In the 20 years following the 1988 passage of the Indian Gaming Regulatory Act, the interplay between the tribal and commercial gaming verticals was largely a one-way street.
Commercial operators and suppliers saw tribal gaming as an expansionary opportunity, and were quick to lend their know-how, products and services to tribes. Tribes, for their part, needed to find people and companies who could help them kickstart their nascent casino businesses.
“Early on in our gaming era, we had to go outside and find some of the experts to help us understand the industry that we were embarking on,” says Ernie Stevens, chairman of the National Indian Gaming Association. “Naturally we looked at the outside industry, outside consultants, management companies—things like that. It was our desire to hit the ground running and make this industry work for us.”
But as tribal gaming has matured into a $30 billion industry and individual tribes have built up their own repertoires of skill and experience, the cross-pollination between the tribal and commercial verticals has become much more dynamic—with tribal operators no longer constrained to four-walled properties on reservation land.
Whether it be through licensing, operations, equity stakes or otherwise, the tribes that have been most successful and mature in tribal gaming are increasingly branching out as commercial gaming operators in a myriad of ways.
“Those in Indian Country are now becoming the experts in the industry. It’s important to understand that we’ve grown up in the industry and we are now our own experts, and we’re very proud of that,” says Stevens. “That’s a clear reflection of our experience, of our resources and of the priorities of our tribal councils and tribal governments.”
Start with the Seminoles
The outgrowth first picked up steam in the mid-2000s, when the Seminoles of Florida acquired the licensing rights to two Hard Rock casinos in the state and leveraged that success to acquire the Hard Rock International brand outright in 2007 for $965 million.
While the tribe had dramatically improved its welfare over the prior 30 years through gaming—and particularly through the development of Class II bingo machines that looked like Class III slot machines—its efforts to expand its offerings in the state were being met with resistance.
“The problem you have if you’re an Indian tribe is you only get gambling on Indian land,” says Bob Jarvis, a law professor at Nova Southeastern University in Florida. “You have to have the right confluence, you have to have an area where there really aren’t any other options and you have to have a state that’s willing to play ball. For the longest time, the Seminoles were not in a state that was willing to play ball with them.”
That all changed when the Seminoles, under their indefatigable Chairman Jim Allen, acquired Hard Rock and thus transformed themselves from Class II gaming operators into a full-fledged entertainment empire.
In the years since, the tribe has successfully utilized the Hard Rock brand to bring casinos, cafes and other entities into that empire—which now tops $5 billion in annual revenue and spans 68 countries. In addition to the six casinos it owns and operates in Florida, the tribe now licenses its Hard Rock name to eight other casinos in the U.S. and another in Macau.
“It’s not necessarily the tribe itself—Seminole Gaming or the Seminole Tribe of Florida—that is out trying to own additional casinos or develop additional casinos,” says Jeff Hook, senior vice president of marketing for the tribe. “They really use the Hard Rock arm to go do that and to leverage the brand that Hard Rock has to help grow the casino business for the tribe.”
This diversified approach has given the tribe an enviable status in Indian Country.
“Jim Allen is at least 10 years ahead of anybody else. The Seminoles are at least 10 years ahead of anybody else. What they’ve realized is that gambling is really not their future because there is a cap to what they can do,” says Jarvis.
As the Seminoles sought to diversify their holdings outside of gaming, other major tribes took a different approach during the mid-2000s by leveraging their tribal gaming cachet to propel them into commercial gaming.
“Since we know gaming the best, it’s only natural that we look for ways to advance in that industry first,” says Felix Rappaport, chief executive officer of Foxwoods Resort Casino in Connecticut.
Expanding Portfolios
The Mohegans and the Mashantucket Pequots—owners of Mohegan Sun Casino and Foxwoods, respectively, in Connecticut—began closely looking at new ways of broadening their gaming portfolios in response to heightened competition from states in the mid-Atlantic and Northeast regions.
“Gaming is something that only a relative handful of organizations do well, and since we believe we have a level of expertise that’s valuable, it’s only natural that we have looked at ways to expand the Foxwoods brand into other commercial ventures,” says Rappaport.
Both tribes eyed Pennsylvania, which had then just passed enabling legislation, as a natural jurisdiction to lend their expertise and broaden their holdings. In 2005, the Mohegans acquired the Pocono Downs racetrack in Wilkes-Barre from Penn National Gaming for $280 million and launched it in 2006 as the state’s first slot parlor. Today, it has expanded several times—including a four-star hotel—and is one of the most successful casinos in the state.
The Pequots in 2006 won a license to build a casino in Philadelphia, but the $275 million project never materialized, as the tribe could not find a committed financial backer during the economic downturn. The license was ultimately revoked by the state’s gaming board in 2010.
The Mohegans and the Pequots also fiercely sought to break into Massachusetts, which had for years served as a key feeder market for their respective Connecticut properties.
The Mohegans eyed a potential casino site in the city of Palmer—east of Springfield—only to be stuffed in 2013 when it lost a local referendum by just 93 votes. The tribe then set its sights on bidding for the Boston license with a proposal to build a $1.3 billion resort at Suffolk Downs, though that effort also came up short as the project was ultimately awarded to Wynn Resorts in 2014.
The tribe’s commercial expansion efforts suffered another blow in late 2014 when New York turned down its bid for a license to build a casino in the Catskills.
The Pequots have also had difficulty expanding in the congested Northeast—particularly in Massachusetts. The tribe’s bid for the Boston license was shot down by voter referendum, and it kicked tires on sites in Fall River and New Bedford in the state’s southeast region only to have the Massachusetts Gaming Commission decline to grant a license for that part of the state in 2016.
