Satre was ‘experienced supervision’ needed to save Wynn Resorts

Wynn Resorts Chairman Phil Satre

RENO – Phil Satre and his wife, Jennifer, were planning their next visit to a U.S. national park when Elaine Wynn approached the long-time gaming figure more than a year ago about joining the board of Wynn Resorts as it dealt with allegations of sexual harassment and assault against CEO Steve Wynn.

Visiting national parks became a bucket list endeavor for the Satres after watching the Ken Burns produced and directed mini-series, The National Parks: America’s Best Idea, on PBS.

After 25 years in chief executive and board level positions with casino giant Harrah’s Entertainment and another 10 years as the chairman of gaming equipment manufacturer International Game Technology – seeing both companies through multi-billion-dollar mergers – travel to uniquely American locations such as Maine’s Acadia National Park and New Mexico’s Carlsbad Caverns were soothing experiences.

Now, Wynn Resorts’ largest shareholder wanted Satre, one of the gaming industry’s most respected leaders, to prop-up a foundering casino company encircled by a myriad of regulatory and legal issues stemming from the legal complaints against now-former chairman and CEO Steve Wynn. Ex-wife Elaine Wynn was in a contentious battle with the company’s board and filed a lawsuit to regain a seat that she lost in 2015. The casino operator was less than a year out from opening a $2.6 billion resort in Boston.

Satre wasn’t sure whether he wanted to step into the quagmire.

“I told Elaine I needed to give this some thought,” Satre said recently during a wide-ranging interview in which he talked about the company’s future, the surprising merger of Eldorado Resorts and Caesars Entertainment and his history with the president of the United States.

At the time Elaine Wynn approached him, Satre was chairman of gaming equipment giant International Game Technology and was considering stepping aside after 13 years. He wasn’t looking to join another gaming board.

“When I went through the process of whether or not I should pursue this, I looked at the company’s assets and concluded the vast majority of the employees loved working there, customers were loyal, and management had taken steps to make changes,” Satre said.

“My only condition was (that) I wouldn’t come in if the board was still litigating with Elaine,” Satre said. “I wasn’t going to get into the middle of a fight between the company and Elaine. I would come in if there was a clear deck.”

In August 2018, Elaine Wynn dropped her lawsuit, agreed to cap her ownership stake in the company at 9.9 percent and entered a “standstill agreement” through 2020 in which she would not challenge the board’s decisions.

Satre became vice chairman of the Wynn board and chairman three months later. He immediately brought decades of gaming industry credibility to the troubled company.

“I think they were probably in need of some experienced supervision,” said gaming analyst David Katz, who follows Wynn Resorts for Jefferies Group. “We had posed questions about where the company was headed, was there going to be a proxy fight? In that regard, he brought in the credentials to calm things down.”

Closing in on a year as Wynn chairman, the company is still dealing with fallout from the Steve Wynn sexual harassment matter. Two new lawsuits were filed against the company by employees last month. In a statement, Wynn Resorts said the “claims appear to be those already thoroughly investigated by the special committee (set up by the company) and regulators; no new claims of this type have been received by the Company since the close of the investigations.”

Satre has settled into a role as a “traditional” non-executive chairman.

“For a period there I was much more active dealing with regulatory issues in Nevada and Massachusetts, and representing the new board,” Satre said. “I was also getting up to speed on the company. I had been away from the operating side of the industry for a long time. I hadn’t been to Macau in ages. Steve is gone, but I’m not saying I replaced Steve. We have a new corporate governance structure and I feel pretty good about it.”

He helped steer the company through its regulatory matters in Nevada and Massachusetts, paying a total of $55 million in fines that ended discipline complaints. His appointment solidified the management team, led by CEO Matt Maddox. Encore Boston Harbor opened to high profile fanfare in June.

“We’re now developing strategic initiatives,” Satre said. “The cadence is more that of an operating company rather than all the angst we were going through.”

Wynn future

During an hour-long interview in his Reno office – a converted mansion overlooking the Truckee River and Barbara Bennett Park – Satre, 70, discussed several gaming industry topics. 

