Global Gaming Business Magazine

See full article in Global Gaming Business Magazine

Growing Up

By Dave Palermo Fri, Mar 22, 2019

New tribal casinos are few and far between, but market growth continues

A federal government ruling on long-awaited efforts by the Little River Band of Ottawa Indians of northwest Michigan to build a casino hotel in Fruitport Township, 90 miles from tribal headquarters, is expected this summer.

The $180 million project has support from the local citizenry and is expected to get the approval of the governor, a requirement under federal guidelines for placing off-reservation land in trust for tribal gambling. It would be the tribe’s second casino.

“West Michigan has embraced the project,” tribal Ogema Larry

Romanelli told “It means jobs. It means economic development. It means increased tourism.”

In neighboring Wisconsin, the Ho-Chunk Nation is hoping to build a $405 million casino resort in Beloit, on the Illinois border roughly 180 miles south of tribal headquarters in Black River Falls. Ho-Chunk Gaming already operates six gambling facilities.

“We feel energized, as this is the farthest this project has ever been,” Ho-Chunk Nation President Wilfrid Cleveland said in a statement. The casino hotel, he said, will create “thousands of construction jobs and 1,500 full-time jobs for Wisconsin.”

“This is going to have a positive impact on the entire region,” Beloit City Manager Lauri Curtis told a December public forum.

The two Midwest projects bode well for the tribal government gambling market. At least three other tribes—two in California and a third in Texas—are also close to launching new casinos on trust lands off their reservations.

New Casinos Dry Up

But Ho-Chunk and the Little River Band are the exception and not the rule, as the nationwide spread of Indian casinos—which exploded with passage of the Indian Gaming Regulatory Act (IGRA) of 1988—is slowing to a trickle.

As a result, the growth of the tribal gambling industry is becoming increasingly dependent on the expansion of existing facilities and the development of non-gambling amenities such as hotels, restaurants and entertainment venues.

Tribes are also turning away from the regulatory limits of IGRA and acquiring or constructing commercial casinos subject to state taxation and regulations.

The number of tribal gambling facilities ranging from travel plazas to casino resorts has largely plateaued, increasing slightly from 474 operations in 2015 to 494 in 2017, according to the National Indian Gaming Commission (NIGC). Updated figures are expected later this summer.

The Indian Gaming Industry Report, an annual analysis compiled by economist Alan Meister, puts the number of tribal facilities at 490 in 2014, 494 in 2015 and 500 in 2016, a paltry jump of 1.2 percent.

Roughly 245 of 373 federally recognized tribes in the lower 48 states operate casinos. About 80 other tribes either receive shares of gambling revenue from casino tribes or lease machines. The remaining tribes either are too remote or lack sufficient land to launch a casino enterprise.

“With some exceptions, the Indian gaming market is fully developed,” says Bryan Newland, chairman of the Bay Mills Indian Community and a former counsel with the Department of the Interior. “There are tribes seeking to become new entrants into the gaming market. But by and large, most federally recognized tribes that want to engage in gaming are already doing it.”

“There just haven’t been a lot of new, ground-up, greenfield developments,” says William “Dike” Bacon, principal of the HBG Design, an architecture and interior design firm. “There are some, but not many.

“Most of the tribes that had trust lands and had the opportunity to capitalize on the gaming market have done that. There probably are a limited number of tribes out there that are not gaming tribes, for whatever reason.”

With suitable reservation trust land becoming scarce, casino tribes seeking additional gambling opportunities under IGRA must go through a rigorous, lengthy and expensive Department of the Interior/Bureau of Indian Affairs process to acquire new trust lands for the enterprises.

They must also get the approval of the state governor and, for all intents and purposes, local non-Indian and Indian communities. It is preferable that they not encroach on the ancestral lands of other tribes.

Newly federally recognized and restored tribes can also establish casinos on their initial reservations, but that also is a long, expensive and bureaucratic process, often fraught with politics and legal challenges.

Non-Gambling Fueling Growth

While new casino projects are on the wane, it is wrong to suggest there is no room for growth with tribal government gambling. To the contrary, Indian gambling remains a relatively vibrant industry.

The once double-digit growth of tribal casino revenues, which according to NIGC audits peaked in 2017 at $32.4 billion, has since 2006 largely leveled off, annually increasing at a rate of 2 percent to 5 percent. Revenues rose 3.9 percent in 2017, according to the NIGC.

