California on Path to Become Nation’s Gambling Capital

A state once skeptical of wagering is in the midst of a gambling boom that could double casino revenue in coming years.

In time, according to gambling industry officials and economists, the Golden State almost surely will pass Nevada as the nation’s biggest gambling venue.

The fast expansion of gambling marks a major shift for the state. For 50 years -- from 1933, when the Depression-era electorate approved horse racing, to the mid-1980s -- gambling remained limited in California.

“People liked gambling; they would drive to Nevada,” said Roger Dunstan, who in 1997 wrote a study about gambling in the state for the California Research Bureau, part of the state library. “But they didn’t want it next door.”

That began changing in the 1980s. As cities approved card rooms in an effort to replace property tax revenue lost after Proposition 13, voters statewide approved the lottery as a way to help pay for schools.

What was a trickle became a flood after ballot propositions in 1998 and 2000 successfully pitched Indian gambling as a road toward economic independence for tribes. Now, the state has more than 60,000 slot machines, the most lucrative game for any casino owner, and tribal casinos generate roughly $5 billion to $6 billion annually.

For now, California’s gambling industry remains considerably smaller than Nevada’s, which has 220,000 slots and generates more than $9 billion in annual revenue.

Moreover, Indian casinos, which are sprinkled throughout the state, are not likely ever to be concentrated in one area that would rival the Las Vegas Strip as a tourist attraction or gambling center.

Still, the growth in California gambling is sure to continue.

“We’re very bullish on California. The market is there. The demand is there,” said Scott Nielson, executive vice president of Station Casinos Inc. of Las Vegas. The company has the contract to manage Thunder Valley, the highest-grossing casino in California, owned by the 255-member United Auburn Indian Community.

Other corporations synonymous with gambling, including Trump and Harrah’s, are betting on the future of California’s tribal casinos. Steve Wynn, who built the Mirage and Bellagio in Las Vegas, is a potential investor in a proposed Indian-owned casino in Garden Grove near Disneyland.

Given California’s population, the take from tribal casinos could double in the next few years, said Bill Eadington, director of the Center for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. Deron Marquez, chairman of the San Manuel Band of Mission Indians, owners of a major casino in the hills above San Bernardino, predicted gambling revenue in California would overtake Nevada’s by 2010.

Critics of gambling say the expansion, and particularly the location of more casinos near population centers, will lead to more gambling addiction.

“Proximity is an issue,” said former Lt. Gov. Leo McCarthy, who served on the National Gambling Impact Commission in the 1990s. “We’ll simply grow more quickly the number of pathological and problem gamblers. It will produce a population more likely to commit crimes to get back money they think they will use to win back what they lost.”

The problems associated with expanded gambling have become issues in the campaigns over two initiatives on the November ballot, Propositions 68 and 70, that will help determine how large the industry gets. Each could vastly expand gambling. Meanwhile, card room owners have gone to the U.S. Supreme Court seeking the same rights as Indian tribes to operate slot machines in the state.

But even if the court rejects the card rooms’ appeal and both ballot measures fail, Gov. Arnold Schwarzenegger, seeking new money to boost the state’s treasury, already has opened the way for substantial casino expansion.

Schwarzenegger has scrapped a limit imposed by his predecessor, Gov. Gray Davis, that held Indian casinos to 2,000 slot machines or fewer. Currently, 16 tribes have casinos with 2,000 slots. Schwarzenegger has been authorizing tribes to add as many slots as the market will bear, so long as they promise to pay the state up to 25% of the profit.

No one really knows how much the market will bear, but economists who have studied the matter, and gambling companies that want to invest money, agree that California is nowhere close to saturated. Unlike Nevada, which relies primarily on tourists from other states, California has a huge population of its own for casinos to serve.

Already, Nevada casinos, particularly those in Reno, have been losing customers to California. The Silver State will retain its allure, however. Unlike Nevada, California does not allow sports books, craps or roulette, although tribes have devised card games that mimic the classic casino games.

The expansion of California gambling took a step forward Monday, when Schwarzenegger signed compacts with five tribes, four of which currently have no casinos in the state, allowing them to begin gambling. Once they open their casinos, the state will have 58, up from 54.

The most notable of the agreements would allow the once-landless, all-but-forgotten Lytton Band of Pomo Indians to open a casino in the Bay Area city of San Pablo.

The tribe, which has 259 members, initially contemplated 4,000 slot machines. After legislators protested the size and the problems, such as traffic congestion, that it could cause, the Lytton band agreed over the weekend to scale back its proposal to 2,500 slots. The casino could expand soon after opening, however. The deal permits Lytton to ask the state to approve more machines as early as 2008.