After leaving Harrah’s, Satre bought the Joseph H. Gray House, which was originally built in 1911 for the Reno department store owner. It was listed in 1987 on the National Register of Historic Places. 

Satre converted the building into his law offices and installed a 1920’s roulette table he had in storage for decades in his conference room. He later learned that similar tables made by the manufacturer were rigged by Al Capone and the mob during the prohibition era.

He briefly served on the board of Tabcorp Holdings, an Australian gaming company, and joined IGT’s board in January 2009, becoming chairman 10 months later. Satre also held board positions outside of gaming, including a term as chairman of NV Energy and 13 years with retailing giant Nordstrom, Inc.

Wynn is now his only board position.

Sitting at the roulette table, Satre agreed with Katz, who said the investment community believes the next challenge for Wynn is to “clearly articulate and establish a plan for growth.” But the Wynn business model and the historic Harrah’s business model he over saw for 25 years are vastly different.

Satre said Wynn’s expansion opportunities “are limited.” The company is focused on international opportunities and “destination cities,” similar to Boston. “If a city like Miami would take bids, we would be interested,” he said.

Wynn is making a concerted effort to win one of the three gaming licenses in Japan. In Macau, where the company has three resorts, Wynn is spending more than $2.5 billion on the Crystal Pavilion complex adjacent to Wynn Palace on Cotai. The glass and steel structure includes two hotel towers with 1,300 rooms, a theater, an Asian gourmet food pavilion and art sculpture gardens.

Earlier this year, Satre supported a brief effort by Maddox to have Wynn Resorts acquire Crown Resorts of Australia, which included casino-hotels in Melbourne and Sydney.

“We belong in big destination cities,” Satre said. 

In Las Vegas, Wynn reopened the renovated Wynn Las Vegas Golf Course following its nearly two-year closure and expanded convention facilities. The company will eventually build on the 34-acre former New Frontier site it owns across the Strip from Wynn Las Vegas and Encore.

“We like that piece of property we have a lot of ideas but we’re not ready to discuss them,” Satre said. “Getting the golf course back was critical to our positioning we have there.”

Satre said Wynn is not interested in acquiring any of Caesars Entertainment casinos that Eldorado Resorts might put on the market through the companies pending $17.3 billion merger, including those in Nevada. The company is closely following North Strip developments, including the $4 billion Resorts World Las Vegas that is expected to open at the end of 2020 and the nearly $1 billion Las Vegas Convention Center expansion, which will follow in 2021.

“Anything north of Wynn and Encore is good for us,” he said.

Eldorado-Caesars deal

Satre had several thoughts on the pending Eldorado-Caesars merger that will create a gaming conglomerate with 60 properties in 18 states under multiple brands, including Caesars, Harrah’s, Eldorado, Horseshoe and Bally’s.

In a way, Satre has skin in the game. 

He’s known the Carano family, founders of Reno-based Eldorado, for decades. He played a major part in building Harrah’s from three casinos in Reno, Lake Tahoe and Las Vegas, to a regional gaming giant that acquired Caesars Entertainment in 2005 for $9 billion during his last year as chairman.

“Eldorado’s strategy is very similar to the Harrah’s strategy,” Satre said. “You build distribution. You build customer relationships. You capitalize on those customer relationships across markets. And you build up the brand. If I had one do-over, I would probably want more clarity on the brands.”

Satre set Harrah’s on a steady expansion course, entering Atlantic City, opening nearly a dozen riverboat casinos, adding Indian gaming management deals, and buying Horseshoe Gaming, which included the World Series of Poker.

Earlier on, Satre and his executives laid out a chart for gaming expansion across the U.S., building a range of cases from optimistic to low end. 

“I think where we ended up was the most realistic case for expansion that we had planned out,” Satre said.

Satre said Eldorado “has a pretty good track record” from its previous acquisitions – MTR Gaming in 2014, Isle of Capri Casinos in 2017 and Tropicana Entertainment last year. 

“It’s an interesting operational and executional challenge,” Satre said of the Caesars transaction. The deal strengthens Eldorado’s position in Nevada. The company operates five casinos in the state – three in Reno and one each in Laughlin and Lake Tahoe. The merger gives the company 13 more Nevada properties – nine in Las Vegas, two in Lake Tahoe and one each in Reno and Laughlin.

