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                                                                  EXHIBIT 10.122
                                  SGC GUARANTY


     This GUARANTY is entered into as of January 16, 1996 by SAHARA GAMING
CORPORATION, a Nevada corporation ("GUARANTOR"), in favor of and for the benefit
of SUNAMERICA LIFE INSURANCE COMPANY, as collateral agent for and representative
of (in such capacity herein called "GUARANTIED PARTY") the holders of the Notes
from time to time ("HOLDERS"), and, subject to subsection 3.7, for the benefit
of the other Beneficiaries (as hereinafter defined).

                                    RECITALS

     A.  Sahara Las Vegas Corp., a Nevada corporation ("COMPANY"), and Guarantor
have entered into that certain Note Purchase Agreement dated as of January 16,
1996 with Guarantied Party (said Note Purchase Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "NOTE
PURCHASE AGREEMENT"; capitalized terms defined therein and not otherwise defined
herein being used herein as therein defined).

     B.  Guarantor owns all the capital stock of Company and will benefit from
the transactions contemplated by the Basic Documents.

     C.  It is a condition precedent to the acquisition of the Notes under the
Note Purchase Agreement that Company's obligations thereunder be guarantied by
Guarantor.

     D.  Guarantor is willing irrevocably and unconditionally to guaranty such
obligations of Company.

     NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Holders and Guarantied Party to enter into the Note Purchase
Agreement and to acquire the Notes thereunder, Guarantor hereby agrees as
follows:

SECTION 1.   DEFINITIONS

     1.1  CERTAIN DEFINED TERMS.  As used in this Guaranty, the following terms
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shall have the following meanings unless the context otherwise requires:

          "BENEFICIARIES" means Guarantied Party and Holders.

          "GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
     subsection 2.1.

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          "GUARANTY" means this Guaranty dated as of January 16, 1996, as it may
     be amended, supplemented or otherwise modified from time to time.

          "PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment in
     full of the Guarantied Obligations, including without limitation all
     principal, interest, costs, fees and expenses (including, without
     limitation, reasonable legal fees and expenses) of Beneficiaries as
     required under the Basic Documents.

     1.2  INTERPRETATION.  References to "Sections" and "subsections" shall be
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to Sections and subsections, respectively, of this Guaranty unless otherwise
specifically provided.  In the event of any conflict or inconsistency between
the terms, conditions and provisions of this Guaranty and the terms, conditions
and provisions of the Note Purchase Agreement, the terms, conditions and
provisions of this Guaranty shall prevail.

SECTION 2.   THE GUARANTY

     2.1  GUARANTY OF THE GUARANTIED OBLIGATIONS.  Guarantor hereby irrevocably
          --------------------------------------                               
and unconditionally guaranties, as primary obligor and not merely as surety, the
due and punctual payment in full of all Guarantied Obligations when the same
shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)).  The term "GUARANTIED OBLIGATIONS"
is used herein in its most comprehensive sense and includes:

          (a) any and all Obligations of Company now or hereafter made, incurred
     or created, whether absolute or contingent, liquidated or unliquidated,
     whether due or not due, and however arising under or in connection with the
     Note Purchase Agreement and the other Basic Documents, including those
     arising under successive borrowing transactions under the Note Purchase
     Agreement which shall either continue the Obligations of Company or from
     time to time renew them after they have been satisfied and including
     interest which, but for the filing of a petition in bankruptcy with respect
     to Company, would have accrued on any Guarantied Obligations, whether or
     not a claim is allowed against Company for such interest in the related
     bankruptcy proceeding; and

          (b) those expenses set forth in subsection 2.8 hereof.

