In the once-sleepy agricultural community of Lincoln, Calif., just a 25-minute drive from the outskirts of Sacramento, the Thunder Valley casino owned by the United Auburn Indian Community fired its first salvo across Donner Pass more than three years ago.
The shot has been deeply felt in the counting rooms along Virginia Street, and more shots are coming.
Enough more, in fact, that analysts wonder why casino developers are planning more big investments in a northern Nevada gaming market that remains under fire.
Thunder Valley managed by Las Vegas-based Station Casinos has the green light to add more slots that will bring its total to nearly 3,500. It also just announced a major expansion that will include a 23-story, 650-room hotel and 3,000-seat performing arts center.
That announcement followed less than two weeks after the announcement by the Cache Creek casino resort located west of Sacra-mento in farm-rich Yolo County that it plans to add 500 rooms, two dozen hillside casitas, two formal restaurants, retail outlets, and an enhanced spa. Cache Creek also has more than 3,000 slot machines.
In contrast, none of the largest casinos in Reno or Sparks have more than 1,900 slot machines.
The impact of tribal casinos has already been felt.
Gaming revenues in Washoe County and Carson City have softened since 2001. And while the major operators in Reno's downtown gaming corridor Circus Circus, Eldorado, Harrah's, Silver Legacy, The Sands and Cal Neva have kept the bottom from falling out any further, they understand that their future depends upon how they adapt to changes under way across the stateline.
"No doubt about it," says Richard Wells,
principal of Wells Gaming Research, headquartered in Reno. "It's been a tough road here. The Washoe County market is still over $1 billion a year in revenues, but it has been declining. What is happening today in California cannot be of any solace to the gaming industry here."
Gov. Arnold Schwarzenegger has set into motion legislation to dramatically increase the number of slot machines allowed at the state's tribal casinos in return for tribes agreeing to share their revenues with the state. Until this year, tribal casinos were limited to 2,000 slot machines. Today, that lid is being lifted.
As of last year, Wells says there were 57 tribal casinos operating in California. Most of them are in the southern part of the state, and six of the largest ones operated without having to share revenues with the state.
"Last year, the combined tribes did $7 billion in revenues," he says. "Compacts already signed with five tribes in Southern California alone will allow an additional 22,500 slots."
And while Thunder Valley and Cache Creek are the two biggest competitors to northern Nevada properties, Wells says several other tribal casinos in northern California will open in the next couple of years.
"It's a bullet aimed directly at Reno," he says. "Our last analysis indicates where are 30 tribal casinos in California that have not yet been built and 19 of them are in the northern half of the state."
Given this information, Wells and Ken Adams, another Reno-based gaming analyst, say they are puzzled by a proposed 600-room hotel and casino at Keystone and Fifth Street, just off the freeway that carries gaming visitors from California. A company identified as Scodera is seeking necessary permits from the city to build the facility.
"If an operator thinks they can compete, more power to them," says Wells, "but they'll be taking it (revenues) from someone else. Capacity has been declining. Slot machines are down by 20 percent over the last four years. Table games are down by close to 30 percent. The demand just isn't there."
Adams is even more critical.
"I think it's Dr. Phil who likes to say 'What were they thinking?'" says Adams. "In the old days, the logic was there, but in 2007, it makes no sense to build something tailored for the drive-in market unless you have a huge entertainment or retail component to go with it. This proposal doesn't do that at all."
But Wells says savvy gaming operators have become more skillful in chasing the locals market as well as tourists folks who come here for reasons other than gaming.
"You've got Cabela's coming in at Verdi. You've got the Legends development at the Sparks marina. You've got the potential for a major Bass Pro Shops development joining Station Casinos at the Mount Rose side on South Virginia. Those are big tourist draws that do not rely solely upon gaming," Adams says.
As for marketing to locals, several operators do quite well in the greater Reno and Sparks markets, says Wells.
"You've got the Bonanza on North Virginia, Hobey's in Sun Valley, Baldini's in Sparks, the Tamarack and others who have cultivated a steady following," he says. "Then, you have the Ascuaga property, the Nugget, in Sparks, and the Atlantis and the Peppermill properties. I realize that Station Casinos has a reputation in Clark County for cultivating the locals, but when they do come in here, I think they're going to pay hell taking business from operators such as the Atlantis and Peppermill.
"Both have significant expansions underway and it doesn't appear as if Stations will be breaking ground anytime soon," he adds.
One outlet certain to be hurt by Harvey Whittemore's proposed Lazy 8 casino on Pyramid Highway between Sparks Boulevard and La Posada in Spanish Springs is John Ascuaga's Nugget at Victorian Square.
Brian Bonnefant, an analyst with the Bureau of Business and Economic Research at the University of Nevada, Reno, says that a study by Wells Research two years ago found the Nugget would lose between 15 and 20 percent of its revenue from the locals market once the Lazy 8 is in full operation.
However, the Nugget is not opposed to Olympia Gaming's plans for a 1,000-room resort hotel and casino at the Sparks Marina as part of the Legends project.
"It's a good fit," says Bonnefant. "It brings in tourism, will have retail, is right off the highway, and is complementary to the business model offered by the Nugget."
As for how soon Station Casino may break ground on its planned resort hotel and casino at the south end of Reno across from the Summit Sierra development, spokesperson Lori Nelson says there are no immediate announcements regarding entry into the Northern Nevada market.
One reason may be that the publicly-traded company is being taken private in a $5.3 billion deal.
In a recent filing with the Securities and Exchange Commission, Station Casinos says development of its Mount Rose Highway resort casino site is planned for 2012. Some analysts say they do not believe Station's interest in a site across from the Reno-Sparks Convention Center will ever materialize.
In the meantime, two unrestricted gaming licenses that would allow casinos to be built in Reno without the financial burden of building a 200-room hotel remain available. Gaming licenses for the former Turf Club and Old Reno have been grandfathered due to being financially impacted by the rail trench project.
Adams says finding a suitable location for the unrestricted licenses is going to be difficult.
"If you combine the Farahi family, the people at the Peppermill, the Caranos at Eldorado, the Ascuagas, they are going to fight siting those licenses with everything they have," he says, "because they will all say any siting will be encroaching on their market."
Downtown gaming properties, says Adams, need more residential units to make up for the loss of drive-in customers. Those who have survived the wash-out, he says, have been able to do so because they have cash flows from outside the Reno market.
And he points to the marketing expertise of companies such as Herbst Gaming, which recently bought properties that include the Sands Regency and Rail City.
"They don't need billboards. Today it's all about data bases and knowing what to do with them," Adams says.
One area where Wells and Adams agree will be severely impacted are the hotel and casino properties at South Lake Tahoe.
"The Shingle Springs Rancheria tribe is building a very large casino with a minimum of 2,000 slots," says Wells. "It's located right off of Highway 50 near Placerville and will hit the south shore very hard once it opens."
