Business & Real Estate

After losing ground to California tribes, Reno casinos regroup

The signs of decay linger on Virginia Street, the main casino corridor in “The Biggest Little City in the World.”

Pawn shops and cut-rate motels line up alongside the high-end hotel towers. The strip is still pocked with shuttered casinos, victims of the recession and burgeoning competition from Northern California’s Indian tribes.

But signs of comeback – slow and steady – are evident as well. Construction crews are turning the old Fitzgeralds casino, closed since 2008, into the outdoor-themed Whitney Peak Hotel. A small slot-machine parlor called Siri’s Casino soon will open next door.

In nearby Sparks, the Grand Sierra Resort is pouring $30 million into new amenities, including a chic $15 million nightclub. The new owners of the venerable John Ascuaga’s Nugget are spending $50 million on a honky-tonk entertainment venue, a new sports-betting operation and other upgrades. Closer to the California border, Boomtown Casino is putting $20 million into an overhaul.

Add it up, and Reno appears to be recharging. Nobody is predicting a return to the pre-2000 glory days, before full-fledged Indian casinos became legal in California. Instead, local leaders are working to reinvent the city as an all-encompassing travel destination; the Whitney Peak won’t have a casino.

Even among casino executives, the optimism is growing. Many say they think Reno has withstood the worst that the California tribes can dish out. With the overall economy improving, combined casino revenue in Washoe County, including the north shore of Lake Tahoe, rose almost 4 percent last year. That was the first increase since 2006.

“All the indicators are looking good,” said Carlton Geer, the new president and chief executive of the Nugget, a casino with its origins in the 1950s. “Most of those Indian gaming impacts have been absorbed by the market.”

Notably, Reno executives say they’ve experienced surprisingly little fallout from last November’s opening of the $800 million Graton Resort & Casino in Sonoma County.

“So far our data would show we have not had a major impact,” said Gary Carano, general manager of the Silver Legacy in downtown Reno, which survived a recent stint in Chapter 11 bankruptcy.

Brian Bonnenfant, an economist at the University of Nevada, Reno, said community leaders understand a good chunk of the gambling business is likely gone for good. Although Reno drew 4.7 million visitors last year, the most since 2008, the head count was nearly 1 million below 2004 levels. Gambling revenue in Reno is about one-fourth lower than it was a decade ago, a loss of $250 million.

“Everybody is in full realization,” he said. “Reno is ... sober about gaming and how far we can take it.”

Increasingly, casino executives and tourism promoters push the concept of a Reno-Tahoe outdoor vacation with casinos as part of the package. The area also is relying heavily on special events such as Hot August Nights, the annual classic-car festival.

“We offer the total destination resort-casino experience,” Carano said. “That’s what Reno has to offer as a getaway that the Native American casinos in Northern California do not offer.”

Reno’s other advantage is an assortment of casinos within a few miles of each other. That’s certainly the draw for Ernest and Yolanda Herrera of San Jose, who were walking through the forest of slot machines at the Nugget one afternoon last week. The couple said they have sampled the Indian casinos but visit Reno three or four times a year.

“You have a variety of casinos, and not just one like Cache Creek,” said Yolanda, 61. “It’s almost like going to Vegas.”

A world beyond casinos

Ken Adams, a Reno gambling consultant, said California’s casinos remain a potent threat to northern Nevada. That’s especially true at Tahoe, which is more at the mercy of the weather than Reno and has taken a bigger hit in recent years. In the main casino corridor at the south shore, gambling revenue has fallen one-third in the past decade and, unlike Reno, hasn’t bottomed out yet. Hotel occupancy at the south shore, on both sides of the state line, also has dropped by one-third since 2003, although overnight stays have improved slightly the past two years.

Even at Tahoe, however, casino executives are trying to make a stand. The Horizon, one of the mainstay casinos on Highway 50, recently closed for a $40 million face-lift. When it reopens later this year as the Park Tahoe, a refurbished casino will be part of the property.

The cracks in northern Nevada’s casino structure first appeared in the early 1990s, Adams said, when tribal gambling began gathering steam in California, Oregon and Washington. He said the impact became more pronounced when Thunder Valley Casino opened near Lincoln in 2003, three years after California voters approved Vegas-style tribal casinos.