     2.2  PAYMENT BY GUARANTOR; APPLICATION OF PAYMENTS.  Guarantor hereby
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agrees, in furtherance of the foregoing and not in limitation of any other right
which any Beneficiary may have at law or in equity against Guarantor by virtue
hereof, that upon the failure of Company to pay any of the Guarantied
Obligations when and as the same shall become due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.  (S) 362(a)),
Guarantor will upon demand pay, or cause to be paid, in cash, to Guarantied
Party for the ratable benefit of

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Beneficiaries, an amount equal to the sum of the unpaid principal amount of all
Guarantied Obligations then due as aforesaid, accrued and unpaid interest on
such Guarantied Obligations (including, without limitation, interest which, but
for the filing of a petition in bankruptcy with respect to Company, would have
accrued on such Guarantied Obligations, whether or not a claim is allowed
against Company for such interest in the related bankruptcy proceeding) and all
other Guarantied Obligations then owed to Beneficiaries as aforesaid.  All such
payments shall be applied promptly from time to time by Guarantied Party:

          First, to the payment of the costs and expenses of any collection or
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     other realization under this Guaranty, including reasonable compensation to
     Guarantied Party and its agents and counsel, and all expenses, liabilities
     and advances made or incurred by Guarantied Party in connection therewith;

          Second, to the payment of all other Guarantied Obligations in such
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     order as Guarantied Party shall elect pursuant to Section 2.5 of the Note
     Purchase Agreement; and

          Third, after payment in full of all Guarantied Obligations, to the
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     payment to Guarantor, or its successors or assigns, or to whomsoever may be
     lawfully entitled to receive the same or as a court of competent
     jurisdiction may direct, of any surplus then remaining from such payments.

     2.3  LIABILITY OF GUARANTOR ABSOLUTE.  Guarantor agrees that its
          -------------------------------                            
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations.  In furtherance of the foregoing and without limiting
the generality thereof, Guarantor agrees as follows:

          (a) This Guaranty is a guaranty of payment when due and not of
     collectibility.

          (b) Guarantied Party may enforce this Guaranty upon the occurrence of
     an Event of Default under the Note Purchase Agreement.

          (c) The obligations of Guarantor hereunder are independent of the
     obligations of Company under the Basic Documents, and a separate action or
     actions may be brought and prosecuted against Guarantor whether or not any
     action is brought against Company or any other guarantors and whether or
     not Company is joined in any such action or actions.

          (d) Payment by Guarantor of a portion, but not all, of the Guarantied
     Obligations shall in no way limit, affect, modify or abridge Guarantor's
     liability for any portion of the Guarantied Obligations which has not been
     paid.  Without limiting the generality of the foregoing, if Guarantied
     Party is awarded a judgment in any suit

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     brought to enforce Guarantor's covenant to pay a portion of the Guarantied
     Obligations, such judgment shall not be deemed to release Guarantor from
     its covenant to pay the portion of the Guarantied Obligations that is not
     the subject of such suit, and such judgment shall not, except to the extent
     satisfied by Guarantor, limit, affect, modify or abridge Guarantor's
     liability hereunder in respect of the Guarantied Obligations.

          (e) Any Beneficiary, upon such terms as it deems appropriate, without
     notice or demand and without affecting the validity or enforceability of
     this Guaranty or giving rise to any reduction, limitation, impairment,
     discharge or termination of Guarantor's liability hereunder, from time to
     time may (i) renew, extend, accelerate, increase the rate of interest on,
     or otherwise change the time, place, manner or terms of payment of the
     Guarantied Obligations, (ii) settle, compromise, release or discharge, or
     accept or refuse any offer of performance with respect to, or substitutions
     for, the Guarantied Obligations or any agreement relating thereto and/or
     subordinate the payment of the same to the payment of any other
     obligations; (iii) request and accept other guaranties of the Guarantied
     Obligations and take and hold security for the payment of this Guaranty or
     the Guarantied Obligations; (iv) release, surrender, exchange, substitute,
     compromise, settle, rescind, waive, alter, subordinate or modify, with or
     without consideration, any security for payment of the Guarantied
     Obligations, any other guaranties of the Guarantied Obligations, or any
     other obligation of any Person (including any other guarantor) with respect
     to the Guarantied Obligations; (v) enforce and apply any security now or
     hereafter held by or for the benefit of such Beneficiary in respect of this
     Guaranty or the Guarantied Obligations and direct the order or manner of
     sale thereof, or exercise any other right or remedy that such Beneficiary
     may have against any such security, in each case as such Beneficiary in its
     discretion may determine consistent with the Note Purchase Agreement and
     any applicable security agreement, including foreclosure on any such
     security pursuant to one or more judicial or nonjudicial sales, whether or
     not every aspect of any such sale is commercially reasonable, and even
     though such action operates to impair or extinguish any right of
     reimbursement or subrogation or other right or remedy of Guarantor against
     Company or any security for the Guarantied Obligations; and (vi) exercise
     any other rights available to it under the Basic Documents.

