South Reno: New gaming battle ground

Mention "Friday Night Lights" and many may think of high school football in Texas.

But Friday night lights also was descriptive for decades of the weekenders from California, a steady serpentine of auto headlights snaking their way up the western Sierra slopes of Interstate 80, seeking to cart off bags of cash from slot machines and gaming tables in The Biggest Little City.

Reno's version of "Friday Night Lights" turned into "Scary Movie" three years ago when the glitzy, 200,000-square-foot Thunder Valley tribal casino opened outside of Sacramento. Those I-80 headlights became fewer and farther between. Casino gaming revenues took a hit that resulted in closure of a few of the weaker operators especially those downtown.

Yet, there are signs today of resurgence in the gaming business elsewhere in the Truckee Meadows that contradict earlier predictions of gloom for casino operators.

It is true that the tourist traffic has been severely hurt. But the influx of new residents to the area is also bringing attention to a market segment once thought forgotten the locals.

"Downtown gaming is in serious trouble," offers Dr. Thomas Cargill, an economics professor at the University of Nevada. "It doesn't take a rocket scientist to see that because the numbers don't lie."

In two of the past three state fiscal years, gaming revenue in Washoe County was down from the previous 12 months.

And the gaming win in Washoe County in the last fiscal year $1.01 billion still is down sharply from the $1.11 billion posted in the last year before the Sept. 11 attacks.

Despite the anemic figures, Cargill notes some gaming establishments seem to be faring well.

"Your premier properties to the south of downtown such as the Atlantis and the Peppermill seem to be doing fine," he says. "So is the Tamarack in south Reno."

It is in south Reno where the next casino marketing battles will likely be fought for the heart, soul and wallets of the locals rather than the tourists.

Ironically, it will be the Las Vegas-based Station Casinos operator of Thunder Valley Casino in California who will be putting on the gloves to defend its role as a champion of the local gaming enthusiast.

When Bayer Properties was in the initial stage of developing a 200-acre parcel of land at the south end of South Virginia Street and Mount Rose Highway where its high-end Summit Sierra lifestyle shopping center is now located, the developer contacted Station Casino execs in Las Vegas.

Jeffrey Bayer, president of Bayer Properties, saw the city's population center moving south and also noted there was an affluent population from California relocating to that area.

An upscale casino, he felt, would be a nice fit for his company's development. Station Casinos decided to roll the dice and acquired a 50-acre site across from Summit Sierra on Mount Rose Highway.

"Station only does locals," says Reno-based gaming analyst Ken Adams. "They don't cater to tourists and they've been very successful in Vegas. They seem to know and understand what the local market wants. They deliver on those desires and make a lot of money doing it."

Deutsche Bank gaming analyst Marc Falcone believes Station has demonstrated a knack for developing gaming venues that appeal to the local market.

"The Reno market lacks a quality locals property similar to Station Casinos' properties in Las Vegas," he says.

While he, too, likes Station, Adams isn't buying the thought there are no quality local properties in the Truckee Meadows. He thinks the two companies that have the best chance going up against Station in the battle for the local gaming dollar are Monarch Casino and Resorts, operators of the Atlantis, and the Peppermill. Cargill concurs.

The Peppermill, in fact, has already begun a $230 million expansion program to provide more on-site parking with a multi-story parking garage, plans to build a new hotel tower, and increase the gaming floor.

And while the operators of the Atlantis have not made any such announcement, the company is eyeing expansion. The company controls a strip mall just to the north of the Atlantis, and owns a 16-acre parcel west across South Virginia Street.

Adams says the Atlantis owners are in an enviable position. They can play a wait-and-see game, he says, because they already have property that would complement the present hotel, spa and casino.

"They have no debt and lots of cash," he says. "It's not a question of 'if' they will expand, but when. The Farahis are very good businessmen."

Station Casinos also has taken a lease with a purchase option on a smaller site across South Virginia Street from the Reno/Sparks Convention Center and within shouting distance of the Atlantis, but Adams doubts the company will exercise the option.

"No, I don't think they will build a casino there," he says, "but there is little doubt that they will reshape the casino industry in northern Nevada."

Scott Nielson, Station Casinos' executive vice president and chief development officer, says his company has been successful by developing gaming properties in Las Vegas off the "Strip" and away from downtown.

"We go into outlying areas that we feel are underserved. We hadn't really taken a hard look at Reno until a year ago. We flew over the area and looked at the rooftops. South Reno looks like some parts of Las Vegas. We looked at the annual growth rate, household income, and the overall economy," he says.

While Nielson says some tentative designs and themes are already being considered for its first Reno casino, there will be no specifics announced until all of the entitlements requested by government entities have been satisfied. That would mean a late 2007 or early 2008 time frame for opening the facility.

"We will definitely appeal to a broad specter of people," he says. "We will provide a fresh, good product that we believe will be sustainable in this regional market. While we would hope to also attract tourists to this site, that is not what do best. We will focus on the locals."

Nielson says he is impressed with management of both the Atlantis and the Peppermill which he considers Station Casinos' closest competitors on the same scale of operations.

"Both properties are very well managed," he says. "New competition will bring out the best in both of those operations. They are good competitors."

Gaming analyst Adams says Station seeks out properties the way McDonalds used to do it.

"Station puts a drawing compass on a map, stretches it out anywhere from five to 10 miles, then draws a circle. If inside that circle, the number exceeds 20,000 or so people, they go in and find the best location and then build to suit the needs of that market.

"What you have in Reno is Station coming in at the south end of Virginia Street and, to the north, you've got the Atlantis and Peppermill. They've got their circle identified, too. The real battle is for that sector where the circles overlap."

There are some casino operators, however, who are expanding through acquisitions as well as expansions.

Ferenc Szony, chief executive of Sands Regent, Inc., which owns the Sands Regency in downtown Reno, has in the past two years purchased the Gold Ranch Casino in Verdi, and Rail City in Sparks. It also recently picked a pair of small casino operations on Highway 50 in Dayton which he says is a strategic move.

"We will have plenty of land to work with when the growth we expect out there finally happens," he says.

Unlike some, Szony isn't ready to write off the gaming business in Reno's downtown core.

"When the tribal casinos began to open, places like Thunder Valley and the Jackson Rancheria expansion, it did hurt our business," he says. "But there are definite signs that Northern Nevada tourism is beginning to rebound. I think we probably hit bottom last year. Now that the (train) trench is finished, we are seeing some positive things in the downtown core. There is more residential coming onto the market with the conversions to condos.

"Locals have always been important here," he says. "What is happening now is a lot of companies are reinvesting in their properties and, for our industry that can only be a good thing."