His advice for Eldorado, which will soon own many of the casinos Satre-led Harrah’s either built or acquired, is to clearly differentiate between the brands. He suggested a layered approach, similar to Hilton Hotels, which has brands for different customer classifications, including high-end luxury and tour-and-travel-type properties.

“Clarity of the brand is very important and it’s one thing I would look at if I were sitting in their shoes,” Satre said. “Staffing levels, restaurants, and capital investments, all of those items fall in line under where a brand fits into customer expectations. I believe that’s the one thing we should have done better at Harrah’s.”

Satre and Trump

Satre was one of a handful of gaming executives who founded the Washington D.C.-based American Gaming Association in 1994, serving as chairman in 2003 and 2004. 

He was elected to the Gaming Hall of Fame in 2003 after he retired as Harrah’s CEO, and eight years after then-Atlantic City casino owner Donald Trump was inducted. He had many dealings with Trump after Harrah’s entered the East Coast casino market in the 1980s over the construction of what became Trump Plaza.

Harrah’s and Trump were partners in the Boardwalk development but “were at loggerheads” throughout the construction. Satre, Harrah’s point person, said the companies couldn’t ever agree on anything. 

Harrah’s pulled out of the project shortly after the opening.

“The companies didn’t have a good relationship, nor did I have a good relationship with Donald,” Satre recalled. “We dissolved the partnership and sold our interest back to Donald, basically what we paid for it. There wasn’t any value in it and it wasn’t doing well.”

In November 2016, shortly before the election, Satre authored a commentary for the Reno Gazette-Journal, urging Nevadans “to reject” Trump’s candidacy for President, saying he was “appalled by the very thought he could become our president.”

In the commentary, Satre recalled a correspondence with Trump that was a “characteristic of the bluster, threats, intemperance and unsupported and unsupportable falsehoods” that he experienced with Trump during the 1980s. 

“There were some idiosyncrasies at that time that we see today,” Satre said. “Both companies where I was executive chairman (Nordstrom’s and IGT) heard from the (Trump) campaign (to complain about the commentary.)”

Howard Stutz is a freelance gaming reporter for The Nevada Independent and the Executive Editor of CDC Gaming Reports. He has worked as a Nevada journalist for 30 years. He can be reached at howardmstutz@gmail.com. On Twitter: @howardstutz

The Drew withdraws exit application from NV Energy, latest business to back off departing utility

Developers of The Drew Las Vegas have withdrawn their application with utility regulators to purchase power independently of NV Energy, marking a resolution after a nearly two-year process that saw many big businesses file to leave the electric utility.

In a short, one-page letter submitted to the Public Utilities Commission on Thursday, Two Blackbirds Hospitality Management LLC (parent company of The Drew) announced that it was withdrawing its application to depart NV Energy and purchase electric power from another provider. The $3.1 billion project, which took over from the failed Fontainebleau Las Vegas resort casino, isn’t scheduled to open until 2022.

The company’s withdrawal of its application marks the end of an unusual period in Nevada’s energy landscape that saw dozens of the state’s largest and best-known companies file to leave NV Energy, causing major concerns for the utility and ultimately resulting in a state law adding several significant barriers to the ability of businesses to leave NV Energy’s service.

“The Drew is signaling its trust in NV Energy by withdrawing its application and we look forward to continuing to work with them," NV Energy spokeswoman Andrea Smith wrote in an email. "We are confident that we will deliver an energy service package that provides The Drew value and meets their operational needs. We are also excited to see The Drew move forward and open its doors to further Southern Nevada’s vibrant tourism industry.”

First approved in 2001, Nevada’s “704B” law (named for the provision in state law) allows large businesses and government agencies with a large electric load to file applications with the utilities commission for the right to leave NV Energy and get power from another provider, in return for paying an “impact fee” calculated to ensure other utility customers don’t face unexpected additional costs.