          (f) This Guaranty and the obligations of Guarantor hereunder shall be
     valid and enforceable and shall not be subject to any reduction,
     limitation, impairment, discharge or termination for any reason (other than
     payment in full of the Guarantied Obligations), including without
     limitation the occurrence of any of the following, whether or not Guarantor
     shall have had notice or knowledge of any of them: (i) any failure or
     omission to assert or enforce or agreement or election not to assert or
     enforce, or the stay or enjoining, by order of court, by operation of law
     or otherwise, of the exercise or enforcement of, any claim or demand or any
     right, power or remedy (whether arising under the Basic Documents, at law,
     in equity or otherwise) with respect to the Guarantied Obligations or any
     agreement relating thereto, or with

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     respect to any other guaranty of or security for the payment of the
     Guarantied Obligations; (ii) any rescission, waiver, amendment or
     modification of, or any consent to departure from, any of the terms or
     provisions (including without limitation provisions relating to events of
     default) of the Note Purchase Agreement, any of the other Basic Documents
     or any agreement or instrument executed pursuant thereto, or of any other
     guaranty or security for the Guarantied Obligations or any agreement
     relating to such other guaranty or security; (iii) the Guarantied
     Obligations, or any agreement relating thereto, at any time being found to
     be illegal, invalid or unenforceable in any respect; (iv) the application
     of payments received from any source (other than payments received pursuant
     to the other Basic Documents or from the proceeds of any security for the
     Guarantied Obligations, except to the extent such security also serves as
     collateral for indebtedness other than the Guarantied Obligations) to the
     payment of indebtedness other than the Guarantied Obligations, even though
     any Beneficiary might have elected to apply such payment to any part or all
     of the Guarantied Obligations; (v) any Beneficiary's consent to the change,
     reorganization or termination of the corporate structure or existence of
     Company or any of its Subsidiaries and to any corresponding restructuring
     of the Guarantied Obligations; (vi) any failure to perfect or continue
     perfection of a security interest in any collateral which secures any of
     the Guarantied Obligations; (vii) any defenses, set-offs or counterclaims
     which Company may allege or assert against any Beneficiary in respect of
     the Guarantied Obligations, including but not limited to failure of
     consideration, breach of warranty, payment, statute of frauds, statute of
     limitations, accord and satisfaction and usury; and (viii) any other act or
     thing or omission, or delay to do any other act or thing, which may or
     might in any manner or to any extent vary the risk of Guarantor as an
     obligor in respect of the Guarantied Obligations.

     2.4  WAIVERS BY GUARANTOR.  Guarantor hereby waives, for the benefit of
          --------------------                                              
Beneficiaries:

          (a) any right to require any Beneficiary, as a condition of payment or
     performance by Guarantor, to (i) proceed against Company, any other
     guarantor of the Guarantied Obligations or any other Person, (ii) proceed
     against or exhaust any security held from Company, any such other guarantor
     or any other Person, (iii) proceed against or have resort to any balance of
     any deposit account or credit on the books of any Beneficiary in favor of
     Company or any other Person, or (iv) pursue any other remedy in the power
     of any Beneficiary whatsoever;

          (b) any defense arising by reason of the incapacity, lack of authority
     or any disability or other defense of Company including, without
     limitation, any defense based on or arising out of the lack of validity or
     the unenforceability of the Guarantied Obligations or any agreement or
     instrument relating thereto or by reason of the cessation of the liability
     of Company from any cause other than payment in full of the Guarantied
     Obligations;

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<PAGE>
 
          (c) any defense based upon any statute or rule of law which provides
     that the obligation of a surety must be neither larger in amount nor in
     other respects more burdensome than that of the principal;

