Casino Notebook: Vegas Revenue Rises, but Doubts Persist

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Casino revenue in Las Vegas is once again rising, but investors in the sector shouldn't expect a real turnaround anytime soon, according to figures released Tuesday from the

Nevada Gaming Control Board.

Gambling halls on the

Las Vegas Strip

took bettors for more than $355 million in January, a 5.3% increase from the same period in January 1997, the commission reported. Across Nevada, casinos won almost $692 million, a 7% increase.

But the seemingly solid revenue figures conceal some worrying trends. On the Strip, most of the month's increased win came in baccarat, the card game that is the favorite of high-rolling "whales." While high rollers usually come to Las Vegas for the week between Christmas and the new year, this year, New Year's Eve fell on Wednesday, so many high-rollers chose to come later and stay through early January. The Chinese New Year, another big holiday for whales, came early this year, also helping January's figures.

But blackjack and the slots, the staples of casinos in Las Vegas, didn't do so well. Slot revenue was roughly flat, rising less than 1% to $157 million on the Strip, while blackjack revenue actually fell 2.6% to about $64 million. If these trends continue, the casinos will have a very tough time meeting earnings estimates in the first quarter.

MGM Grand

(MGG)

, which gets almost all its revenues from Las Vegas, has already said its earnings will fall below expectations.

* * * * *

The Nevada casino industry may have temporarily dodged a bullet in

California

, where on Friday Gov. Pete Wilson (R.) and the Pala Band of Mission Indians, a small Native American tribe near San Diego, agreed to a compact that Wilson says will serve as a model agreement for Indian gambling in California. Under the agreement, each of California's 104 Indian tribes will be allowed to have up to 199 linked progressive video terminals. Tribes that don't want to build casinos can lease their rights to other tribes; a single tribe may have up to 975 devices under one roof.

But the compact bans slot machines and table games, which are far more appealing to most bettors than video terminals. In addition, the compact allows only "pari-mutuel" gambling, where bettors put money into a communal pool and the casino takes a set percentage of the proceeds in exchange for running the game, instead of letting bettors play against the house directly.

Other California tribes, however, many of which already operate casinos with slot machines, are unlikely to accept the agreement. At a press conference Monday, 11 Southern California tribes said the deal violates their sovereignty and called it a "gravedigging." The tribes want the right to open much bigger casinos with slots and table games.

Because the tribes are sovereign nations, California can't shut down their casinos. Instead, the state must rely on the federal government to enforce its anti-gambling rules. Under the federal law that authorizes Indian casinos, tribes must negotiate a compact with the state where they're located before they can legally operate a casino. But federal attorneys have been reluctant to move against the tribes that have opened casinos, because the tribes argue that Wilson has refused to negotiate in good faith -- another requirement of the law.

The tribes hoped that the negotiations between Wilson and the Pala would move them from their current status on the fringes of the law to a Foxwoods-style bonanza, allowing them to open giant casinos near Los Angeles and San Francisco. That could have badly hurt Las Vegas casinos, which get about 30% of their hotel and casino revenues, or close to $2 billion annually, from southern California, according to Rob Curran, an analyst at

Jefferies & Co.

in Los Angeles.

But Wilson has no interest in allowing big-time casino gambling in California, and with the Golden State's economy healthy and tax revenues rising, he's not as desperate for extra money as he was in the early 90s. So he's taken a tough line against the tribes, and the new agreement reflects that stance. As a result, the tribes that want full-scale casinos will have to go directly to state voters -- or to court -- if they want to expand legalized gambling in California. Meanwhile, Wilson says U.S. attorneys should begin moving against tribes that refuse to agree to give up the slots they already have.

While the ultimate outcome of the battle remains uncertain, Curran says it's clear that this agreement will frustrate any tribe hoping to open a large casino in California, much to the delight of Nevada casino operators. "I don't expect it to be solved anytime soon. It's going to get kicked around for some time," the analyst says. "It's definitely good news for Nevada, at least for now."