Some less creative reporters and editors in the mainstream media have characterized Indian gaming as “the new buffalo.”
But some tribes are calling it a “one trick pony.” Others are looking at alternative “herds,” using hard-won expertise to generate commercial casino enterprises and other projects in non-gaming fields.
Several successful gaming tribes are forging partnerships with once bitter rivals; and looking outside of their states-sometimes way outside-to develop opportunities with a combination of gaming savvy and cash.
The Mohegan and Pequot tribes of Connecticut have fearlessly ventured beyond the protective cover of a near monopoly across state borders to take on commercial gaming companies on equal terms, playing by the same rules and sometimes as equal partners.
Indian Bank
Dr. Randolph Baker, Sycuan professor of Travel Gaming Management at San Diego State University-one of the few universities offering degrees in tribal gaming management-notes the recent formation by the Rincon and Colusa Indian tribes of California of the first tribally owned private equity fund: First Nations Capital Partners LLC. The tribes, from opposite ends of the Golden State, will be the primary investors, owners and managers of the specialized $25 million fund.
Rincon’s Tribal Chairman Vernon Wright commented, “Gaming has been good for us, but it’s a one-trick pony. That’s why we’ve made economic diversification one of our top priorities.”
Gaming tribes have gotten into financing before, most notably when the Southern California Viejas Band of Kumeyaay Indians bought Borrego Springs Bank four years ago.
Around the same time, the Sycuan tribe bought the U.S. Grant Hotel in San Diego. The Mississippi Choctaw have been in the electronics business for several years.
The first time a tribe went into commercial gaming was in 2000 when the Sault Ste. Marie Tribe of Chippewa Indians, which had several casinos in Michigan, opened the Greektown Casino in Detroit. Using those revenues and its reservation casinos, it bought more land while increasing services to its members.
According to Baker, “Other tribes are looking at taking their gaming bounty that won’t last once the quasi monopoly they enjoy because of Indian gaming, has diminished. As more states introduce gaming that will bite into that monopoly. Ten to 12 percent of gaming tribes bring in 80 percent of the revenue. The Seminole Indians are a classic example of going into a totally different area, of paying $1 billion to buy the Hard Rock restaurant brand. Their casinos in Florida bring in several hundred million dollars a year. You can easily afford to diversity with those kinds of revenues.
“One way tribes diversify is to go into commercial gaming. The second is what we see in San Diego county, where they are buying orange and avocado groves and reinforcing the economic engine that drove their success. The forward-looking ones say ‘this is unique opportunity that probably won’t last.”
“Good economics is good economics,” says Baker. “I see several scenarios, none of which are firm: On one hand we have wealthy tribes sophisticated enough to diversity: tribes in the Pacific Northwest, California and Connecticut. They are creating tribal corporations that are going to become multifaceted. This will provide opportunities for members of the tribes who live in adjacent communities.”
Expand and Diversify
An example of this kind of thinking comes from the San Manuel Band of Mission Indians, which owns San Manuel Indian Bingo & Casino in Southern California. It has chosen to invest some profits in non-gaming economic projects, although a lot is still going to expand the existing casino operation.
Spokesman Jacob Coin says, “We are mindful that the goal of IGRA is to strengthen tribal governments and create an economy. For San Manuel, creating an economy constitutes an important element to secure long-term revenues. The more diverse, the better we feel our future will be. That’s why we have chosen to look at expansion and diversification.”
San Manuel is investing in several industries, including a bottled water company that taps a source on the reservation, a home and office delivery market, and very soon 12 acres in Highland owned by the tribe but not reservation land will become San Manuel Village, a commercial development that will include a Hampton Inn Suites, an office building, restaurants, retail, banks and more.
San Manuel has partnered with three other tribes: Viejas Band of Kumeyaay Indians, the Forest County Potowatomi Community and the Oneida Tribe, both of Wisconsin, to form Four Fires. The largest business investment collaboration for American Indian tribes in history, in 2003 it began a $43 million hotel project-a 13-story, 233-suite Residence Inn by Marriott, near the Smithsonian’s National Museum of the American Indian and just blocks from the Capitol.