While large businesses that filed 704B applications have paid impact fees into the tens of millions of dollars range, the PUC has largely avoided charging the fees to under-construction entities, under the assumption that NV Energy wouldn’t be “losing” any customer demand from them going with another power provider. Attorneys for The Drew had requested a $0 impact fee; NV Energy attorneys and staff of the PUC had assessed a potential impact fee of anywhere from $2 to $15 million.

The 704B law was revived in 2014 by data company Switch, and a pair of casinos (MGM Resorts and Wynn Resorts)  quickly followed suit and successfully left the utility. But since mid-2018, 14 additional businesses and government agencies (including The Drew) filed 704B applications with the commission, raising concerns from the utility that the mass exodus would cripple its future electric demand and raise prices for its other customers.

Those concerns helped lead to SB547 — a bill approved nearly unanimously by Nevada lawmakers in 2019 that sets additional and stricter requirements on businesses seeking to leave NV Energy through the 704B process, but exempting those that had already filed to leave under the existing law.

The Drew’s withdrawal from the 704B process (filed in April 2019) is the last of those 14 businesses to have resolved their application; seven ultimately backed away from the process, and another seven received permission to depart NV Energy. Of the seven that have departed, at least one (The Raiders’ future Las Vegas Stadium) has received permission to delay taking electric service from an outside provider to assess alternative options from NV Energy.

NV Energy has taken increasingly more aggressive steps to curb the tide of businesses attempting to leave their service, primarily through filing opposition motions in commission proceedings or requesting that impact fees be substantially raised. But the utility has also focused on providing carrots to possible departing businesses; primarily through a special Optional Pricing Program Rate (OPPR) based on low-cost renewable projects that would offer a stable and lower rate to businesses eligible to leave through the 704B process. That rate program has yet to receive PUC approval.

The utility has also entered into agreements with at least four governmental agencies (the city of Henderson, the Las Vegas Convention and Visitors Authority, the Clark County School District and Clark County) that will see the utility make annual payments in return for a promise not to file a 704B application.

Big changes churn through Nevada casino giants

The Las Vegas Strip at night

Steve Wynn’s sudden exit a year ago from the casino company he founded was the first chapter in what turned out to be a series of shake-ups in the leadership of the Las Vegas casino industry.

Four major Strip casino companies – encompassing 23 of the boulevard’s most recognized resorts and 63 percent of its hotel rooms – are facing varying degrees of uncertainty that have caught the attention of gaming industry followers.

Two companies – MGM Resorts International and Caesars Entertainment – are dealing with issues related to investment community backlash.

MGM, which operates 10 Strip developments, is undergoing a cost-reduction and margin-improvement plan that includes $100 million in reduced labor spending and has led to the departure of key executives, including the company’s long-tenured chief financial officer, Dan D’Arrigo, and Scott Sibella, the president of the MGM Grand Las Vegas.

Caesars, which has nine properties on or near the Strip, has a new minority owner – billionaire corporate raider Carl Icahn, who now owns almost 18 percent of the company through more than $1.023 billion in stock acquisitions. Icahn, who controls three seats on the company’s board, wants Caesars to be sold or to merge with another casino operator. Reno-based Eldorado Resorts has surfaced as a potential partner.

For Las Vegas Sands and Wynn Resorts, the issues center on the absences of their visionary founders who have driven the Strip’s multi-billion-dollar remake since the late 1980s.

Las Vegas Sands was forced to reveal this month that Sheldon Adelson, the company’s 85-year-old founder and largest shareholder, has been away from the office since December while undergoing treatment for non-Hodgkins lymphoma. A Sands spokesman said Adelson is still performing his duties as chairman and CEO, although the day-to-day operations – which include the Venetian and Palazzo – are being overseen by company President Rob Goldstein and Chief Financial Officer (and Adelson’s son-in-law) Patrick Dumont.

Wynn’s departure as chairman and CEO of Wynn Resorts in February 2018 came just weeks after the Wall Street Journal reported allegations of sexual assault, sexual harassment and sexual misconduct by the gaming titan. That move led to a year-long remake of the company, which operates Wynn Las Vegas and Encore.

