Sunday, December 15, 2002
Copyright © Las Vegas Review-Journal

OFF-STRIP GAMBLING: Downtown blues

Aging properties, California challenge hurt off-Strip gaming node

During the day, few tourists visit Casino Center, seen here at the corner of Fremont and Third Street. Photo by JERRY HENKEL/ REVIEW-JOURNAL The Agua Caliente tribe plans to expand its Spa Casino into a $400 million complex across several blocks of downtown Palm Springs. SPECIAL TO THE REVIEW-JOURNAL

In a reversal of fortunes, American Indians may finally be winning a battle with the white man.

Heading into 2003, downtown Las Vegas is being left in the dust by the glitz of a new generation of tribal casinos in Southern California.

Gaming revenues at casinos in downtown Las Vegas, modern white man's first gambling mecca, are expected close the year down 5 percent from $683.2 million in 2001, projections by Bear, Stearns & Co. show.

"Depending on the level of Native American gaming that eventually comes to fruition in California, downtown casinos could continue to see an erosion in win per available room and win per position," Bear, Stearns analyst Jason Ader said.

Downtown Las Vegas' gaming market has struggled for a decade, with the projected gaming revenues for 2002 down 8 percent from $703 million in 1992. The trend is accelerating in the wake of California voters approving the spread of American Indian casinos.

As further evidence of the struggle facing downtown Las Vegas, Ader said win per available room has actually decreased by 5.6 percent while the number of available hotel rooms has increased over the past decade.

Aging properties and increasing costs afflict downtown Las Vegas as well as competition from California.

"We continue to believe this mature market will be challenged going forward. ... Any potential growth will likely be limited as downtown continues to age and the recently accepted union wage increase is expected to further erode margins from 2003 on," Ader said.

"The re-signing of collective bargaining agreements with the Culinary Union on July 1, 2002, is expected to make conditions even more difficult in downtown Las Vegas when wage increases take effect in June 2003," he said.

Sometimes, it seems downtown is getting hit from all directions at the same time.

"To some extent, the local gaming offerings that are closer to residential areas are also cannibalizing downtown's business," Ader said.

Harrah's spokeswoman and former Las Vegas Mayor Jan Jones said downtown is in real trouble fundamentally because older operators are investing little capital in their properties.

"None of them would change the way they do business. And all the operators are depending on very old infrastructure," she said.

Barrick Gaming Corp. could change the name of the game for downtown. Monday, it announced the acquisition of the Plaza, Western, Gold Spike and the Las Vegas Club from Jackie Gaughan for $82 million.

The company has said it will redevelop the properties, but will not disclose details. However, Barrick Chief Gaming Officer Phil Flaherty said downtown is more in need of marketing programs than capital investments.

"Walk through McCarran and find something that represents downtown," he said. "You can't. Most visitors don't even know downtown exists. We need an awareness campaign that will be done with marketing dollars, not capital dollars."

MGM Mirage spokesman Alan Feldman, however, said older properties that choose not to reinvest are vulnerable to feeling the pressure of competition, especially from Southern California.

"What Las Vegas has over any other destination is a scope and a scale that is larger and more exciting than anyone else can come close to, but that doesn't mean everyone in Las Vegas is protected," he said. "Las Vegas needs to continually improve itself, to refine its offerings and stay on top of the game or someone out there (perhaps in Southern California) might just try to take over."

American Indians in Southern California are giving just that a try, going Las Vegas in style to drain customers from Nevada.

As a result, Californians, who account for about 35 percent of Nevada's gambling revenues, are beginning to have viable gambling alternatives at home.

The threat from California to Reno area casinos has been better recognized than the danger in South Nevada, but the reality is starting to sink in in both areas.

Said American Gaming Association President Frank Fahrenkopf: "Historically, expanding markets in the U.S., including California, have not had a negative impact on Nevada. Now, the caveat is they could have an impact on Northern Nevada and even off-Strip properties (in downtown Las Vegas and Laughlin)."

California casino operators' winnings have soared from $1.4 billion to more than $4.3 billion since the passage of Proposition 1A authorized the wave of Indian gaming, surpassing New Jersey and making the state second only to Nevada's $9.3 billion.

That trend is forecast to escalate, hitting Northern Nevada particularly hard in tough winter months and Southern Nevada in the summer when the climate and the drive here turn tough compared with balmy California.

It seems that two years after voters guaranteed American Indians the exclusive right to operate Vegas-style casinos in California, the gambling halls are coming of age and posing a significant new challenge to business in Nevada.

Also, for the first time, lenders such as Bank of America and Wells Fargo are opening their pockets to finance such resorts, analysts said.

And now some tribes are even insisting that they can and should develop casinos on their own, another sign of tribal economic might.

The result likely will be major casinos like their cousins in eastern Connecticut, maybe not approaching Las Vegas' scale, but offering upscale dining, shopping and entertainment, not just a gambling distraction.