Card Clubs: A Sure Bet? : Cities Are Learning That Casino Revenues Don’t Always Pay Off

Two Los Angeles County cities are betting that new card clubs opening in their towns this year will haul in millions of dollars to their cash-strapped coffers. But before Compton and Hawaiian Gardens start making a wish list of how to spend their millions, they should talk to some of their neighbors that already have gambling.

Most Los Angeles-area cities with casinos have seen revenues fall off in recent years, leaving sudden, gaping holes in their budgets. Others have received a good share of money but concede that card club payoffs will never reach the levels that they had anticipated.

“We’re still alive if nothing more,” said Anil Ganhy, finance director for Bell Gardens, where 13 employees were laid off and capital improvements put off after casino revenues from the Bicycle Club fell by $2 million in two years.

Even in the one town where casino revenues have been holding firm, city officials who realize the precariousness of gambling revenues are looking to draw a second major industry. They’re even seeking insurance in case the casino should close because of a fire or other reason.

During the past couple of years, cities pushed voters to approve casinos before a three-year state moratorium on card clubs took effect Jan. 1.

Compton is hoping the 112-table Crystal Park Hotel and Casino opening this October will bring in about $2.5 million to $3 million a year in added tax revenues. “We have not developed a specific plan on how each dollar will be spent,” said Arlene Williams, acting director of grants and management services in Compton. “But it will be a nice addition to the budget.”

Not far away, Hawaiian Gardens should be getting its first card club sometime this year, starting with 60 tables and eventually expanding to 200 or more.

Palm Springs and Coachella are also planning to open card clubs. Voters in many other Southern California cities rejected card clubs, fearing crime and low-rent images.

Another fear, just as valid, could have been whether the very rush to build casinos would cause their failure, gambling industry experts say.

Competition among card clubs has swelled as more poker palaces open in the Los Angeles area.

It’s a question of supply and demand, said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. “If you add more [clubs] to the pool, you are going to start diluting the hard-core supply of gamblers.”

Inglewood thought that the glitzy Hollywood Park Casino, a 150-table, Art Deco-style card club that opened next to the Hollywood Park racetrack in mid-1994, would be its wrapped-in-money savior, bringing the city about $11 million a year in casino taxes by 1998.

But the casino lost money in 1995, according to a casino source who asked not to be identified, and laid off more than 200 of its 1,964 employees early this year.

Hollywood Park Inc. officials said the staff reduction was made not because gross revenues are down but because a new state law allows publicly held companies such as Hollywood Park Inc. to run casinos instead of having to hire an outside management firm. The racetrack company fired the management firm, saying the casino was inefficiently run, and put in its own employees.

Hollywood Park Inc. expects the poker palace to turn a profit this year.

Because the city’s share of the money depends on gross revenue, not profits, the city still received $5 million the first year. But Inglewood officials have shrunk their hopes by more than half, figuring that revenues will not grow in the near future to the numbers they had predicted.

“We haven’t seen as much of an increase as we hoped,” said Assistant City Manager Norman Cravens.

In addition to increased competition, card clubs were dealt a setback last year when a court decision ruled that jackpot poker, a popular casino game, was illegal because it was a game of chance. Officials in cities with casinos said their communities stood to lose millions of dollars in tax revenues because gamblers would flock to Indian-run casinos where jackpot is allowed. The cities asked the state Supreme Court to overturn the ruling, but the court decided not to hear the case.

Over the years, Bell has seen its card club open and close several times as it went through various reincarnations. Last year it was reborn as the Jackpot Casino with 45 tables. It closed seven months later.

When the card palace first opened in 1979 as the California Bell Club, the city received $3 million a year in tax revenues. Eleven years later the club--tainted with corruption and mismanagement--closed, leaving the city with a gaping financial hole. “That’s when the bottom fell out,” City Administrative Officer Robert Rizzo said. “We got into a $3-million deficit.”

Because of the club’s unpredictable nature, city officials took a see-as-we-go attitude and stopped spending gambling taxes until they were in the bank for one year. “We noticed that in Southern California, some clubs are busy, and then four or five years later they have gone through a cycle [and don’t do well anymore],” Rizzo noted, saying the city’s gambling revenues dwindled to about $300,000 by last year before the club closed.

Gardena, the grandfather of the Southern California card club business, is familiar with disappointing gambling revenues. Originally there were six card clubs in the city, which brought in $2.5 million a year in tax revenues. Now there are two--the Normandie Club and the Eldorado Club.

Both were doing well until 1994, when the Hollywood Park Casino opened with much fanfare and a modern, clean look, including a dusty rose facade and burbling fountains outside and neon lights and fake palm trees inside. Casino revenues, which made up 12.5% of Gardena’s operating budget, dropped from $5 million to $4 million in one year.

Roger Sorte, manager of Gardena’s Eldorado Club, said the casino only has 22 card tables operating even though it’s licensed to have 42. “Business has gone to hell since Hollywood Park opened up. It’s down 25%,” he said.

Fortunately, Gardena had $8 million in reserve funds to cover that one-year decline in casino taxes, City Manager Ken Landau said.

The city of Commerce, which has the largest card club in the state, admits that it would be riding a rough financial wave if tax revenues from the 217-table Commerce Casino declined. Those taxes make up 40% of the city’s operating budget.

“It seems the casino revenues are starting to level off after having 9% to 10% growth a year until now,” said Commerce Finance Director Tom Bachman. “I just think the whole market stabilized before Hollywood Park.”

Bachman said the city is trying to attract a secondary industry to town. It’s also planning to buy disruption insurance in case an earthquake or fire interrupts casino business.

“One of our nightmares is that something happens to the casino,” said George Vara, assistant finance director for Commerce. “It would be a catastrophe that would be pretty traumatic.”

But the most traumatic story so far comes from Bell Gardens.

The city has seen its annual tax revenues from the Bicycle Club Card Casino, seized by the federal government six years ago, drop from nearly $11 million in 1992 to $9 million in the 1994-95 fiscal year.

The club not only has new competition but has undergone a series of management upheavals since the federal government discovered that the Bicycle Club was built in part with $12 million in laundered drug money from Florida. The U.S. government now owns more than a third of the club.

In April, state Atty. Gen. Dan Lungren recommended that the club’s federally appointed trustee, Harry John Richard, have his license revoked because he reportedly knew about scams, kickbacks and loan-sharking going on at the Bicycle Club. Lungren also ordered that three top managers have their licenses canceled.

The Bicycle Club’s decline tossed the already troubled Bell Gardens--which has had four city managers in four years and a recall election in 1991 to oust four City Council members--into turmoil because the casino taxes make up 60% of the city’s operating budget.

To staunch the seepage of red ink and close a $4-million funding gap, the city last year laid off 13 employees, including the assistant city manager. It also fired City Manager Charles Gomez, who reportedly failed to apprise council members of the shrinking casino revenues.