Tahoe's Complaints about Red Hawk Casino are based on Bad Information

“We’ve had the biggest negative impacts on the East Slope. They get all the positives and we get all the negatives,” South Lake Tahoe City Councilman Tom Davis said of folks in the Placerville area.  Davis added, “I always advocated some of that money should come to the East Slope because our casino business is impacted.”

Betty Gorman, CEO-president of Lake Tahoe South Shore Chamber of Commerce, told Lake Tahoe News. “While we may not have all the relevant information, it is difficult to understand why such a concession would be given to a gaming business that has wrought such harm on our local economy.”

Not haveing all the relevant information is indeed the problem.

Whether it is simple ignorance of the facts, or by being misled by bad projections made in 2004-2006, some in South Lake Tahoe are making a claim that is clearly wrong in the face of current factual data.  The Red Hawk Casino in Placerville is not harming the economy of South Tahoe.  Although it is true that Tribal casinos in California are cutting into the revenue of Nevada casinos, that general effect does not hold true when a specific analysis is made of the effects of the Red Hawk Casino on South Lake Tahoe casinos.

When one steps away from the self-interested talking points of Nevada casino spokespeople and analyses the facts, a different picture emerges of Tahoe' gaming and the real impact of the Red Hawk Casino. What some people do not understand is that casino revenue is taxed in Nevada and those tax revenues are a matter of public record.  Making a fair and objective analysis of those records related to how the opening of the Red Hawk Casino has effected gaming revenue in the Tahoe basin is available to anyone who wants to mine the data.

Before we get into the real revenue effects of the Red Hawk Casino on Tahoe, let us look at the market realities. 

Having grown up in Tahoe and having Harvey Gross and his wife Llewellyn at our home back in the old days, I have a personal perspective on the Tahoe gaming market.  I am a player of more than 40 years and have played at most locations from the City of Commerce to Atlantic City.  I understand "odds" and the effect of “House” rules on those gaming odds. 

Simply speaking, some places have better odds by the arrangement of "House" rules.  Also, generally speaking, casinos with less favorable physical locations must offer better odds by giving more generous "House" rules in order to get players to come to their less desirable locations.  Conversely, those casinos with more favorable locations can, and do, offer less favorable "House" rules and still get plenty of players.

The real estate axiom of "location, location, location" is truer for casinos than for most non-retail businesses.

Lake Tahoe is a "Destination Location!"  Between the stunning natural beauty, the abundance of activities, and the infrastructure tailored to tourism Lake Tahoe is one of the premier destinations in the World.  In Time-Share parlance, it is RED 100% of the time.  In Marketing terms, Lake Tahoe is a "Super Premium" resort location.  For casino players it is a place to go, not because of the good gaming odds, but because it is Tahoe.  There is no substitute for the "Lake of the Sky."

When you study casino players, a clear distinction can be seen between those that are playing for the total destination "Experience" and those that are playing the “odds” or what I will call the “Value” motivated players.  Tahoe is not a place that "Value" players go to gamble because the odds are less favorable than nearby areas.  Many Reno-Sparks casinos offer far better odds and more perks than Tahoe.  Even Tribal casinos without odds enhancing “House” rules are often a better value when you factor in the savings from lodging and gasoline.  For players where gaming is just a part of the "Experience", California Tribal casinos cannot compete with the experience of destinations like Las Vegas or Lake Tahoe. 

That is where the first mistaken premise was put forward years ago by Tahoe Nevada casino interest: Tahoe Players would stop at Red Hawk Casino in Placerville and be diverted from going to Lake Tahoe.  Whether this premise was intentionally misleading, or based on projections that have been disproven by time, the premise is simply wrong!  Even some of the original management at the Red Hawk Casino erroneously thought they could simply tap into that stream of players headed to Tahoe on Highway 50.  Many people were misled years ago and some are still touting this faulty premise today. 

It is true that California casinos have significantly cut into Nevada gaming revenues in the aggregate, but when you drill down into the details of certain regions, we see this is not so in every case.  Lake Tahoe and the Red Hawk casino is one of those cases.  Actual revenue numbers bear this out (which I will get to shortly), the general principle of Marketing support this, and actual on-the-ground research validate this.