          (d) any defense based upon any Beneficiary's errors or omissions in
     the administration of the Guarantied Obligations, except behavior which
     amounts to bad faith;

          (e) (i) any principles or provisions of law, statutory or otherwise,
     which are or might be in conflict with the terms of this Guaranty and any
     legal or equitable discharge of Guarantor's obligations hereunder, (ii) the
     benefit of any statute of limitations affecting Guarantor's liability
     hereunder or the enforcement hereof, (iii) any rights to set-offs,
     recoupments and counterclaims, and (iv) promptness, diligence and any
     requirement that any Beneficiary protect, secure, perfect or insure any
     security interest or lien or any property subject thereto;

          (f) notices, demands, presentments, protests, notices of protest,
     notices of dishonor and notices of any action or inaction, including
     acceptance of this Guaranty, notices of default under the Note Purchase
     Agreement or any agreement or instrument related thereto, notices of any
     renewal, extension or modification of the Guarantied Obligations or any
     agreement related thereto, notices of any extension of credit to Company
     and notices of any of the matters referred to in subsection 2.3 and any
     right to consent to any thereof; and

          (g) any defenses or benefits that may be derived from or afforded by
     law which limit the liability of or exonerate guarantors or sureties, or
     which may conflict with the terms of this Guaranty, including without
     limitation the provisions of Nevada Revised Statutes Sections 40.430-
     40.459, 40.475 and 40.485 as permitted by Nevada Revised Statutes Section
     40.495, and any successor provisions.

     2.5  CERTAIN CALIFORNIA LAW WAIVERS.  As used in this subsection 2.5, any
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reference to "the principal" includes Company, and any reference to "the
creditor" includes each Beneficiary.  In accordance with Section 2856 of the
California Civil Code:

          (a) Guarantor agrees to withhold the exercise of any and all rights of
     subrogation, reimbursement and contribution against Company, against any
     other guarantor of any of the Guarantied Obligations and against any
     collateral or security granted by any such other guarantor for any of the
     Guarantied Obligations until the Guarantied Obligations shall have been
     paid in full, all as more fully set forth in subsection 2.6;

          (b) Guarantor waives any and all other rights and defenses available
     to Guarantor as against any Beneficiary by reason of Sections 2787 to 2855,
     inclusive, 2899 and 3433 of the California Civil Code except to the extent
     expressly provided herein, including without limitation any and all rights
     or defenses Guarantor may have

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<PAGE>
 
     by reason of protection afforded to the principal with respect to any of
     the Guarantied Obligations, or to any other guarantor of any of the
     Guarantied Obligations with respect to any of such guarantor's obligations
     under its guaranty, in either case pursuant to the antideficiency or other
     laws of the State of California limiting or discharging the principal's
     indebtedness or such guarantor's obligations, including without limitation
     Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure;
     and

          (c) Guarantor waives all rights and defenses arising out of an
     election of remedies by the creditor, even though that election of
     remedies, such as a nonjudicial foreclosure with respect to security for
     any Guarantied Obligation, has destroyed Guarantor's rights of subrogation
     and reimbursement against the principal by the operation of Section 580d of
     the Code of Civil Procedure or otherwise; and even though that election of
     remedies by the creditor, such as nonjudicial foreclosure with respect to
     security for an obligation of any other guarantor of any of the Guarantied
     Obligations, has destroyed Guarantor's rights of contribution against such
     other guarantor.

No other provision of this Guaranty shall be construed as limiting the
generality of any of the covenants and waivers set forth in this subsection 2.5.
In accordance with subsection 3.6 below, this Guaranty shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of Nevada, without regard to conflicts of laws principles.  This
subsection 2.5 is included solely out of an abundance of caution, and shall not
be construed to mean that any of the above-referenced provisions of California
law are in any way applicable to this Guaranty or to any of the Guarantied
Obligations.