Although gambling revenue in Reno continued growing for three more years, according to the Nevada Gaming Control Board, it was clear that the ultra-successful Thunder Valley’s location near Interstate 80 was interrupting the flow of visitors.

“Thunder Valley jumped right on top of our air hose,” Adams said.

In all, nearly two dozen casinos have folded in the past 20 years, erasing a sizeable and colorful chunk of Reno’s history. The corpses include Harolds Club, which opened in 1935, the Flamingo Hilton, Horseshoe and Comstock. Some have been torn down; others have been converted to condominiums or pawn shops.

As gambling revenue faltered, community leaders looked at other ways to draw visitors. A hot spot in Reno lately is a trendy restaurant district, several blocks removed from the big hotel towers. “It isn’t part of the casino world at all,” Adams said.

Whitney Peak Hotel, on the site of the old Fitzgeralds casino, adjacent to the famous “Biggest Little City” arch, is undergoing the most dramatic transformation of any property in Reno. When it opens in mid-May, it will include indoor and outdoor rock-climbing walls, an indoor boulder park and a 1,100-seat concert venue.

What it won’t have is a casino. The building’s owner, an affiliate of a Chicago investment firm called DRW Trading Group, has decided to target outdoor adventurers instead of gamblers. There will be no smoking on the premises, either.

“Reno is so much more than a gaming town,” said Nicole Gross, project manager for the hotel. “It has so much more to offer tourists.”

Tourism is yielding some of the spotlight to industries such as warehousing, light manufacturing and business services. Apple Inc. has opened a data center in the technology park east of the city, and Reno is competing against Texas, New Mexico and Arizona to become home to a battery factory for Tesla Motors’ electric cars. Payrolls grew by a robust 5 percent in the past year, and unemployment has dropped to 8.8 percent, down from 12.3 percent in 2012.

Meanwhile, casino employment has shrunk by one-third in the past decade, to around 15,000 workers, despite an uptick in hiring last year that created 700 new jobs.

“We’re really looking to diversify the economy,” said Mark Nichols, an economist who studies the gambling industry at UN Reno.

Hitting the ‘up cycle’

Reno’s high-water mark as a casino hub came in 2006, when combined gambling revenue came in just below $1.07 billion (Revenue is the house’s “win,” not the amount wagered). It fell to a low of $727 million in 2012. Casino executives acknowledge that hitting the $1 billion mark again is unlikely, but they say the disappearance of so many casinos makes it easier for the survivors to prosper.

“Reno right-sized,” Carano said.

Carano’s hotel, the Silver Legacy, is the last major casino built in Reno; it opened in 1995. The property, a partnership between Eldorado Resorts and MGM Resorts International, filed for Chapter 11 two years ago when it was unable to refinance $140 million in debt. It has emerged from bankruptcy with a smaller debt load and has been able to plow $10 million into restaurants and other upgrades.

The Legacy is in sound financial condition and business is improving, Carano said. “Our balance sheet looks great, and our financing is in place,” he said. Eldorado Resorts recently announced it’s merging with a West Virginia casino and racetrack operator.

John Ascuaga’s Nugget is writing a comeback story of its own. Geer said the big Sparks resort had been struggling financially and suffered from the same malady afflicting many Reno properties: It was starved for capital.

As Reno’s fortunes started to fade, Geer said, lenders were leery of putting money into the market. For years, there had been almost no money invested in upgrading Reno’s casinos.

Geer’s company, a boutique investment firm called Global Gaming & Hospitality, saw the Nugget as a gem that could be turned around. After buying the property from the Ascuaga family for an undisclosed price, Global Gaming launched a $50 million remodel: new carpeting and chandeliers in the casino, an expanded sports book and more. The showpiece will be Gilley’s, a 10,000-square-foot Texas-themed restaurant and theater that’s expected to open this summer.

“It’s a destination, and it will sell,” he said.

Despite the allure of the Indian casinos, Geer said Californians will come to Reno in larger numbers as their incomes rise.

“As the economy in Northern California improves, so does the gaming win in northern Nevada,” Geer said.

“We went through our down cycle,” he added. “It’s natural to expect there’d be an up cycle. It’s the way of the universe.”