The changes at the four conglomerates are happening as visitor sentiment has soured over added costs to a stay in Las Vegas. Three of the companies – MGM Resorts, Caesars and Wynn – now charge guests for parking, although other factors, such as spending (parking is free at Wynn if visitors spend more than $50 on property) along with perks and mobility between sister resorts can reduce costs.

Visitors are also charged extra fees or daily resort fees to cover services such as using the spa, gym or WiFi Internet connection. Resort fees range between $30 and $50 per day on top of room rates and any parking fees.

UNLV's Associate Vice Provost for Faculty Affairs David Schwartz, who had served as director of the school’s Center for Gaming Research before his promotion last month, said the gaming industry as a whole is facing challenges it has not faced before: that of being a mature business industry rather than a new and growing one.

“It may be that new leadership, or at least new ideas, is necessary to face these challenges,” Schwartz said. “To me, the MGM and Caesars issues seem more like symptoms than causes.”

Mixed views

To some observers, the storylines add up to the most significant shakeup on the Strip since the Great Recession a decade ago. Others don’t see it that way.

“There are definite changes afoot at the major operators,” Schwartz said, although he sees a difference from shifts that came out of the recession. “The structure of the industry doesn’t seem to be changing, as much as the faces around the table.”

Nevada Gaming Commission Chairman Tony Alamo Jr., who has been on the panel since 2008 and chairman since 2014, said the changes taking place at several gaming companies “do not rise to a red alert level.”

He said each company’s issues or endeavors has to be viewed individually. What’s taking place within the Strip’s corporate offices is nowhere near the catastrophe experienced during the recession in 2008 and 2009, when annual Strip gaming revenues tumbled 10 percent and 9 percent respectively.    

Alamo said the Gaming Commission reviewed “17 different versions of reorganizations, from debt to equity swaps and full bankruptcies” brought about by the economic downfall.

He said the gaming industry and its regulators, “are not having the discussions we had in 2009.”

The Gaming Control Board, the industry’s full-time regulatory state agency, studies public companies through its corporate securities division. While not getting into specifics, Control Board Chairwoman Sandra Douglass Morgan said the division has been following the events.

“We monitor all [Securities and Exchange Commission] filings and there is instant communication with the companies,” Morgan said. “Our securities team comes to us before things hit the press.”

Schwartz said the last big upheaval before the recession came between 1967 and 1969, when changes to Nevada’s corporate investment rules brought mainstream finance to the Strip.

In addition, the opening of the International (now Westgate Las Vegas) by Kirk Kerkorian was “arguably the (market’s) first mega-resort.” Schwartz added the opening brought “major changes with profound implications for the future.”

As for Wynn and Sands, Bo Bernhard, executive director of the International Gaming Institute at UNLV said questions will always arise when there is a management change from a long-time corporate operator who is considered the visionary. Using sports terminology, Bernhard said there will be questions about “depth on the bench.”

From a Wall Street perspective, SunTrust Bank gaming analyst Barry Jonas said the current matters facing the four companies signal a “changing of the guard at the top.” The gaming industry as a whole, he added, has been re-evaluating itself internally for several years.

MGM and Caesars are companies that grew largely through development and consolidation beginning in the mid-1990s.

Jonas said the predominance of regional gaming markets led to the rise of the real estate investment trust industry in 2013, which separated property ownership from resort management. MGM owns 70 percent of MGM Growth Properties and VICI Properties was spun off from Caesars following the company’s 30-month bankruptcy reorganization. Combined, more than two dozen MGM and Caesars properties are owned and operated under the REIT structure.

“This model hasn’t been through an extreme recession yet,” Jonas said.

2018 net revenue and 3/22/18 closing stock prices of "the big four"

Each situation is unique

Changes at the four companies have been headline grabbing — and distinctive.

MGM Resorts’ cost reduction efforts, announced in early January, are expected to lead to an additional $300 million in cash flow within two years. The company had been under heavy pressure from the activist investment community that had built equity positions in the casino giant and were unhappy with the company’s stock price, which has lost more than one-quarter of its value in the last 10 months.