     2.6  GUARANTOR'S RIGHTS OF SUBROGATION, CONTRIBUTION, ETC.  Until the
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Guarantied Obligations shall have been paid in full, Guarantor shall withhold
exercise of (a) any claim, right or remedy, direct or indirect, that Guarantor
now has or may hereafter have against Company or any of its assets in connection
with this Guaranty or the performance by Guarantor of its obligations hereunder,
in each case whether such claim, right or remedy arises in equity, under
contract, by statute, including without limitation under Nevada Revised Statutes
Section 40.475 or 40.485 as permitted by Nevada Revised Statutes Section 40.495
(1993), under common law or otherwise and including without limitation (i) any
right of subrogation, reimbursement or indemnification that Guarantor now has or
may hereafter have against Company, (ii) any right to enforce, or to participate
in, any claim, right or remedy that any Beneficiary now has or may hereafter
have against Company, and (iii) any benefit of, and any right to participate in,
any collateral or security now or hereafter held by any Beneficiary, and (b) any
right of contribution Guarantor may have against any other guarantor of any of
the Guarantied Obligations.  Guarantor further agrees that, to the extent the
agreement to withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification Guarantor may have against Company
or against any collateral or security, and any rights of contribution Guarantor
may have against any such

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other guarantor, shall be junior and subordinate to any rights any Beneficiary
may have against Company, to all right, title and interest any Beneficiary may
have in any such collateral or security, and to any right any Beneficiary may
have against such other guarantor.  Guarantied Party, on behalf of
Beneficiaries, may use, sell or dispose of any item of collateral or security as
it sees fit without regard to any subrogation rights Guarantor may have, and
upon any such disposition or sale any rights of subrogation such Guarantor may
have shall terminate.  If any amount shall be paid to Guarantor on account of
any such subrogation, reimbursement or indemnification rights at any time when
all Guarantied Obligations shall not have been paid in full, such amount shall
be held in trust for Guarantied Party on behalf of Beneficiaries and shall
forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.

     2.7  EXPENSES.  Guarantor agrees to pay, or cause to be paid, on demand,
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and to save Beneficiaries harmless against liability for, any and all costs and
expenses (including reasonable fees and disbursements of counsel and reasonable
allocated costs of internal counsel) incurred or expended by any Beneficiary in
connection with the enforcement of or preservation of any rights under this
Guaranty.

     2.8  CONTINUING GUARANTY.   This Guaranty is a continuing guaranty and
          -------------------                                              
shall remain in effect until all of the Guarantied Obligations shall have been
paid in full.  Guarantor hereby irrevocably waives any right to revoke this
Guaranty as to future transactions giving rise to any Guarantied Obligations.

     2.9  AUTHORITY OF GUARANTOR OR COMPANY.  It is not necessary for any
          ---------------------------------                              
Beneficiary to inquire into the capacity or powers of Guarantor or Company or
the officers, directors or any agents acting or purporting to act on behalf of
any of them.

     2.10 FINANCIAL CONDITION OF COMPANY.  Any extensions of credit may be
          ------------------------------                                  
granted to Company or continued from time to time without notice to or
authorization from Guarantor regardless of the financial or other condition of
Company at the time of any such grant or continuation.  No Beneficiary shall
have any obligation to disclose or discuss with Guarantor its assessment, or
Guarantor's assessment, of the financial condition of Company.  Guarantor has
adequate means to obtain information from Company on a continuing basis
concerning the financial condition of Company and its ability to perform its
obligations under the Basic Documents, and Guarantor assumes the responsibility
for being and keeping informed of the financial condition of Company and of all
circumstances bearing upon the risk of nonpayment of the Guarantied Obligations.
Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary
to disclose any matter, fact or thing relating to the business, operations or
conditions of Company now known or hereafter known by any Beneficiary.

     2.11 RIGHTS CUMULATIVE.  The rights, powers and remedies given to
          -----------------                                           
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any

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of the other Basic Documents or any agreement between Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries.  Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.

