gaming Corp. as well as Anchor Gaming, which developed a San Diego casino that was since acquired and sold off by IGT. MGM MIRAGE has a casino design contract with a tribe in Palm Springs. And Siren Gaming, a company led by former executives of the Rio resort in Las Vegas, is negotiating an agreement with the San Pasqual Band of Mission Indians to run a San Diego casino.

While Southern California now boasts the largest concentration of tribal casinos, it is Northern California's growing casino industry that has Nevada companies worried.

Just across the border, Reno's gaming revenues have fallen dramatically in recent years. This month, the Gaming Control Board reported a 3 percent drop in gaming revenue for Reno casinos in March compared to the same month last year. A 2001 study by the Reno Redevelopment Agency has estimated the city's casino industry could lose from $24 million to $43 million in revenue per year to California casinos.

Station Casinos executives said they examined a couple of opportunities in Northern Nevada a few years ago but decided to pursue opportunities elsewhere. Despite recent deals with California tribes, the company aims to maintain the majority of its operations in Las Vegas, which has grown on a scale not seen in Northern Nevada, Station Casinos Chief Financial Officer Glenn Christenson said.

The company also has an obligation to shareholders to seek the best returns wherever possible, he said.

"Even without Nevada companies being involved, Indian gaming is growing in California," Station Casinos Chief Legal Officer Scott Nielson told the commission.

That said, the company's California operations will strengthen Station Casinos' Nevada base, Nielson said.

The management fees generated at Thunder Valley will largely go to the company's next project: the construction next year of Red Rock Station, a casino in Summerlin at Charleston Boulevard and I-215.

"Red Rock won't be the last property we develop in Las Vegas," Christenson said.

Station Casinos also expects to recommend that the tribe pursue joint marketing efforts with Northern Nevada businesses along the lines of an alliance struck this year between Sunset Station in Henderson and the tribal-owned Barona Valley Ranch Resort and Casino in San Diego, Nielson said.

Thunder Valley could market ski weekends in Lake Tahoe, for example, he said.

That won't be enough to offset the likely loss of business that will come to Reno's downtown casinos, said commissioner Sue Wagner, a Reno resident.

The effect on Northern Nevada may be less than many have predicted, Christenson said.

Thunder Valley is a casino while the Reno/Lake Tahoe region is a travel destination that offers an array of outdoor activities that will be difficult for one property to compete with, he said.

"There's nothing that precludes Northern Nevada to continue to invest in the amenities they have."

The property will further jeopardize gambling activity in Northern Nevada, which has not received the benefit of reinvestment from Station Casinos, Wagner countered.

The commission did not expressly oppose the casino, nor can it vote down such projects.

The Foreign Gaming Act, adopted in 1977, once required license holders to receive prior approval from the commission before doing business outside the state. The prior approval provision was removed in 1993 to allow licensees more freedom to expand their operations provided they submit reports to the board and comply with local and federal laws.

The Auburn tribe has adopted a system of internal controls that coincides with requirements by Nevada regulators and intends to work with the Gaming Control Board to ensure that those standards are met, Station executives said.

Station Casinos appeared before the commission to receive permission to pledge shares of stock against bank loans and to sell additional shares to raise revenue. Both were granted Thursday.

Separately, the commission signed off on a Gaming Control Board complaint against Park Place Entertainment Corp.

Under an agreement reached between the board and Park Place, the company will pay a $75,000 fine for the actions of two employees who failed to file required cash transaction reports with the federal government to appease loyal gamblers.

The employees, who were fired after Park Place discovered the fraud and reported it to regulators, worked at the Dallas marketing office of Park Place predecessor Caesars World.

Park Place characterized their actions as those of "rogue employees" whose deliberate actions could not have been averted. The Gaming Control Board's investigation reached the same conclusion.