Another partnership, Three Fires (the same tribes minus the Forest Potowatomi) built a Residence Inn by Marriott in Sacramento near the state capital and purchased an office building in Washington D.C. and commercial office buildings in other towns.
When the Pentagon closed California’s Norton Air Force Base, the partnership acquired 100 acres in an area that seems prime for warehousing and shipping industrial uses.
Commercial Concentration
What about commercial casinos?
“Those kinds of projects are not as high on our list,” says Coin. “Under former Chairman Darren Marquez the tribe decided to look beyond gaming. He used to say that the more diverse your revenue stream the better your revenue stream will be. And we’ve learned the hotel business very well.
“Indian gaming is conducted in a very fragile political environment. Every day that the tribes make the progress makes somebody wants a piece of the action. Racetracks and card clubs have tried to get slots. Those efforts are not going away. Understanding that this is a highly charged political environment, tribes are mindful that they need to look to other sources, such as hotels and motels. But that doesn’t mean we won’t look at other areas.”
Professor Baker foresees economic diversification by all tribes.
“A potential detriment is that you are seeing the ‘rich Indian syndrome appearing.’ Wise tribes are working hard to counteract that by contributions to other tribes. As economies get tight, certain tribes will face political difficulties. That’s a matter of when, not if.”
James Wortman, lecturer and director of the Gaming Education and Research Institute (GERI), was also administrator of the National Indian Gaming Association’s Casino Management Institute for Hilton College at the University of Houston. He has worked with tribes for 20 years. GERI, education partner of the National Indian Gaming Association, offers casino management courses. This gives Wortman the opportunity to travel and see a lot of different tribal operations.
He notes that the Pequot and Mohegan tribes are not the norm, either in casino profitability, or how they were built.
“The Mohegan and Pequots are sophisticated tribes,” he says. “They have good backgrounds. They make a lot of money. A lot of tribes disagree with how they did that by building up a lot of debt. Most Indian casinos are not looking to build large debt. When building takes place the tribe is ready to give a check for services. Foxwoods does it like most businesses in the U.S. do, by taking out a loan.”
He adds, “Most tribes are interested in self-determination. They use money from gaming for cultural heritage, housing, schools, designed to benefit the tribe. They tend to feel that Foxwoods doesn’t follow that model.
“Foxwoods and the Mohegans are now looking to be investment partners with those tribes, serving as a bank, giving expertise and running and financing operations.”
Some tribes that diversify, says Wortman, do so out of a desire to weather economic storms. “They are saying that maybe it will affect our income and maybe we need to diversity our businesses to be able to survive an economic downturn.
“There’s also a concern, I’ll attribute to Steve Wynn, that right now gaming is a socially acceptable form of entertainment in the U.S. but we are one serious calamity away of being where we were 30 years ago. Gaming could suffer some serious problem. Twenty years ago tables were kings, and then slots and tables. Today, hotels, food and beverage, and retail are profit centers and some casinos bring in more from those areas than from slots.”
Founded by Foxwoods
Gary D. Armentrout, president of the Foxwoods Development Company, recalls how four years ago the tribe developed a two-fold strategy that was defensive and offensive.
“The Pequot tribe realized that as successful as they were with Foxwoods that their market was shrinking as surrounding states contemplated expanded gaming,” he says.
The defensive strategy: invest significant additional capital into the Connecticut property. Make it bigger, better, grander, with more nightclubs, meeting spaces, slot machines and hotel rooms. That resulted in the $750 million MGM Grand at Foxwoods, which will open later this year.
The offensive strategy: diversify outside of their market by creating the Foxwoods Development Co. to leverage financial and human resources in hotels, casinos and entertainment operations outside their existing market.
“A commercial entity doesn’t have the advantages or baggage of a tribal entity,” says Armentrout. “We are 100-percent owned by the tribal nation. Our six-member board of managers runs and oversees the company.”