The general principle is that Tahoe is a super-premium resort destination and gamers looking for that kind of experience will not be satisfied or diverted by tribal casinos on their way to a destination area like Lake Tahoe.  Conversely, a value player will not be headed for Tahoe, and if they do get there, it will only be one time, as they find that the value is not there.  These are two different types of players and the overlap is minimal.  Tahoe cannot transform itself into a value destination simply because the overhead is too high.  Red Hawk cannot transform itself into a destination like Tahoe.  Each location is best suited to meet the needs of a specific market segment and the natural impediments to meeting the needs of other segments are effectively insurmountable.  Both locations can move in the direction of the other but the degree of movement is limited and at this time, they are still far apart.

Now for the hard numbers that destroy the argument that the Red Hawk Casino on the West slope is detrimental to the Tahoe basin because Tahoe casino business is greatly impacted as South Lake Tahoe City Councilman Tom Davis implied.  As I noted, the casino revenue number in Nevada are public record.  Easing the analysis is that they are broken into regions, Tahoe being one such region.  As such, we can see the tax revenue paid by Tahoe casinos every month for decades. 

In order to see the greatness of the Impact on Tahoe casino revenues we performed a revenue analysis on the Tahoe casinos for two years prior to the Red Hawk opening and one year after it opened.  We know that the first month of operation at the Red Hawk was one of its busiest times for the casino and that the overall business had not grown significantly in the following year after opening. 

What we found was that there was no significant drop in Tahoe casino revenue when the Red Hawk opened. 

We also found that there was a very significant drop in Tahoe revenues several months prior to Red Hawk's opening and a long term downward trend overall.  The longer trend in Tahoe matched the downward trend in all of Nevada and that could not be attributed to the Red Hawk Casino.  The long-term decline did correlate with the decline in the stock market (capital gains) and the decline in real estate values in California.  The precipitous drop in Tahoe casino revenue prior to the Red Hawk opening corresponded to what is now known as the California "Housing Market Crash" that began in late 2007.  California’s housing market grabbed a dubious honor: Worst in the nation in 2008!  This was the headline the summer before the Red Hawk Casino opened, “economic risk is also rapidly rising: California stands out as being among the top 10 states for both price depreciation and highest unemployment. Until home prices and economic activity stabilize, mortgage distress will remain high.”  A few months after this headline, a stead year-long decline in the stock market culminated in October 2008 when the market crashed.  on Monday October 6, the stock market would start a weeklong decline in which the Dow Jones Industrial Average would fall 1,874 points or 18.1%.  Both the metrics of declining house values and the stock market closely reflected the decline in casino revenues in the Tahoe basin.

It is known that a significant amount of the wealth used by Californians when visiting Super-Premium resorts is generated by Real Property appreciation and stock market (Capital) gains.  Independent from any competition, Lake Tahoe, as a Super-Premium destination depends on middle to upper income makers from California, so it was disproportionally harmed by macro-economic factors related to the burst of the housing bubble throughout California.

What could not be discerned by the actual revenue reports of Nevada gaming was any sign of Tahoe casino revenue drops corresponding with the opening of the Red Hawk casino in the end of 2008 and the first quarter of 2009.   When factoring in the macro economic trends of the housing/stock market crash and the standard Christmas season trends in Tahoe, there is no sign of any effects caused by the opening of Red Hawk Casino apparent in the revenues generated by Nevada gaming concerns. 

The alarm cry sent out by Nevada gaming concerns of the harm that opening a Tribal casino between Sacramento and Lake Tahoe would have on Tahoe casinos was not supported by facts or impartial analysis.  Yet that erroneous premise is still misleading people today.

If the money played at the Red Hawk Casino did not come out of Tahoe action, where did it come from?

In addition to these general marketing rules and the actual revenue number, I have enjoyed a unique opportunity to conduct an extensive research study on actual players at the Red Hawk casino and several Stateline casinos since the opening of the Red Hawk. That research strongly validates the general Market rules and actual revenue conclusions: that the Red Hawk does not significantly impact Lake Tahoe gaming.

