Indian Casinos on a Roll

PALM SPRINGS —  Cinder-block shacks, bad lighting and bottom-shelf booze. Lounge lizards with long ashes clinging to the tips of their cigarettes, placing nickel-and-dime bets on one-armed bandits and one-eyed jacks.

Not all that long ago, that was the image Native American casinos had in the eyes of the heavy rollers in Nevada. The notion that “rez gambling” would ever offer real competition to the neon palaces of Nevada was tossed aside with a contemptuous chuckle, like a short stack of $1 chips.

But the shacks are becoming sophisticated resorts. The lounge lizards, according to California casinos’ internal surveys, have become wealthy gamblers from Beverly Hills and Orange County. And that short stack of chips has turned into a steady stream of profit.

So last month, when gaming and entertainment giant MGM Mirage announced a deal to design a $95-million Native American casino in downtown Palm Springs, the partnership, far from setting the gambling world abuzz, was greeted with a shrug.

It wasn’t a sign of indifference -- far from it. Instead, it was an indication that, two years after California voters guaranteed Native Americans the exclusive right to operate Vegas-style casinos, the gambling halls are coming of age and now pose a significant challenge to Nevada’s business.

When voters approved Proposition 1A in 2000, analysts understood that the number of casinos in California would rise rapidly -- and it has, from 38 to 50. What they didn’t fully appreciate is that the quality of casinos would rise just as quickly.

Before passage of the measure, Native American casinos operated in a legal never-never land. More often than not, they were confined to spartan structures whose only allure was betting.

“Tribes didn’t know if they were going to be open from day to day,” said Michael Lombardi, a tribal gaming consultant and former general manager of the Chumash Casino in the Santa Ynez Valley and Casino Morongo near Banning. Proposition 1A’s assurance of legality brought California’s Native American bands a new economic viability.

Today lenders, including Bank of America and Wells Fargo, are opening their vaults for unprecedented financing of new resorts, analysts say. Gambling bigwigs such as Donald Trump and Harrah’s Entertainment Inc. are on an if-you-can’t-beat ‘em spending jag, forming a series of partnerships with Native Americans to build casinos.

And, in another sign of Native American economic might, some bands are insisting that they can and should develop casinos on their own.

The result: huge, glitzy casinos that offer upscale dining, shopping and entertainment as well as gambling. They may never approach the excessive splendor of Las Vegas, but they promise an “experience,” not just a gambling excursion.

Californians, who account for 35% of Nevada’s gaming revenues, now have a viable gambling alternative at home. California casino operators’ winnings have ballooned from $1.4 billion to more than $4.3 billion since the passage of Proposition 1A, surpassing New Jersey and making the state second only to Nevada’s $9.3 billion.

Analysts on both sides of the state line say California casinos are beginning to eat into Nevada’s take, particularly in the Reno area, which some have predicted will lose a fifth of its revenues to California.

Nita Helmick, a Riverside County retiree relaxing recently in a Palm Springs casino lounge, was pleased to report the tidy $54 she had just won at the slot machines. But she said her favorite local casino attractions these days are the Vegas-style shows, including one that featured Elvis impersonators.

And when you get right down to it, some would say, if you can see Elvis impersonators in California, why go anywhere else?

“I wouldn’t drive all the way to Las Vegas again,” she said. “Why would you?”

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In the big Palm Springs deal, the Agua Caliente Band of Cahuilla Indians has enlisted MGM Mirage executive Ken Rosevear to assist in the design and construction of a $95-million downtown casino.

The Agua Caliente, a band of 388 members, already operate two casinos in the area. One of them, the Spa Resort Casino -- much of which currently operates under a semi-permanent tent -- will be replaced by November 2003 with an upscale 119,000-square-foot, three-restaurant casino that could eventually contain 50 table games and 1,400 slot machines.

The design, said Richard M. Milanovich, chairman of the Agua Caliente Tribal Council, is “understated and elegant.” And it’s just the first phase, he said.

The band plans to expand the new Spa Casino within five years into a $400-million complex stretching across several blocks of downtown Palm Springs. With the publicly owned Palm Springs Convention Center within walking distance and scores of golf courses nearby, the Agua Caliente want to build a one-stop getaway.

The Agua Calientes’ pact with MGM Mirage follows similar deals elsewhere.

In April, the Twentynine Palms Band of Mission Indians near Coachella signed a deal with Trump to turn its Spotlight 29 casino into a $60-million resort -- with a new name, the Trump 29.

In August, Harrah’s helped open the $125-million Harrah’s Rincon Casino & Resort north of San Diego.

As for the new MGM Mirage-backed Spa Resort Casino in Palm Springs, “This place is going to outshine places in Las Vegas,” said General Manager Dominic A. Tegano, who spent 25 years in Nevada’s gambling center. “Why would you want to drive four hours when there’s no traffic -- or six hours when there is traffic -- if you can come here?”

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Tegano’s pledge to outdo Vegas is, of course, unabashed boosterism. And, as one blackjack dealer muttered recently while doling out cards at a table in a Riverside County casino: “Vegas will always be Vegas.”

“There is something to be said about location and convenience. But no one casino is going to be able to compete with the energy that is Las Vegas,” said Rob Stillwell, a vice president of Las Vegas-based Boyd Gaming Corp., which operates 12 casinos. “At the end of the day, the customer has choices. And when the customer has choices, it isn’t always going to be proximity that drives that decision.”