The Legislature is expected to vote this week on whether to ratify the pact, with significant opposition remaining among legislators.

San Pablo is hardly a destination now. But it’s on the main East Bay freeway and near the geographical center of the nine-county region, surrounded by 6.7 million residents, more than three times Nevada’s population.

Other projects being planned include new development for the area around Thunder Valley. In its first year of operation, Thunder Valley, in the town of Lincoln, 30 miles east of Sacramento, had 1,900 slot machines and earned more than $340 million -- more than any casino in the state.

Station, which operates Thunder Valley, also has contracts to help three other tribes open casinos outside Fresno, near the college town of Chico and in the Sonoma County wine region north of San Francisco.

Beyond the casinos, a number of tribes are adding golf courses, retail outlets, big-name entertainers and other attractions. The Legislature is expected to vote this week on a bill by Assemblyman Lou Correa (D-Anaheim) that would cut costs for tribes by allowing them to finance casino-related projects, including parking lots, sewer systems and roads, with tax-exempt bonds -- the same type used by local governments to finance public works.

Several factors help explain the rapid expansion of California’s gambling industry:

California is home to 107 recognized Indian tribes -- a quarter of the national total. Under federal law, the state must negotiate with tribes seeking to open casinos.

An additional 54 groups have petitions pending with the U.S. Bureau of Indian Affairs seeking to become recognized tribes, according to the anti-gambling group Stand Up for California.

Once a tribe is recognized, it can get a reservation, which need not always be in the part of the state in which the tribe originated.

The Lytton Band of Pomo Indians had no land until Rep. George Miller, a Democrat who represents San Pablo, pushed legislation in 2000 decreeing that a card room and parking lot on 9.5 acres in San Pablo, far from Lytton’s original home in Sonoma County, become reservation land.

In 1994, Rep. John Doolittle, a Sacramento-area Republican, pushed legislation restoring tribal status to the United Auburn Indian Community, the group that owns Thunder Valley.

U.S. Sen. Barbara Boxer (D-Calif.) sponsored a bill in 2000 that restored the Federated Band of Graton Indians, a group that hopes to build a 2,000-slot casino in Rohnert Park, north of San Francisco.

As Indian tribes and would-be tribes eye gambling as a way to economic success, politicians see casinos as a source of revenue. With opposition to general tax hikes still high, gambling has become a way to balance budgets.

Schwarzenegger and his aides say 10 deals he has struck with tribes this summer will generate a one-time payment of $1 billion this year, and as much as $400 million in annual payments in years to come.

“It is hard to resist the economics,” Dunstan said.

To an electorate skeptical of gambling, campaign consultants tout ballot initiatives that allow more games as anything but a gambling expansion.

The consultants pushing the initiatives on the November ballot, for example, say they are aimed at requiring that tribes pay a “fair share” of their profits to state or local governments.

In 1984, consultants packaged the lottery as a way to fund schools. The measure even added a state constitutional prohibition against “Nevada-style” gambling.

That prohibition was wiped out by the 2000 ballot measures, which the Indian tribes and their consultants pitched as ways to help Native Americans attain economic self-sufficiency.

“Voters were not voting on gambling,” Eadington said. “They were voting on Indian welfare. It was a very clever and ingenious strategy.”

Finally, gambling and its money have become entwined with politics. Since 1998, casino tribes have spent $175 million on California elections. No other interest group has come close. Republican and Democratic lawmakers alike receive contributions from the tribes. They don’t directly praise slot machines. Rather, they speak of the sanctity of Indian sovereignty.

Underscoring their sophistication, tribes that signed compacts with Schwarzenegger earlier this summer are forming a political action committee and trade association to lobby on legislation affecting not just gambling, but their other enterprises. David Quintana, a former aide to Sen. Jim Brulte (R-Rancho Cucamonga) who now advises the Viejas tribe, and political consultant Dan Schnur will be officers.

“It shows a maturation of the Indian gaming industry,” Quintana said. “We’re at the point where we need to take care of our diversified economy. We’re hotels. We’re restaurants. We’re banks, and we need to take care of business.”

Bruce Thompson, a former Republican assemblyman from northern San Diego County forced by term limits to leave the Legislature four years ago, was among the last lawmakers who regularly questioned the wisdom of expanded gambling.

“You can’t find any legislator who will go up against the Indians; that’s how powerful their dollars have become,” Thompson said. “In Sacramento, it is a nonissue. Everybody takes their money, and so it is not something that you talk about anymore. It is because of the money.”