The Vegas Guy - Week of 01/15/2001

Week of February 22, 2001

SPECIAL REPORT: California Indian Casinos

She closed her eyes as she walked through the door of the Viejas Casino outside San Diego.

It was her first visit to an Indian casino, and she wasn't sure she wanted to see it.

"When I saw what they had there," she said, "I wanted to throw up."

And then she quickly added, "That's off the record!"

Because this wasn't just any visitor. This woman was the head of marketing at a major Nevada casino, and her busman's holiday to Viejas was confirming her worst nightmares.

"They had the restaurants we have. They had the slot machines we have. They had entertainment. They had crowds. And the place looked fabulous. I just thought, 'How are we going to get people to drive past this?'"

It's been almost a year since California voters approved Proposition 1A, which gave the state's 107 Indian tribes the right to offer full-fledged Las Vegas-style slot machines and card games. It's no longer a major news story in California, but in Nevada the rapidly developing Indian casinos are watched like a second-by-second Wall Street ticker tape. Historically one- third of all Las Vegas visitors have come from California, and now the question is: How many of them will get distracted before they ever get to that Vegas Highway?

"Of course we're hoping to steal customers from both Laughlin and Las Vegas," says Joe De Rosa, the hale-and-hearty General Manager at the Fantasy Springs Casino in Indio, just outside Palm Springs. "But I don't think you'll see much change in Las Vegas. Las Vegas is Las Vegas. Vegas always seems to do well no matter what. I do think you'll see some problems in the smaller markets, though. Especially up north. Especially Reno."

Reno, Laughlin and Primm--those are the three Nevada cities expected to be stunned by the revenge of the California Indians. Reno has been in decline for decades, its once thriving downtown reduced to a jagged jumble of skank. Laughlin is the spartan little RV resort on the Colorado River that attracts old people in the winter and Jet-Ski families in the summer. And Primm is the town that's not really a town, just three casinos at the California-Nevada state line for people too lazy to drive another hour to Vegas.

And the enemies of all these towns are guys like Joe De Rosa, the happiest Italian on the Cabazon Indian Reservation. De Rosa spent 23 years working for Donald Trump, first in Atlantic City, then in Indiana, where he managed the Trump Princess riverboat casino. But a year ago, after Prop 1A passed, the Cabazon Band of Mission Indians made him an offer he couldn't refuse. They told him their goal is simple: they want Fantasy Springs Casino to be the number one destination gambling resort on the west coast. He took the job, moved his family in June, bought a house in nearby La Quinta, and the trucks hauling brand- new slot machines were rolling up to the doors even as he moved into his offices. Since July, the casino has doubled in size.

"I love it here!" he says, the very picture of a portly ward boss from the days of Tammany or Daley. "The Cabazons knew what they wanted, and we hit it off, and I couldn't be happier. Actually most of the people running the larger Indian casinos now are Las Vegas or Atlantic City types like me. I used to work for the guy who runs Soaring Eagle (in Michigan). The managers at Foxwoods (Connecticut) and Mohegan Sun (Connecticut) are friends of mine. And it's because the tribes have decided to do this on their own now. No more management contracts."

It's only a matter of time before casino-based mega-resorts start springing up in California--at least four are already planned--and that will be the real test of just how much business they can steal from Nevada. At this point the 58 California casinos range from almost primitive--like the tent-style fiberglass structure of the tiny Cahuilla Creek Casino in Anza-- to elaborate resorts like the Spa Casino in downtown Palm Springs, where the Agua Caliente Band operates a hotel, mineral springs and restaurants. Yet no one is really "on-line" yet. Even Fantasy Springs is three years away from having all the amenities. The Cabazons have broken ground for a hotel, and plans are in the works for a golf course, but someday soon there will be Indian casino complexes in California that have everything in one place: hotels, golf, tennis, showrooms, arcades, RV parks, sports complexes, gourmet restaurants, and perhaps even their own fake volcano.

One thing made it possible: slot machines. Over the past twenty years, the slot machine has become the golden goose of all gaming. In some markets 95 per cent of income comes from slots, and even in Las Vegas, where table games ruled for so many years, slots have brought in more than 50 per cent of casino revenue for a decade now. Twenty years ago, when the Cabazons first opened for business, they would have been satisfied with just bingo, poker, and the so-called "Asian games" that the old-fashioned California card rooms have offered since the 1930s. No one dreamed that slot machines would ever be legalized in California. And ironically, it was the aggressive legal efforts of the California Attorney General, Riverside County, and the City of Indio to shut down the Cabazon casino altogether that led to the nationwide gambling boom of today.

The Cabazons had only 17 voting members when they opened their casino in 1979, yet today they are known to every tribe in America. They're the Native American heroes who battled the state of California all the way to the Supreme Court and won the historic 1986 decision that gave Indian tribes the right to run casinos. Even then they only won the right to offer similar games to what were already being offered in California's "card casinos" and weren't allowed to "bank" the games. All payouts had to come from a player pool. This effectively eliminated slot machines, craps, roulette, blackjack and all other Vegas-style table games.

But then came the 1987 Indian Gaming Regulatory Act, a reaction to the Cabazon case by a scared Congress, which tried to limit the spread of Indian gaming by forcing each tribe to enter into a gambling compact with each state governor. In California, as in many other states, the governor simply refused to negotiate the compact. When this happens, the Department of Interior steps in and forces a compact, but it can sometimes take years to fight over the terms in the court. And in almost every case, the Indians end up with more gaming than would have been allowed if the governor had just agreed to a compact at the outset.