Still, a Bear Stearns analyst has concluded that the Nevada cities of Reno and Laughlin will see their gambling revenues decline by 21.6% and 15.4%, respectively, by 2005.

Las Vegas, the report estimates, will see its revenues slide 3.6%. Though the city’s famed Strip will remain relatively insulated -- largely because many of its visitors fly in from other states -- downtown casinos could suffer a 23.4% loss in gaming revenues, the report said.

That assessment, however, was published in February 2000 -- before gambling bigwigs began partnering with Native American bands to build casinos in California, and before many analysts understood that Proposition 1A would open so many financing opportunities.

Many experts now believe the impact on Nevada could be even greater. California casinos could fetch as much as $10 billion in revenues by the end of the decade, said Bill Eadington, a professor of economics at the University of Nevada, Reno and director of the Institute for the Study of Gambling and Commercial Gaming.

The growth of California casinos “could be a disaster” to northern Nevada, for example, where as much as 50% of the market could be eliminated soon, Eadington said.

Bear Stearns analyst John Mulkey said that, in individual terms, the Californian who makes four gambling pilgrimages to Nevada each year might make three instead, a significant shift in the market.

“None of the facilities, in themselves, will replace Las Vegas,” Mulkey said. “But overall, it’s a better product now. And it’s going to have an impact.”

Perhaps no casino in California embodies the new economic viability of Native American casinos more than the Pechanga Resort & Casino outside Temecula, a $262-million compound that opened this summer.

Near the site of its humble origins, where it took up eight trailers, the adobe-style architecture evokes a California-Native American theme. But inside, the place reeks of Las Vegas -- from its seven restaurants to the incessant ding-ding-ding of the high-tech slot machines to the $4 fee required to draw cash from the automated teller machines.

It is a far cry from the $1.6-billion Bellagio Hotel & Casino in Las Vegas. But it’s getting closer.

“It raises the bar. [Native Americans] want to step up to the big leagues. We’re reaching a point of critical mass,” said Lombardi, the tribal gaming consultant.

One recent evening, co-workers and friends Dennis Morgan, 33, of San Diego and Jerry Garcia, 34, of Murietta were laying down green $25 chips at a blackjack table at the Pechanga casino. The conversation was typical blackjack banter -- sarcastic, amusing, revolving around cards, booze and luck.

But it quickly turned to the player’s surroundings.

“It’s about time they moved you guys out of that shed,” Garcia told the dealer. “I mean, it was a shed. It was bad. It was made of trailer siding.”

Garcia said he will still drive to Vegas -- occasionally.

“I like going to Las Vegas just to get out of Dodge,” he said. “But this place is real nice. This is a local buzz where I can come during the week.”

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The Pechanga casino was financed largely through a $150-million bank loan -- without the help of a corporate gambling giant such as Harrah’s or MGM. That, many analysts believe, is the beginning of a trend, as fiercely proud and independent Native American tribes forgo the assistance of Nevada players and strike out on their own.

In Palm Springs, where construction of the Spa Resort Casino is about to begin, a brouhaha broke out in September after Agua Caliente tribal officials accused MGM Mirage of overstating its role in the development.

Now tribal officials point out that they hired an outside gaming consultant to assist in design and construction -- before the consultant became an MGM executive. Merely to avoid a conflict of interest, the consultant essentially placed the contract under the auspices of MGM’s corporate offices, tribal officials say. The contract will end as soon as the new casino opens, said Tegano, the general manager.

“Then they are out,” he said.

People who have negotiated contracts between Native American bands and gaming corporations say typical contracts require Native American bands to give up as much 35% of their revenue -- something tribal members are no longer willing to do.

“We have a proud sense of who we are,” said Milanovich, the Agua Caliente Tribal Council chairman. “And we want to do this on our own.”

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In Reno, the dire predictions about losses of gambling revenues are forcing the city to refurbish its image.

Many believe a series of sizable Native American casinos in the Sacramento area could be devastating to “The Biggest Little City in the World.” Most experts estimate Reno will eventually lose 75% of business generated by automobile trips.

If enough casinos are built near Sacramento, they believe, it could even overcome what many call a key drawback of Native American casinos: that they are too far apart for gamblers to hop from casino to casino.

A similar cluster could develop in the Coachella Valley, including the Agua Calientes’ two casinos in the Palm Springs area.

Already, says Lombardi, the tribal consultant, “I can drive in 22 minutes from [Casino] Morongo [near Banning] to the Agua Caliente Casino. That’s if I observe the speed limit -- and nobody does.”

Reno is trying fiercely to reinvent itself -- through promotional tie-ins with nearby ski resorts, by renovating its timeworn downtown area along the Truckee River, doubling the size of its convention center, even pitching itself as something of an artists’ colony.

“Clearly, it’s going to impact us,” said Reno City Manager Charles McNeely. “We won’t do this at the expense of gaming. But we have so much more to offer this community.”

Rob Ryan, the city’s redevelopment manager, said gambling is still the “biggest piece of the economy. But ... we are trying to broaden and diversify. Hopefully, we will make it worth people’s while to drive over the hill.”