Silver Legacy's financial woes highlight Indian casinos' effects

dkasler@sacbee.comMarch 20, 2012 

One of Reno's splashiest resorts is fighting to stave off financial disaster as Northern California Indian casinos continue to grab market share.

The Silver Legacy Resort was supposed to reinvigorate Reno's gambling industry when it opened 17 years ago. Its $300,000 laser-light show, illuminating a 120-foot-high silver-mining rig looming over the casino floor, was hailed as a tourism draw for the whole city.

Instead, the resort is in danger of becoming the latest casualty of Northern California's tribal gambling boom. The Silver Legacy has scrambled in recent weeks to avoid default on a $142.8 million bond.

The debt came due March 1, but repayment was extended for two weeks, to last Thursday. As the latest deadline passed, the downtown casino's owners said they were making headway on negotiating with bondholders to restructure the IOU.

While it appears the resort could stay open, it's a painful reminder for Reno of how its casinos have fallen victim to the explosion of Indian gambling. Ken Adams, an industry consultant in Reno, said Thunder Valley Casino in Lincoln is the main reason the Silver Legacy is in trouble.

While the weak economy has hurt, "the real story is Thunder Valley – it's that simple," Adams said Monday. "Thunder Valley and its peers took away a significant portion of the revenue from Reno."

Adams said lenders will likely find a way to keep the 1,700-room Silver Legacy from closing. "It's in everybody's best interest to keep it operating," he said.

The casino's general manager, Gary Carano, sent a letter to the Silver Legacy's 1,800 employees on Thursday saying talks are continuing.

"These discussions with our bondholders remain productive and we are making progress toward a resolution to restructure our debt," he wrote, according to the Reno Gazette-Journal. "We have sufficient cash to meet our operating needs."

Weighed down by interest expenses, the Silver Legacy lost $9.6 million in 2010 and another $4 million in the first nine months of last year, according to Securities and Exchange Commission filings. The resort hasn't turned a yearly profit since 2007.

Despite its woes, some in Reno believe there are other casinos that are more likely candidates for closure.

Brian Bonnenfant, an economist at the University of Nevada, Reno, said some of Reno's smaller casinos "that are operating on the fringe" are probably in greater danger than the Silver Legacy.

A few Reno casinos already have closed in the past few years, including the venerable Fitzgeralds in 2008. It was reopened last fall as a combination entertainment, dining, fitness and rock-climbing venue, but with no gambling.

Community leaders had hoped the Silver Legacy, a joint venture between the neighboring Eldorado and Circus Circus casinos, would win back some of the customers who had been drifting toward Las Vegas or the still-fledgling Indian venues in California.

Instead, Indian gambling took off. While some California casinos have struggled – notably Red Hawk Casino in Shingle Springs, which is also having problems paying its debts – most have successfully diverted customers away from Reno and Lake Tahoe.

The entire gambling industry suffered during the recession; several Las Vegas casinos had to restructure their debts. But Vegas has begun rebounding, while Reno's market is still dwindling.

Reno's combined gambling revenue fell nearly 9 percent in January from a year earlier, while business on the Vegas Strip jumped 29 percent, according to the Nevada Gaming Control Board. In the past decade, Reno's revenue has fallen by nearly a quarter.

In January, fewer than 15,000 employees worked in Reno's casinos. The workforce numbered 30,000 in the late 1990s. Bonnenfant said casino-hotel employees account for about 7 percent to 8 percent of the Reno workforce.

Reno has tried to tweak its tourism marketing in recent years by emphasizing skiing and other outdoor sports. It also has diversified its economy somewhat, positioning Reno as a low-cost alternative to markets such as Sacramento. The tech sector ballooned to about 12,000 workers in 2008, but has dropped back to around 9,600 because of the economy, Bonnenfant said.

Reno also was clobbered by the real estate bust. Its unemployment rate in January was 13 percent.

For all that, Adams said the Silver Legacy can do well if it can get its debt issues resolved.

"They can survive and possibly revive to a better level of revenue," he said.

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