A few weeks after the plan was announced, MGM appointed Keith Meister, managing partner and chief investment officer of hedge fund Corvex Management, to the board. Corvex had acquired 3 percent of the company. A week later, Meister was placed on a board ad-hoc committee tasked with evaluating the company’s real estate portfolio.

The cost-reduction program led to management changes; D’Arrigo took advantage of a voluntary resignation package, as did Sibella.

Deutsche Bank gaming analyst Carlo Santarelli told investors D’Arrigo’s departure came “as a surprise” and creates “a variety of reactions as it pertains to the implications for the company.”

Jonas said MGM Resorts was successful with its 2015 cost-cutting efforts and the current plan addresses overlooked inefficiencies with an eye toward the company’s bottom line.

Alamo said he wasn’t concerned because it merely shows MGM is “being prudent by increasing the top line revenue and lowering the floor to increase cash flow.”

Caesars is in the largest state of flux of any Strip casino operator. Icahn has effectively taken control of the company’s direction and will have to face licensing by Nevada gaming regulators.

Morgan said the board has been in communication with the 83-year-old Icahn and is working toward “a timely filing” of his application.

“He is aware that he has to file,” Morgan said of Icahn, who is no stranger to gaming, having bought and sold several companies and properties, including the unfinished Fontainebleau and the Stratosphere.

A merger with Eldorado Resorts could create a nationwide gaming company with more than 50 casinos across 18 states. One analyst estimated the deal could be valued at $9 billion.

In a research note, Santarelli told investors an Eldorado-Caesars matching “has its pitfalls and regulatory challenges.” But he said the company “appears best positioned, from an integration perspective, to execute and deliver shareholder value.”

The matters surrounding Sands and Wynn are personality-driven.

Adelson’s recent absence hasn’t halted Las Vegas Sands from exploring expansion efforts and has so far drawn little scrutiny from Wall Street. Only one analyst, Steven Wieczynski, commented on Adelson’s illness, still saying the company “remains in incredibly good hands.”

Adelson, ranked No. 15 on the Forbes 400 list of billionaires with a net worth of $36.2 billion, has been considered the driver behind Las Vegas Sands’ growth abroad, including lucrative investments in Macau and Singapore, where the company draws roughly 70 percent of its annual revenues.

But recently, Sands executives and lobbyists have been active in New York, attempting to convince the state to allow a casino development near New York City, ahead of 2023, a date put into law six years ago.

“Sheldon has health issues, and we wish him the best,” Alamo said. “But it has not crossed over to the company’s fiscal matters.”

In the last 13 months, Wynn moved to revamp its nine-member board of directors and corporate leadership. Four women sit on the board, respected gaming veteran Phil Satre was brought in as chairman and a new corporate management team, led by CEO Matt Maddox, has been created. Wynn added new policies as well, many directed toward sexual harassment prevention.

Last month, Wynn agreed to pay a $20 million fine to Nevada gaming regulators – the largest in state history – to settle a 10-count complaint that detailed years of failure by former executives to “report and/or investigate” the charges against Steve Wynn.

“This company spent the past year sidetracked by these issues,” Alamo said. “They need to get back to work.”

Wynn Resorts is still awaiting the outcome of an investigation by Massachusetts gaming authorities. The company is working toward opening a $2.6 billion resort outside of Boston in June. The outcome – which could involve another large fine for not disclosing various matters to the regulators – continues to overhang Wynn.

Schwartz, the gaming historian, looked back to 1955, when ownership changes at six new casinos led to the creation of the Gaming Control Board. He acknowledged that how the changes play out – particularly the Caesars outcome – could have market implications.

“New players might change how the business operates,” Schwartz said. “But it won’t be clear how that will work, at least not for some time.”

Update at 7:25 AM: This story has been updated to reflect David Schwartz's correct title.

Howard Stutz is a freelance gaming reporter for The Nevada Independent and the Executive Editor of CDC Gaming Reports. He has worked as a Nevada journalist for 30 years. He can be reached at howardmstutz@gmail.com. On Twitter: @howardstutz

Reno casino operators: Market ‘transformed’ and ‘more stable’ as new competition springs up in Northern California

Potential competition coming from more than $1 billion of Indian casino development in Northern California isn’t causing Reno gaming operator David Farahi to lose any sleep.