In a market research study taking over 2,000 hours, I personally interviewed more than a thousand players by engaging them in casual conversation about their gaming experience at the Red Hawk and in Tahoe.  While at the Red Hawk, I specifically asked a series of questions and continued to the next question if answered in the affirmative: if they had been to Tahoe; where they on the way to Tahoe; did they stop by to play today on your way to Tahoe; are you still going to Tahoe after you leave here?  When in Tahoe the questions were: Have you ever heard of the Red Hawk Casino; have you ever been there; do you ever go there instead of here?

My ability to engage so many active players over such a long term was perhaps more illuminating than the actual revenue number trends.  This frontline research showed that although most Red Hawk players had heard of Tahoe gaming, few Red Hawk players EVER went to Tahoe to gamble (>3%).  Those that did go to Tahoe, still do.  Most that did go to Tahoe went for Skiing and gamed was a secondary activity.  Only a few players stopped by to play on their way to Tahoe (>.1%) and of those players none cancelled their trip to Tahoe because of their visit to Red Hawk. 

At the Red Hawk 98% of my informal interviews were conducted while plying table games with the remaining 4% conducted at slots or restaurants.  At the Red Hawk I conducted over one thousands of these interviews over a period exceeding one year.

At South Tahoe casinos, I conducted over one hundred similar interviews with similar results.  The number of players that had even heard of the Red Hawk was so small as to be statistically insignificant in a sample of 137 interviews (>1%).  I never met a Tahoe player that had also played at the Red Hawk casino (Except on a Placerville based bus trip to Tahoe with business associates.  Those were all people I knew and I did not include any information about their gaming habits in this study).   What was notable is that a significant number of Tahoe players had also gamed at other California Tribal casinos (<22%).  Most of those players did often game at local venues that were less than 100 miles from their residences.

The goal of the study was to assess the impact of Red Hawk Casino on South Tahoe (Stateline) casinos in terms of revenue and player diversion.  The study is ongoing since 2008 and includes the general principles of Market Segmentation & Physiographics, Analysis of Nevada Gaming Taxes, 1,723 personal interviews, and general macro-economic issues effecting the local economy.

The primary conclusion of the study is that there is almost no diversion of players from Tahoe gaming to the Red Hawk Casino and that the monetary diversion is imperceptible. A secondary conclusion is that there is considerable impact on Nevada gaming from the deterioration of the economic conditions effecting the discretionary incomes of middle and upper class Californians.  Another conclusion is that there is an impact to Nevada gaming from Tribal gaming in California, particularly from “local” gaming opportunities, but that impact was not quantified.

What this means for state policy makers is that there will continue to be serious pushback from Nevada gaming concerns against California based gaming.  It also means that Nevada's and California economies are inseparably tied and an improvement or deterioration in California's economy will have a direct and significant effect on Nevada's economy.  The reverse is not likely.

What this means for local policy makers is that the Red Hawk is not a significant detriment to the Tahoe basin as it draws almost no visitors away from Tahoe.  In fact, it is a significant contributor to the El Dorado County economy.   The majority of visitors to the Red Hawk Casino are not simply changing their destination within the county, but are additive to the county.  Almost all of the out-of-county visitors to the Red Hawk would not otherwise be in the county and any money they leave here, whether distributed by payroll or secondary purchases in the county, is additive to the local economy.  As the Red Hawk is the largest private employer in the county, this is a significant impact.

Either some Tahoe politicians do not understand the true impacts of the Red Hawk Casino on Tahoe or they are simply posturing for political reasons.  When South Lake Tahoe City Councilman Tom Davis says, “We’ve had the biggest negative impacts on the East Slope. They get all the positives and we get all the negatives,” at best he is simply wrong.  At worst he is exercising political hyperbole.  Other politicians seem to be more objective, like Supervisor Norma Santiago.  Supervisor Santiago sits in the best position to assess the relationship between South Lake Tahoe and the western slope of El Dorado County as the Tahoe Supervisor on the El Dorado County Board of Supervisors.  Supervisor Norma Santiago said, “There is nothing to indicate Tahoe got screwed. (The money) can be used for specific roads in the area impacted by the casino. The entire county made out very well in the deal.”