     2.12 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY.  (a)
          -------------------------------------------------------------       
So long as any Guarantied Obligations remain outstanding, Guarantor shall not,
without the prior written consent of Guarantied Party in accordance with the
terms of the Note Purchase Agreement, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company.  The obligations of Guarantor under this Guaranty shall not be
reduced, limited, impaired, discharged, deferred, suspended or terminated by any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or by any
defense which Company may have by reason of the order, decree or decision of any
court or administrative body resulting from any such proceeding.

          (b) Guarantor acknowledges and agrees that any interest on any portion
of the Guarantied Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Guarantied Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantor and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantor pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations.  Guarantor will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.

          (c) In the event that all or any portion of the Guarantied Obligations
are paid by Company, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Guarantied Obligations for all purposes under this Guaranty.

     2.13 NOTICE OF EVENTS.  As soon as Guarantor obtains knowledge thereof,
          ----------------                                                  
Guarantor shall give Guarantied Party written notice of any condition or event
which has resulted in (a) a material adverse change in the financial condition
of Guarantor or Company or (b) a breach of or noncompliance with any term,
condition or covenant contained herein or in the Note Purchase Agreement, any
other Basic Document or any other document delivered pursuant hereto or thereto.

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<PAGE>
 
     2.14 SET OFF.  In addition to any other rights any Beneficiary may have
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under law or in equity, if any amount shall at any time be due and owing by
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of such Beneficiary owing to Guarantor and any other property
of Guarantor held by any Beneficiary to or for the credit or the account of
Guarantor against and on account of the Guarantied Obligations and liabilities
of Guarantor to any Beneficiary under this Guaranty.

SECTION 3.  MISCELLANEOUS

     3.1  SURVIVAL OF WARRANTIES.  All agreements, representations and
          ----------------------                                      
warranties made herein shall survive the execution and delivery of this Guaranty
and the other Basic Documents and any increase in the amount of the Notes or
other Obligations under the Note Purchase Agreement.

     3.2  NOTICES.  Any communications between Guarantied Party and Guarantor
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and any notices or requests provided herein to be given may be given by mailing
the same, postage prepaid, or by telex, facsimile transmission or cable to each
such party at its address set forth in the Note Purchase Agreement, on the
signature pages hereof or to such other addresses as each such party may in
writing hereafter indicate.  Any notice, request or demand to or upon Guarantied
Party or Guarantor shall not be effective until received.

     3.3  SEVERABILITY.  In case any provision in or obligation under this
          ------------                                                    
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

     3.4  AMENDMENTS AND WAIVERS.  No amendment, modification, termination or
          ----------------------                                             
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, Guarantor against whom enforcement of such amendment or
modification is sought.  Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.

     3.5  HEADINGS.  Section and subsection headings in this Guaranty are
          --------                                                       
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.

     3.6  APPLICABLE LAW.  THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
          --------------                                                  
GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN

                                       10
<PAGE>
 
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.

     3.7  SUCCESSORS AND ASSIGNS.  This Guaranty is a continuing guaranty and
          ----------------------                                             
shall be binding upon Guarantor and its respective successors and assigns.  This
Guaranty shall inure to the benefit of Beneficiaries and their respective
successors and assigns.  Guarantor shall not assign this Guaranty or any of the
rights or obligations of Guarantor hereunder without the prior written consent
of all Holders.  Any Beneficiary may, without notice or consent, assign its
interest in this Guaranty in whole or in part, in accordance with Section 9.14
of the Note Purchase Agreement with respect to an assignment by any Holder and
in accordance with Section 8.7 of the Note Purchase Agreement with respect to an
assignment by the Collateral Agent.  The terms and provisions of this Guaranty
shall inure to the benefit of any transferee or assignee of any Note, and in the
event of such transfer or assignment the rights and privileges herein conferred
upon such Beneficiary shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.

     3.8  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  ALL JUDICIAL
          ----------------------------------------------               
PROCEEDINGS BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE OF NEVADA.  BY EXECUTING AND
DELIVERING THIS AGREEMENT, GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY

          (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
     JURISDICTION AND VENUE OF SUCH COURTS;

          (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

          (III)  AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
     ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
     REQUESTED, TO GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
     SUBSECTION 3.2;

          (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
     SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GUARANTOR IN ANY SUCH
     PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
     BINDING SERVICE IN EVERY RESPECT;

          (V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY
     OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GUARANTOR IN
     THE COURTS OF ANY OTHER JURISDICTION; AND

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<PAGE>
 
          (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.8 RELATING TO
     JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
     EXTENT PERMISSIBLE.