If he ran a casino in Sacramento, however, Farahi says he would have concerns.

“California is already saturated,” said Farahi, chief operating officer of Monarch Resorts, which owns Reno’s Atlantis Casino Resort. He said the three new casinos, operated by Hard Rock, Boyd Gaming Corp., and Caesars Entertainment, and expected to open by 2020, will steal business away from Indian gaming properties in Sacramento and the Bay Area, rather than from Reno.

“The short answer is, no,” Farahi said. “Reno has a more diversified economy than before and we’re much more stable than the last time.”

The Atlantis in Reno, Nevada. (David Calvert/The Nevada Independent)

Farahi was referring to the mid-2000s.

The 2003 opening of the United Auburn tribe’s Thunder Valley resort near Sacramento, coupled with expansions at two nearby Northern California Indian gaming properties, decimated Reno’s gaming market.

Washoe County’s gambling revenues – Reno accounts for 75 percent of the market – hit an apex of $1.14 billion in 2000. A slow downward spiral began that year and was enhanced by the recession toward the end of the decade. When the bottom hit in 2012, Northern Nevada casinos had lost almost $400 million in annual gross gaming figures.

Now, in the eyes of the region’s business community, economic development leaders and gaming analysts, Reno’s casino business is in far better condition to weather competition from California.

“In my view, the new properties in California will have no impact whatsoever on Reno,” said Jefferies gaming analyst David Katz.

An economic upswing in Northern Nevada, thanks to an influx of large and small technology-based companies, has transformed Reno’s gaming industry from a tourism-dependent market into a traditional regional gaming destination driven by a local customer.

Mike Kazmierski, CEO of the Economic Development Authority of Western Nevada, said the move into the Reno area by some 200 companies has made the region less dependent on gaming.

“Reno has much different economy than in years past,” Kazmierski said. “The model is less susceptible to activity outside the market. Where this has helped the casinos, to some degree, is the growth in midweek business activity.”

Gaming revenues produced by Reno casinos have bounced back. The market has grown each of the last six years, including 2017’s 8.7 percent increase. Reno revenues were $636.9 million in 2018, an increase of 4.1 percent. Washoe County experienced 16 straight months of increases before the numbers declined in September.

“The growth trajectory the market has been on isn’t going to last forever,” said Michael Lawton, the Nevada Gaming Control Board’s senior research analyst. “Everybody believes a 3 percent yearly growth rate is realistic moving forward. The market is doing quite well.”

But it’s more than just slots and table games. Reno’s casino industry doesn’t resemble the 1990s and 2000s.

Older properties – such as Grand Sierra (formerly Bally’s Reno and Reno Hilton) and the Nugget in Sparks (formerly John Ascuaga’s Nugget) – were acquired by new operators who invested millions of dollars in upgrades, new restaurants, spas, entertainment and other non-gaming amenities.

The Nugget is building a $6.2 million, 9,000-seat outdoor amphitheater in downtown Sparks across from the casino that is expected to open this summer.

Home-grown Eldorado Resorts – which has expanded into the third largest regional casino operator in the nation with 26 properties in 12 states – hasn’t ignored Reno. The company’s three inter-connected downtown Reno properties across six city blocks – Eldorado, Silver Legacy and Circus Circus – have been dubbed as “The Row,” offering guests dozens of new non-gaming amenities.

The control board’s Fiscal 2017 Gaming Abstract showed that 51 percent of all revenues produced by casinos in Reno came from gaming activities. Ten years earlier, 54.3 percent of the revenues came from gaming.

Lawton said the market is slowly evolving, but it’s still not Las Vegas, where gaming revenues account for less than 35 percent of the total market.

The Eldorado in Reno, Nevada. (David Calvert/The Nevada Independent)

California competition

California is the nation’s largest Indian casino market, accounting for more than 26 percent of the nation’s tribal gaming revenues. According to economist Alan Meister, the state’s Indian casinos produced $8.4 billion in 2016, roughly $2 billion more than the Las Vegas Strip.

The current expansion is the largest in a decade and surrounds the state’s capital city.