Armentrout was hired in October of 2005 to head the company. His mission: “to leverage the tribe’s financial and human resources by finding opportunities to invest in, partner with, develop and acquire, hospitality-related projects.”
One motivation for creating the company was to provide career opportunities for Foxwoods’ team members.
“Part of our mission is that any project we become involved in we are not a bank-we don’t loan money or make passive investments. We only invest in projects where we have a role to play in development and management. This creates opportunities for employees to move up in their own careers. Anyone we take out of the operation in Connecticut will create a vacancy that creates a ripple effect, letting others move up,” says Armentrout.
Their first project, in early 2006, was consultant to the Chukchansi Gold Resort and Casino in Southern California, near Fresno.
Foxwoods spent six months with them, analyzing their operation, making recommendations on facilities, operations and senior management.
“It gave us an opportunity to utilize many senior management from Connecticut as advisors and consultants,” recalls Armentrout. “It proved very successful both for us and the tribe.”
Next, they answered an RFP from the Pauma Band of Luiseño Mission Indians of San Diego County. They negotiated a development with the tribe, which failed twice before to partner to expand its existing small casino. The ground breaking date hinges on a memorandum of understanding with San Diego County, required by the compact negotiated with Governor Arnold Schwarzenegger, which more than doubled the tribe’s allotment of slot machines.
The estimated $650 million cost includes financing and soft costs. “We’ve worked together to come up with a design (with the architectural team of Hnedak Bobo) for an all-inclusive resort, 400 hotels rooms, large rooms, and 2,250 slots,” says Armentrout.
Foxwoods provides predevelopment funding, oversees the architect, interior design team and consultants retained to do the environmental report and negotiate the MOU, whose main issue unresolved is traffic on the two-lane State Highway 76, still a winding country road.
This historical partnership is the first time one tribe has reached out to help another do a large-scale development.
“Tribes have partnered with commercial gaming companies before. This is the first example of a tribe providing that kind of financial and gaming expertise to another tribe,” says Armentrout.
It’s a testament to the company’s national perspective that its headquarters is in St. Louis, Missouri, not Connecticut. Its initial focus has been with tribes in California, Oklahoma and New Mexico. “It made more sense to be centrally located as we became so geographically diverse,” says Armentrout.
Philly Foxwoods
Foxwoods’ third major project is in Philadelphia, where in 2005 it partnered with local investors to pursue a slot parlor gaming license. Competitors for the two licenses included Trump Entertainment Resorts and Pinnacle Entertainment.
This created a philosophical dilemma. Pursuing a commercial license required a full background and suitability assessment, scrutiny tribes normally don’t tolerate. It required soul-searching, discussion and debate to proceed. It was, says Armentrout, a significant step for the tribe to willingly to open its books to a third party.
“I’m happy to report that the tribe and the board of management and the facilities managers, were thoroughly investigated and found suitable,” says Armentrout.
“This is the first time that a Native American-managed gaming company has competed successfully against commercial companies for a highly sought after licensing agreement,” he adds.
Foxwoods Casino Philadelphia is still in the permitting process. Groundbreaking is expected this summer. The $640 million project includes three phases: 1) The casino with 3,000 slot machines; 2) A riverfront entertainment district with a promenade, boardwalk, shops, restaurant and additional gaming space to bring the total machines to 5,000; 3) a two-tower hotel of 250 rooms, or residential condominiums, depending on the market.
Like other commercial gaming companies, Foxwoods is monitoring the debate in Massachusetts over three proposed commercial casinos.
Foxwoods went international in March with an agreement with Dublin-based Harcourt Developments, which acquired the former Royal Oasis in Freeport, Grand Bahama, destroyed by hurricane, vacant for three years. Harcourt is committed to gut, renovate and rebuild the hotel tower, casino and two golf courses, with Foxwoods as consultant through design and development and manager after it opens.
