Ah, bus drivers and cab drivers and bellmen and bartenders and dealers. Would that they were all researchers and writers. Not that everything they tell you is wrong. Far from it. But if we had a dollar for every bit of erroneous information we here at the Las Vegas Advisor have had repeated to us from people who said a driver or bartender told them so, we'd have, perhaps, $387.
Anyway, was your driver 90 years old or so? If so, he might remember that Las Vegas at one time got its water from a vast underground river. Las Vegas Valley was underlain by a huge artesian aquifer, which bubbled up to the surface at Big Springs. It was the only oasis in the Mojave Desert for a hundred miles in every direction, which is why Las Vegas (in Spanish, it means "the Meadows") grew up as it did. Before Lake Mead was completed, the aquifer was Las Vegas' primary source of water, but it was sucked pretty much dry during the 30-40 years (1890 to 1930 or so) its water was mined.
When the original Colorado River Compact was negotiated in the 1920s to divvy up Colorado River water after Hoover Dam was completed (the Compact was ratified in December 1928), Las Vegas had a population of roughly 5,000 and received two percent of the available water, around 300,000 acre-feet. (An acre-foot is the amount of water it takes to cover one acre in a foot of water.) Today, of course, southern Nevada has more than two million people and almost all of its water (90%+) comes from Lake Mead.
As for the river flowing right under Bally's, your driver was confusing the old aquifer with the new flash-flood storm-drain system. Specifically, he was referring to the Flamingo Wash, a watershed that starts in the Spring Mountains and winds east across the valley. At Industrial Road/Dean Martin Drive, the wash goes underground in a six-tunnel storm drain. The drain burrows under Interstate 15, Caesars Palace, and part of Imperial Palace.
The storm drain surfaces in the middle of Imperial Palace; IP's driveway actually doubles as a flood channel, directing the water to the back of the property and into another drain.
All the water from Las Vegas flash floods is controlled by a system that consists of 450 miles of channels, about 300 of which are underground, plus 75 detention basins. Most of the water is led, ultimately, into the Las Vegas Wash, which empties into Lake Mead.
For more about Las Vegas' storm drain system -- and the numerous people who reside in it under the city -- check out author Matt O'Brien's internationally-acclaimed Beneath the Neon.