     3.9  WAIVER OF TRIAL BY JURY.  GUARANTOR AND, BY ITS ACCEPTANCE OF THE
          -----------------------                                          
BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY.  The scope of this waiver is intended to be all encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation contract
claims, tort claims, breach of duty claims and all other common law and
statutory claims.  Guarantor and, by its acceptance of the benefits hereof, each
Beneficiary, each (i) acknowledges that this waiver is a material inducement for
Guarantor and Beneficiaries to enter into a business relationship, that
Guarantor and Beneficiaries have already relied on this waiver in entering into
this Guaranty or accepting the benefits thereof, as the case may be, and that
each will continue to rely on this waiver in their related future dealings and
(ii) further warrants and represents that each has reviewed this waiver with its
legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel.  THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A
MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 3.9 AND EXECUTED
BY GUARANTIED PARTY AND GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.
In the event of litigation, this Guaranty may be filed as a written consent to a
trial by the court.

     3.10 NO OTHER WRITING.  This writing is intended by Guarantor and
          ----------------                                            
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby.  No course of dealing, course of performance or
trade usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty.  There are no conditions to the full
effectiveness of this Guaranty.

     3.11 FURTHER ASSURANCES.  At any time or from time to time, upon the
          ------------------                                             
request of Guarantied Party, Guarantor shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.

     3.12 COUNTERPARTS; EFFECTIVENESS.  This Guaranty may be executed in any
          ---------------------------                                       
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument.  This Guaranty shall become
effective as to Guarantor upon the execution of a counterpart hereof by

                                       12
<PAGE>
 
Guarantor and receipt by Guarantied Party of written or telephonic notification
of such execution and authorization of delivery thereof.

     3.13 GUARANTIED PARTY AS COLLATERAL AGENT.
          ------------------------------------ 

          (a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by Holders.  Guarantied Party shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action, solely in
accordance with this Guaranty and the Note Purchase Agreement.

          (b) Guarantied Party shall at all times be the same Person that is
Collateral Agent under the Note Purchase Agreement.  Written notice of
resignation by Collateral Agent pursuant to subsection 8.7 of the Note Purchase
Agreement shall also constitute notice of resignation as Guarantied Party under
this Guaranty; removal of Collateral Agent pursuant to subsection 8.7 of the
Note Purchase Agreement shall also constitute removal as Guarantied Party under
this Guaranty; and appointment of a successor Collateral Agent pursuant to
subsection 8.7 of the Note Purchase Agreement shall also constitute appointment
of a successor Guarantied Party under this Guaranty.  Upon the acceptance of any
appointment as Collateral Agent under subsection 8.7 of the Note Purchase
Agreement by a successor Collateral Agent, that successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Guarantied Party under this Guaranty, and
the retiring or removed Guarantied Party under this Guaranty shall promptly (i)
transfer to such successor Guarantied Party all sums held hereunder, together
with all records and other documents necessary or appropriate in connection with
the performance of the duties of the successor Guarantied Party under this
Guaranty, and (ii) take such other actions as may be necessary or appropriate in
connection with the assignment to such successor Guarantied Party of the rights
created hereunder, whereupon such retiring or removed Guarantied Party shall be
discharged from its duties and obligations under this Guaranty.  After any
retiring or removed Guarantied Party's resignation or removal hereunder as
Guarantied Party, the provisions of this Guaranty shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Guaranty while it
was Guarantied Party hereunder.

                                       13
<PAGE>
 
          IN WITNESS WHEREOF, the undersigned Guarantor has caused this Guaranty
to be duly executed and delivered by its officer thereunto duly authorized as of
the date first written above.


                         SAHARA GAMING CORPORATION

                         By /s/ Thomas K. Land
                         Title  Senior Vice President and
                                Chief Financial Officer

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