The other significant development is Foxwoods’ relationship with MGM Mirage. They jointly created Unity Gaming LLC, based in Las Vegas. Under its tent, they will identify opportunities to develop or acquire gaming operations.
MGM brings the added financial capacity, MGM Mirage brand, plus opportunities that Foxwoods might not otherwise be aware of.
Unity’s first project is one that Foxwoods had worked on before: a bid for one of four Kansas regional casinos, in Sumner County.
Unity’s $425 million project, Chisholm Creek Casino Resorts, includes a 250-room hotel, casino, restaurants, and convention facilities with additional phased commercial development.
At any one time Foxwoods Development has a half a dozen projects in the works.
“Originally our focus was on gaming and non-gaming hospitality but the tribal council more narrowly defined it to be exclusively gaming,” says Armentrout. “Having been licensed and found suitable in commercial gaming opens the door for other gaming jurisdictions, including Nevada.”
Mohegan Matters
The Mohegan Sun, Connecticut’s other gaming giant, through its Mohegan Tribal Gaming Authority, while also engaged in multimillion dollar “defensive” expansion at home, recently opened phase one of the Mohegan Sun at Pocono, a commercial racino in Pennsylvania. Phase two will add 1,000 slot machines, dining, a nightclub and retail. It will also continue as a racetrack.
According to Lynn Malerba, tribal vice chairwoman, one advantage of operating the racino is that it can cross-market both operations, separated by a four-hour drive.
“Right now Pocono Downs is small, but once we enter phase two, cross marketing will take on more energy. It’s a wonderful opportunity for folks who may not know about the Mohegan Sun. We have piqued their curiosity about our Connecticut facility.”
Halfway across the continent and on the Pacific coast, the tribe acts as developer and manager for the $300 million casino project of the Cowlitz Tribe in southwestern Washington and of the Menominee tribe of Wisconsin’s proposed Kenosha Entertainment Center and Casino project.
“We have a contract to develop and manage for seven years and then turn them over to them,” says Malerba.
Like the Pequots, the Mohegans have discovered the wisdom of phased projects. “It makes sense. You need revenues from the first phase to help finance the second and not be so leveraged,” says Malerba. The Wisconsin and Washington tribes are responsible for their own financing, although the Mohegans helped obtain favorable rates.
They are one of 13 bidders in the Kansas market, targeting Kansas City, in Wyandotte County. And like the Pequots they are monitoring the Massachusetts market.
“In the short term we are looking at economic diversity,” says Malerba. “Our tribe (whose population is about 1,700) has a changing demographic. Our average age is 26 years. We experience a birth a week. We anticipate a lot of growth and want to continue to provide for education, elder and social care. This is our core competency and helps spread risk. We would certainly look at other industries if we possessed the competency, such as hospitality. It is important to diversify from a geographic perspective but from another business as well so that we are not solely focused on one industry.”
The tribal council is also board of directors for the Gaming Authority. While its executive team advises it on the due diligence of projects it proposes, the council has the last word.
Malerba doesn’t see the Indian gaming boom going away, but she recognizes that now there is more competition from commercial gaming.
Preparations for the Future
The old buffalo herds went away once before, maybe the “new buffalo” might do the same.
“In the Northeast,” says Malerba, “there was a 6 percent growth in how much money was spent on gaming, but a 14 percent growth in machines. It’s one thing to be efficient but what distinguishes us from our competitors is our level of service and amenities, which are unparalleled in the Northeast.”
From her perspective the tribe has made “incredible strides in the last 12 years. We opened the first phase of Mohegan Sun in 1996. We have gotten very sophisticated in how we look at our projects and have established ourselves as a leader.”
The tribe has reclaimed burial grounds in Norwich and repurchased another burial ground that had been made into a park.
“We believe we are paying homage to our ancestors by making sure that our burial grounds are well maintained. One of the most important benefits of gaming is that our history and culture remain very vibrant,” she says. “Hopefully there will never be ‘the last of the Mohicans.'”