Hard Rock, which is owned by the Seminole Tribe of Florida, is partnering with the Enterprise Rancheria of Maidu Indians on a $440 million resort in Yuba City, 30 miles north of Sacramento.

Caesars and the Buena Vista Band of Me-Wuk Indians are developing a $168 million casino 30 miles east of the city.

Boyd Gaming and Wilton Rancheria of Miwok Indians are building a $500 million complex in the Sacramento suburb of Elk Grove.

“Our location is ideally positioned to serve both the Sacramento and San Francisco Bay markets, making this project a significant opportunity for the tribe as well as our company,” Boyd CEO Keith Smith said on a quarterly earnings conference call in October.

All three properties are within a three-hour drive of Reno.

However, Macquarie Securities gaming analyst Chad Beynon doesn’t believe new casinos “over the hill and west on Interstate 80” will have the same impact on Reno the market experienced a decade earlier.

“Reno casino operators like to point out that you have to drive past all those casinos in Sacramento to get to Reno,” Beynon said. “That means a customer really wants to go to Reno.”

Farahi cited the 2013 opening of the Graton Resort near Santa Rosa, roughly 45 minutes north of San Francisco, as an example of Reno now being immune to California competition.

“We saw little if any effect from Graton on our business,” he said. “I think [Northern California Indian casinos] Graton, Thunder Valley, Red Hawk and Cache Creek will see the most impact from the new casinos.”

The number of visitors to Reno from California has diminished in recent years. The last visitor profile from the Reno Sparks Convention and Visitors Authority, dated 2015, showed California provided 32 percent of Reno’s visitors. In 2011, the figure was 39 percent.

Reno is drawing visitors from other markets, though, including the South and Midwest, and there is still a drive for convention business. The Reno Sparks Convention Center leadership is expected to approach the Legislature this year about funding for an expansion.

Meanwhile, the Reno-Tahoe International Airport has experienced 42 consecutive months of increased passenger travel. For the first 11 months of the year, passenger volume was more than 3.8 million travelers, up 4.9 percent over the same period last year.

A locals gaming market

Outside of Eldorado Resorts, which relies on tourism for 75 percent of its business, analysts said most Reno casinos focus on locals.

Farahi said Atlantis’ customer base is 55 percent locals. Beynon suspects others, including the 2,000-room Grand Sierra, approach 60 percent locals business.

Katz said the rejuvenated Reno economy has boosted the casino numbers. Higher wages and low unemployment mean people have a more disposable income for entertainment.

“It seems like the city has turned a corner,” Katz said.

Filling hotel rooms in Reno has not been a problem of late, either.

In the last 12 months, 29 companies moved their corporate headquarters to Reno. Kazmierski said these businesses average roughly 100 employees. Corporate meetings are big business for the midweek market. However, the area’s housing shortage has left many new utilizing hotel rooms for extended stays during the midweek.

Farahi said the hotel occupancy is somewhat a double-edged sword. Occupancy is solid, but operators can’t drive a higher rate.

“Reno is still very far away from the Las Vegas model,” Farahi said. “We’re not making as much of a profit from non-gaming and our gross gaming revenue is still 20 percent below the peak.”

As for any potential expansion in the Reno market, Station Casinos owns an eight-acre site near the convention center but stalled any development plans to focus on nearly $600 million in combined renovations to Place Station and Palms in Las Vegas.

Farahi said Monarch owns 40 undeveloped acres surround the Atlantis for expansion, but the company is currently focused on expansion of its hotel-casino complex in Colorado.

During the recession, there was a contraction in the Reno market. Several older casinos closed. SunTrust Bank gaming analyst Barry Jonas suggested the closing of additional older Reno casinos could give the market an additional boost.

“There really doesn’t seem to be any risk to Reno from the tribal gaming supply in California,” Jonas said. “What the market truly needs is a little more from the non-gaming side.”

Howard Stutz is a freelance gaming reporter for The Nevada Independent and the Executive Editor of CDC Gaming Reports. He has worked as a Nevada journalist for 30 years. He can be reached at howardmstutz@gmail.com. On Twitter: @howardstutz