Nevada Fears Other States Getting Too Much of Its Action

Political and gaming industry leaders say that the expansion of gambling in other states and Canada may mean economic trouble for Nevada in the 1990s.

Notwithstanding the hotel-casino building boom now going on on the Las Vegas Strip, these leaders say soft spots are already showing up in gaming revenues in downtown Las Vegas, Reno and Lake Tahoe, as Nevada comes under competitive pressure from lotteries, Indian gambling and charitable casinos in several states and Canadian provinces.

The possibility of an eventual bust, particularly outside Las Vegas, was an unsettling undercurrent at the prestigious annual Gaming Conference sponsored by the Nevada Society of CPAs and the State Bar of Nevada last week in this Reno suburb.

From Gov. Robert F. Miller through an array of members and former members of the state Gaming Commission, casino chief executives, gaming lawyers and even academic experts, the recurrent suggestion was that, unless Nevada puts new emphasis on developing itself as a destination resort, a convention center and an inventor of new gambling games, bad times could lie ahead.

They pointed to these signs that gambling has become less objectionable to voters and authorities elsewhere in the country and in Canada: A number of states have lotteries with huge payouts; Iowa has plans for river boat gambling; a casino has been proposed in Ohio; charitable gaming is allowed in Oregon and Arizona; there is casino gambling in British Columbia, Alberta and Manitoba, and gambling on Indian lands across the country.

At some point, they said, all this was bound to adversely impact Nevada business.

Many of these outside ventures are restricted in scope. Iowa, for instance, has put a $5 limit on each bet and a $250 limit on losses by a single river boat gambler in a single night, hardly enticing to Nevada’s famed high rollers. Still, the new gambling outlets are building up.

Only one speaker among more than 20 at the Sparks meeting was unreservedly optimistic that the state would easily weather the developing competition. A few were cautious, but most tended to be downright glum.

Gaming is absolutely central to the prosperity of Nevada. Twenty-seven percent of the state’s labor force works in gambling establishments. Adding in those who are indirectly dependent on gambling or related tourism, the figure climbs to 65%.

Nearly half of state government revenue is derived directly from taxes on gaming, which had a gross take in 1988 of more than $4 billion. The state has no income tax.

Nevada last year attracted 28 million tourists, nearly half of them from California and at least 1.2 million from foreign countries. The assumption is that most would not have come but for the casinos and their accompanying entertainment facilities.

Monopoly Being Eroded

“The gaming monopoly we’ve held for years is being steadily eroded,” said Miller, who succeeded to the governorship after the election to the U.S. Senate last year of Richard H. Bryan.

Sure, Miller said, hotel construction is undergoing an unprecedented boom in Las Vegas and investor confidence for the moment seems high. “But there are two dozen other states where there are proposals for gambling, and seven states have considered casino-type gaming this year alone.”

Gov. Miller is urging the Legislature to form a unit “to track moves to institute gaming in other states” as a means of apprising Nevada gaming of impending competition.

Nevada officials are particularly irked about recent federal legislation that allows state lotteries to advertise on television and radio in any other state that has a lottery. Charitable games and Indian gambling establishments can do likewise.

But the same legislation continues a broad prohibition on any mention of Nevada gambling in out-of-state advertising.

“Much of the lottery advertising assumes the buyer is a sucker, while we’re unable to get across the point that we’re probably the best gambling buy (in terms of payout) in the United States today,” complained Phil Bryan, general manager and chief executive of Reno’s Peppermill Hotel and Casino.

John O’Reilly, chairman of the Nevada Gaming Commission, the agency that regulates gambling in the state, says Nevada will be particularly hurt if states like California go to “video lottery terminals” that pay off immediately, much like the slot machines that have become the majority income of most Nevada casinos.

O’Reilly believes the emphasis should be on developing new ideas for attracting gamblers to Nevada.

“We had 14 new games proposed last year alone, but there has been no new overwhelming game in recent years,” he said. “There’ve been adjustments in ‘21,’ but craps is not drawing the young crowd and needs some revitalization. Can we as a state invent a new game that will attract a new generation of gamblers to the table?”

While the Las Vegas Strip continues to boom by putting ever greater emphasis on itself as a world entertainment capital and convention center, soft spots have shown up elsewhere in the state, most of the speakers agreed.

Barrie Brunet, president of Bally Grand, which operates huge hotels in Las Vegas and Reno, points out that while gaming revenue was up 37% on the Las Vegas Strip for the 1984-88 period, there was only a 15% increase in the Reno area.

“We are in a very tough competitive position in Reno,” he said, adding that figures adjusted for inflation show the average visitor is spending less on gambling.

William R. Eadington, professor of economics at the University of Nevada and perhaps the foremost academic authority on Nevada gaming, said that while the return on investment to the Las Vegas Strip casinos and the new ones in Laughlin in southern Nevada still is hovering at a remarkable 40%, downtown Las Vegas has shown “a slow but relatively consistent decline” toward the 10% level, South Lake Tahoe “is suffering bleak years, with the average hovering around zero” and Reno is showing “consistent mediocrity” with an average return of 10%.

“Casinos that aren’t part of hotels are in decline or great difficulty all over the state,” the professor added. “Hotels are doing better.”

He said that the industry is competing with state lotteries by developing progressive jackpots and “megabuck” machines, and offering complimentary travel and accommodations to high-stakes slot machine players.

Eadington believes that out-of-state gambling will hurt Nevada dramatically, although he does think the lotteries have had the short-term benefit of expanding the number of people interested in gambling. It could be particularly harmful, he said, if gambling were expanded on California Indian reservations or if state lotteries offer new games featuring quick payoffs.

The Las Vegas Strip is in the best position to avoid a downturn, he suggested, because its hotels offer so many things beside gambling.

Daniel Lee, first vice president and senior securities analyst for the firm of Drexel Burnham Lambert, described Nevada as a a more risky investment than many, citing, among other factors:

- “Creeping legalization” of gambling in many other jurisdictions.

- Dependence on transportation from long distances that could be disrupted by airline strikes, bankruptcies or new gasoline shortages.

- Difficulties of licensing within Nevada and regulatory risks, particularly from possible new reporting requirements on currency transactions of less than $10,000.

- Impediments to investor takeovers of Nevada gambling operations posed by lengthy and costly state investigations of potential new owners.

What this all means, Lee explained, is that investors would have to pay higher interest rates to get money for building Nevada hotel-casinos.

A demurrer from the pessimism expressed at the Sparks meeting came from William A. Bible, chairman of the State Gaming Control Board, the staff agency reporting to the Gaming Commission. Bible is a son of the late Democratic U.S. Sen. Alan Bible.

“Today, the health of Nevada gambling is excellent and the prognosis is good,” said Bible. “Gambling elsewhere thus far is fairly limited in scope. It is merely whetting people’s appetite to come to Nevada.”

But most authorities are more apprehensive.

Like Peter I. Echeverria, a former chairman of the Nevada Gaming Commission, they wonder if Nevada is about to live through another of its boom-bust cycles.

There have been four such cycles in the state’s history: two gold rushes (in the 1880s at Virginia City and the 1920s at Tonopah), a copper bonanza during the 1940s in White Pine County and a quickie divorce craze in the late 1950s.

“Now gambling, the biggest strike in the Mother Lode we’ve hit yet, will it go too?” Echeverria asked.