There are some negative impacts to the local economy from the Red Hawk Casino but they are more than mitigated by the agreement made by the county with the tribe that owns the casino whereby they agreed to pay the county $5.2 million a year for 20 years.  That agreement has been recently revised and that has caused a new wave of consternation among the ill informed and the biased.  The negative impacts from the casino that were offset by the payments included increasing the highway capacity with carpool lanes, increasing law enforcement for any additional enforcement action needs, and some additional social services that might be generated by the casino.

“All the money that the tribe paid to the county was for mitigation … the negative impacts we expected when the casino went in,” Ed Knapp, chief county counsel, told Lake Tahoe News. “The original agreement hammered out with the tribe was the richest agreement ever in American history of a local public entity and an Indian tribe.”  The money must be “spent on things impacted by the casino,” Knapp said.

Recently the Casino renegotiated its agreement with the State and part of that process was a renegotiating of its agreement with the county.  A considerable amount of the money was to offset the traffic increase by adding carpool lanes but the traffic load never increased at the predicted rate and the state had some money to pay for the lanes.  Law enforcement, fire protection, and medical needs were also over estimated in 2006, resulting in there being more than enough money to be used for offsets from casino’s impacts for items noted in 2006. 

One area hard to quantify is the impact on social needs.  A key component of the renegotiated agreement with the county is that $2.6 million paid by the Tribe, will be given the tribal health clinic. The clinic is open to all county residents.  Already many non-tribal residents of El Dorado County are taking advantage of the clinic because it offers affordable service and the billing is based on a user's ability to pay rather then the actual cost of service.  The clinic fills a critical link in offering medical services to the poor and indigent of the area.

This is a rally point for Tahoe-centric critics that think Tahoe is getting short changed.  Unfortunaly for those that want more money for service in Tahoe, the money paid by the Tribe is to offset casino impacts and there are no conclusive evidence that there are any quantifiable impacts in Tahoe. 

Of course, there is no limit to politicians and pundits that are willing to run with bad information and unproven antidotal premises in search for more money or more notoriety.  Fortunately, this is usually kept in perspective by the real facts.  A friend likes to say, "The cards read themselves" and in this case the cards say that the tough economic conditions in Lake Tahoe have almost nothing to do with the Red Hawk Casino.

Those that want better times to return to Tahoe must understand that the high cost of operating in the basin, the geological and climatic conditions, the lack of many viable commercial opportunities or land, and the dependence on tourism means that Tahoe will always be an expensive destination and that the recovery of Tahoe’s economy is directly linked to the prosperity of California’s middle to upper income earners.

Blaming the Red Hawk Casino for the economic conditions in Tahoe is like Don Quixote “Tilting at Windmills” as it might be romantic and fanciful, but it too far devoid of reality to base public policy on an imagined enemy.  Policy makers in Tahoe need to look at the real cause of the economic problems to find real solution lest they do a disservice by wasting time and energies instigating confrontations where adversaries are incorrectly perceived.

Cris Alarcon, Dec 9 2012.

Cris Alarcon is a Marketing & Political consultant that specializes in market analysis and research.  He is the publisher of the Placerville Newswire www.inedc.com.  He was also on the opening team the Red Hawk Casino in 2008 as a Dealer.  This was the one and only time he ever worked at a casino.  This stint at the Casino allowed him to become intimately familiar with the County's largest private employer and with the cliental and operation of a tribal casino in California.  Cris is a California native born in Santa Rose who grew up in South Tahoe from 1965 to 1977 before moving to Placerville.  While in Tahoe, his father was a chef at Harvey's Top of the Wheel and his mother was Executive Secretary at the Tahoe Airport.

—Part 1, Chapter VIII. Of the valourous Don Quixote's success in the dreadful and never before imagined Adventure of the Windmills, with other events worthy of happy record.