In Reno, the Recession Leaves a Legacy

The Biggest Little City is hoping for a comeback. Can its troubled flagship property lead the way?

In January, the financial website 24/7 Wall Street listed nine American cities nearly destroyed by the recession. Carson City and Reno were Nos. 1 and 2. And the situation hasn’t gotten much better since. In the Reno-Sparks metropolitan area, unemployment still hovers around 12 percent. Washoe County gaming revenues have plummeted since 2006. Gas prices at $4 a gallon have been keeping potential customers close to home at Northern California Indian casinos and off the vital Interstate 80 corridor to Reno.

Since 2000, California gaming establishments, such as Thunder Valley Casino near Lincoln, have drained two-thirds of the expected business from Reno’s gaming feeder markets in the San Francisco Bay Area and Sacramento, says Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.

It’s a far cry from the hopes raised when the $350 million Silver Legacy opened on July 28, 1995. At the time, the Las Vegas Strip was in the midst of an unprecedented boom, fueled by themed attractions, and the Silver Legacy—a striking sight with its 35-story tower and gleaming dome awash in emerald light—seemed likely to bring the trend to Washoe County.

The casino introduced customers to the fanciful tale of a fictional silver miner named Sam Fairchild, and the property was designed around his narrative. Beneath the dome, the Silver Legacy features a 120-foot, automated mining rig. When it opened, the Legacy featured a display of a Tiffany silver service owned by a real silver baron, Comstock Lode mining proprietor John Mackay.

But the Silver Legacy never did import the Vegas boom northward.

“The Silver Legacy was the last of the casinos to be built when the belief was Northern Nevada gaming would continue to grow,” says Elliott Parker, the chairman of the economics department at the University of Nevada, Reno.

After a few years, visitors stopped flocking to the attraction in the expected numbers. (The Reno-Sparks Convention and Visitors Authority does not reveal specific visitation totals by casino, but the visitor count to Reno-Sparks and the Washoe County area dropped from nearly 5.7 million in 2002 to 4.3 million in 2011.) Meanwhile, the Peppermill and Atlantis, with their own flashy expansions three miles to the south, drew business away from Reno’s downtown core. Downtown revitalization projects, such as the 9,100-seat Aces Ballpark and the adjacent Freight District entertainment and retail center, tried to arrest the slide, but by the time they opened in 2009, the recession was on.

Reno’s troubles were just beginning, and the Silver Legacy was at the heart of them. It remains an iconic presence and the city’s largest employer, but that only raises the stakes on its efforts to get its financial house in order.

In 2010, the Silver Legacy’s joint venture with Circus Circus and Eldorado lost $9.5 million. Last month, Silver Legacy CEO Gary Carano sent letters to his 1,800 employees to inform them of a bid to restructure the property’s $142.8 million mortgage debt. On March 19, Carano announced an agreement with creditors: Bondholders would receive $100 million in cash. Financing for the payment comes from a new $70 million loan for the property, with the Silver Legacy chipping in $15 million from its cash reserves. The Circus and Eldorado Joint Venture will contribute the remaining $15 million, and creditors will hold a second lien on the property.

The new plan, if finalized by the April 30 deadline, is likely to keep the Silver Legacy out of bankruptcy. But its troubles are reflected in other local gaming properties: The financier of the Grand Sierra hotel-casino near the Reno airport assumed control of the property in 2008 and sold it to The Meruelo Group of California last year; the downtown Siena property on the Truckee River went bankrupt in 2010, was sold at auction and re-opened in April 2011.

The ferocity and duration of the downturn has spiked the high hopes for downtown revitalization. “The decline of downtown casinos is a long-term issue that began not long after the Silver Legacy was built,” Parker says. “But efforts to redevelop downtown outside the casinos were moving along. Without the recession, the Aces Ballpark could have made a huge difference. Now, with the recession accelerating the problems of the downtown casinos, depressing property values and wiping out funds for redevelopment, the projects already initiated aren’t enough to make up for the decline.”

The good news is that Reno, having been laid low by a combination of macroeconomic catastrophe and long-term cultural change, may have survived the worst.

“I see, at least, a more stable future overall for Northern Nevada casinos,” Eadington says, predicting that the area’s population and income level will grow, and that the casino market among locals will grow along with it.

Meanwhile, he says, the planned Graton tribal casino near Rohnert Park will probably be the last major tribal casino in Northern California for a while—and the pause should stabilize Reno’s California tourism market.

So, will the air of desperation in Northern Nevada be disappearing soon?

“We’ve stopped sinking,” Parker says. “But we’re still underwater.”