"All the tribes in California hate Pete Wilson," says Deron Marquez, chairman of the San Manuel Band, who run the successful San Manuel Casino in Highland, 60 miles east of Los Angeles. "Because he wouldn't give us a compact. But all the tribes also love Pete Wilson. There's no way that 107 Indian tribes would ever have agreed on anything. Pete Wilson gave us a common enemy, and so the result was that a bunch of Indians changed the constitution of the state with Prop 1A."

The Indians had never sought slot machines--the idea had seemed outlandish--but that's what they got in Prop 1A, along with all "banker" card games, but not craps or roulette.

"For some reason craps makes regulators nervous," says Terry Hughes, General Manager of the Cahuilla Creek Casino in the little high desert town of Anza. "Plus we have this caged dice law in California. All dice have to be in cages. So I don't think there was a big effort to get craps."

Throughout the country, when state regulators have "compromised" with Indian tribes, they've tended to favor slot machines over all other forms of gambling in the name of limiting its scope, even though slot machines are the whole engine of the business. Legalizing craps and roulette but not slot machines would have been the way to limit gaming. But it's as though regulatory theory is stuck in 1948, when the craps table was the prime income generator at Mafia-owned casinos in Las Vegas, when blackjack was hardly played at all, and when slot machines were a diversion for the wives and girlfriends who were waiting on their husbands to finish at the tables.

"Do I think craps and roulette would enhance the experience at California casinos?" says Da Rosa at Fantasy Springs. "Yes I do. Do I think it's an essential revenue stream? Not anymore."

When Las Vegas casino executives talk about Indian casinos, they're quick to point out the lack of craps and roulette, and some are even arrogant enough to dismiss them as "sawdust joints," the term long used to describe the tiny low-rent casinos of downtown Vegas. "The Indian casinos siphon off the guys who don't care where they are as long as they're parked in front of a slot machine," said one Vegas executive--off the record, of course. "But that's the customer we don't necessarily want anyway. That's the guy we end up throwing out for being drunk."

"Actually the industry is split on Indian gaming," says Frank Fahrenkopf, chief lobbyist for the Washington-based American Gaming Association. "When people ask me about Indian gaming, I have to say I'm neutered. Half the casinos want to fight them, because they've been given advantages by the government that the non-Indian casinos don't have. I have other members who want to hug the Indians. They sign management contracts with them, run their operations for a flat fee or a percentage of profit. So we don't have an official position on the Indian casinos."

Of the "big four" gambling corporations, only Harrah's has aggressively hugged the Indians. Harrah's runs Cherokee Casino in Cherokee, N.C., the Prairie Band Casino in Topeka, Kan., and Ak Chin Casino in Maricopa, Ariz., and the company is seeking joint ventures with other tribes. Donald Trump has also expressed interest in getting into business with California tribes, and others may follow suit once the big properties start to roll out in 2002.

Las Vegas leaders who look at the long term--like Rob Goldstein, president of The Venetian casino on the Vegas strip-- say that the Indian casinos will probably take away a few low-end players and "the people who go out once a month and sometimes choose the local casino instead of a movie or a restaurant. . . . But I think those people will still come to Vegas. The local casino is interesting, but if you have a good time there, it kind of whets the appetite for Vegas. 'If we're having fun here, we'd really love Vegas.' And so they still take that trip, once or twice a year, to see us. Because we're still Mecca."

And Wall Street agrees. Robin Farley, gaming analyst for the giant brokerage firm UBS Warburg, compares the position of Las Vegas to that of Atlantic City in 1990. "The opening of Foxwoods in Connecticut brought dire predictions for Atlantic City," she says. "[But] the Atlantic City market has grown every year, . . . despite the addition of almost 8,900 slot machines at Foxwoods and Mohegan Sun combined, and 5,000 slots at Delaware's three race tracks. . . . The growth of the overall Northeast market is much greater than what Atlantic City would have realized on its own. We think that existing markets can grow in the face of competition."

In other words, judging by past history, more casinos create more demand for existing casinos! It's the McDonald's/Burger King principle. If McDonald's and Burger King locate next door to each other, each store makes more money than if they're located two blocks apart.

And that brings up the Achilles heel of the Indian casinos: their spacing. One thing Vegas has, as well as Reno and Laughlin and Primm, is a concentration of casinos in a small area, so that tourists can go from one casino to another. This has proven time and again to be better business for everyone. Most of the California casinos, on the other hand, are isolated, some of them very isolated, like the Lucky Bear Casino in Hoopa, which is in far northern California near . . . uh . . . a lot of trees.

There are only two places in California where you could conceivably casino-hop. One is the area east of San Diego, where there are five major casinos, with another under construction and eight more tribes planning to open. The other area is Palm Springs, which is already a resort destination and has four major casinos, all trying to get bigger and fancier. "This could be the Foxwoods of the west coast," says Da Rosa, referring to the most successful casino in the world, owned by the Mashantucket Pequot tribe of eastern Connecticut.

But even in Palm Springs you have to get in your car and drive about 15 minutes to get from one reservation to another-- and there's no way that can ever change.

"But there will be a five-star experience here," says Da Rosa as he walks a reporter through his roomy facility, full of bright pink and green carpet and a lot of crystal chandeliers. He's especially proud of his "Betty Boop" slot machines, new last month. "Our hold on those is the second highest in the country," he says proudly. And then adds, "Second to Foxwoods."

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