But a key trait of any successful gaming company is that it picks itself up off the mat and keeps plowing ahead.
With expansion prospects in the Northeastern U.S. largely dried up, the Mohegans hit a potential jackpot in 2016 when they won the rights to build what will be the largest casino in South Korea at Incheon International Airport—the eighth-busiest airport in the world. The facility—expected to open in 2020—will try to pry high-roller tourists from northern China, and is projected to draw 10 million visitors annually.
In June 2016, the Pequots announced a partnership to build a brand-new Foxwoods Resort Casino in Biloxi, Mississippi, thus giving the tribe its first greenfield commercial gaming enterprise once the project comes to fruition.
The Mohegans and the Pequots are also teaming up in a commercial venture to build a third casino in northern Connecticut to stave off competition from MGM’s new property—currently under construction in Springfield, Massachusetts.
“Since Mohegan and Foxwoods are the only two resort casinos in Connecticut, we’re building together in an effort to protect both Connecticut jobs and the local economy,” Rappaport says.
Creative Financing and Operations
But as the Seminoles have demonstrated, there are creative ways of working around greenfield casino projects that are resource- and capital-intensive but also limited in their supply.
The Mohegans have also actively sought to market their operational expertise to other Indian tribes looking to get into gaming. In 2015, the tribe closed on a $485 million deal to bankroll the construction of a casino for the Cowlitz tribe in southern Washington. The agreement also includes management and operational rights once the property opens in the second quarter of 2017.
Though the project has been in the works since 2004, there are questions over its future, as it is stuck in a legal dispute over whether the Bureau of Indian Affairs acted properly by taking the land into trust.
In 2014, the Poarch Band of Creek Indians of Alabama began exploring a similar back-door route—leveraging their tribal gaming success into a commercial gaming footprint through consulting, partnerships and acquisitions.
“The effort has been twofold,” says Arthur Mothershed, chief financial officer of PCI Gaming, the business enterprise of the Poarch Creek tribe. “First, the goal was to expand (our) footprint in the Southeast region, and secondly to help other tribes with startup gaming facilities. The rationale for focusing on the Southeast was to use our current database to expand into other markets.”
In 2016, Poarch Creek announced the purchase of the Margaritaville Casino in Bossier City, Louisiana, and it assumed management and operational responsibilities of a new casino owned by the Washoe tribe near Reno, Nevada.
“We realize how difficult it is for a tribe to raise money for a greenfield project on tribal lands, and want to help make that process easier,” says Mothershed.
Online gambling is the newest frontier being explored by tribal gaming interests. Numerous tribes have developed free-play social casino platforms with the goal of building up technical know-how and a customer database that can be leveraged to gain licensure in new markets as they open up.
Two tribes have already established a presence as out-of-state operators in New Jersey, and are building their online gaming cachet.
The Pala Band of Mission Indians, seeking a head start on possible online poker legalization in California, built an in-house platform that launched under the Borgata license in 2014. The Mohegans in 2015 won the right to invest in Resorts Atlantic City’s iGaming operations as an extension of a previous management and equity deal.
As online gambling finds its way onto the legislative agenda in several states in 2017, Stevens of NIGA says tribes are closely monitoring the landscape, and that national regulators are prepared to accommodate new opportunities that might arise.
“I think the most important thing for us—if the iGaming world moves forward legally—is that they understand that tribes are governments, and that we would expect to interact with that industry just like any other government would. That’s the level we would expect to participate,” Stevens says.
Ready for Regulations
Regardless of the specific pathway pursued, the transition from tribal into commercial gaming is lined with regulatory, operational and competitive obstacles—particularly as gaming matures and casinos continue to proliferate across the U.S.
As the Mohegans and the Pequots have learned, competition is increasing as the overall supply of casino licenses tapers off and the number of qualified casino operators continues to grow. Thus, it becomes incumbent on the tribes to demonstrate and articulate their value proposition vis-à-vis their new commercial competitors.
“I’ve been in this business for 38 years—33 of which were working for publicly traded companies. I’ve seen a lot of other operations, and I believe our operations are comparable with some of the so-called giants,” says Rappaport.
However, no tribe has yet to succeed in wrestling a license away from the likes of Wynn Resorts or MGM.
Another issue that must be taken into consideration is that the regulatory landscape for state-by-state commercial gaming differs from that of Indian Country—where tribes operate under the National Indian Gaming Commission and compacts negotiated with their home states.
Jarvis, of Nova Southeastern, reckons the level of supervision employed by many state regulators is more exacting than tribes may be accustomed to.
“All of a sudden, you have to go in front of serious regulators like the Nevada Gaming Commission, where you have to open your books and start explaining who is involved in your operation,” he says. “You don’t have to worry about that when you’re a tribe in front of the NIGC because they don’t ask those sorts of questions.”
The importance of this theme was evidenced in mid-February when the Pennsylvania Gaming Control Board commenced an investigation into “possible operational control deficiencies” at Mohegan Sun Pocono.
Stevens of NIGA insists that complying with new regulations is hardly an insurmountable challenge, as tribes have been doing so for three decades and now spend $426 million on regulatory costs per year. But the divergence does highlight some of the logistical and communications challenges that come with branching into a completely different operating environment.
“It has been a challenge for us to convey the message that expansion opportunities are commercial operations subject to local and state jurisdiction rather than regulated by the traditional tribal regulators,” says Mothershed of Poarch Creek. “We began the process believing that all expansions would be similar to those in our past.
“Our advice to other tribes is: before you begin negotiating a deal in a state jurisdiction, keep your governing board and tribal council fully informed of the local and state requirements, and emphasize and that those requirements override tribal jurisdiction.”