Revenue growth in California, Oklahoma, Washington, Connecticut and Wisconsin—five states that make up some 86 percent of tribal gambling revenues nationwide—ranged from 5 percent to 6 percent in 2016, Meister says.

“There’s definitely a maturing of the market, but by no means is there an overall saturation,” Meister says.

Indian gambling nationwide is made up of several regional markets spanning the 29 states with tribal casinos.

“When you break it down by state and markets, there are markets you can characterize as saturated, such as the Northeast,” Meister says. “But there is not one large Indian gaming market. Indian gaming operates in many different geographic markets, each with its own unique set of economic conditions and level of maturation.

“There are a good number of markets where Indian tribes are participating that are not as mature,” Meister says. “There’s still plenty of room for growth. You have to look at it on a case-by-case situation.”

“When it comes to tribes that are established and in business, most markets are performing pretty well,” Bacon says. “We’re finding a lot of new opportunities at existing facilities for all different types of projects, from casino expansions to hotels, to non-gaming amenities, to meeting space, to retail.

“A lot of our clients are capitalizing on good business conditions and building a lot of stuff,” Bacon says. “It’s pretty healthy out there. The gaming industry is pretty strong.”

“Tribes are expanding and improving the guest experience… the amenity base,” says Nick Schoenfeldt, vice president of TBE (Thalden Boyd Emery) Architects. “The gaming client is maturing as well as the market. They’re expecting more. They’re expecting better-looking facilities. They’re expecting better service. They want to stay and they want more options than simply gaming.”

Flat Games, Higher Numbers

There has been positive revenue growth nationwide despite the fact Meister’s figures show the number of machines (358,713 in 2016) and tables (7,741) has stabilized. Despite the lack of growth in the games, revenues for 2016 grew 3.9 percent, Meister says, the same growth rate NIGC reported for 2017.

California and Oklahoma are two growth markets. California revenues grew 7.3 percent to roughly $8.9 billion in 2017, according to NIGC figures. Oklahoma—separated into two regions by the NIGC for accounting purposes—grew from 2.1 percent to 4.2 percent.

The NIGC does not supply gross gambling revenues for the state of Oklahoma. But Meister put the state revenue figures at nearly $4.4 billion for 2016.

California has 61 tribes operating 63 licensed casinos, according to the state Gambling Control Commission, with about 10 additional Class II, bingo-style operations. There are roughly twice as many tribes operating casinos in California than any other state.

Oklahoma is next in line with 31 gambling tribes operating about 141 facilities, many of them small operations at travel plazas, gas stations, tobacco shops and the like.

Other leading tribal gambling markets, according to Meister’s figures for 2016, are Florida ($2.6 billion), Washington ($2.5 billion) and Arizona ($1.9 billion). Wisconsin, Michigan, Minnesota and Connecticut generated from $1.3 billion to $1.6 billion, according to Meister’s figures.

California is one of the few states with a number of new casinos in the development pipeline, particularly in what is becoming a highly competitive mid-state and Sacramento market. Hard Rock, Caesars Entertainment, Boyd Gaming and Station Casinos are all partnering with tribes in the development of new casinos in the region.

A Cautious Approach To Growth

Much of the remaining growth potential in Indian Country can be attributed to the slow, methodical approach most tribes have taken in the development of their gambling facilities.

“Tribes have been pretty conservative when it comes to how fast they want to jump into something,” says James Klas, founder and principal of Klas Robinson QED. “They still are.

“We might come to a tribe and say, ‘We think you can build a facility with x number of rooms and x number of machines and various amenities.’ They’ll come back and say, ‘That’s great, but let’s phase things in. Let’s do half that much.’”

“That’s been a consistent pattern,” Klas says. “It’s very, very rare that things don’t go that way.”

Others working with tribes on the development of casinos since IGRA make the same observation, speculating that tribal leaders are cautious about investing government revenues in what may be a risky endeavor.

“I can observe the pattern more easily than I can assess the reason,” Klas says. “It’s a process that has served them well.”

Many suspect reservation tribes are cautious in dealing with state and federal government agencies on casino projects, particularly a historically bureaucratic Department of the Interior and BIA.

“When you have a history of dealing with unpredictable circumstances where things usually go against you instead of for you—when things turn worse instead of better—you’re going to develop a tendency to be cautious,” Klas says.

“The fact it is government gaming is relevant in that the decision-makers with the tribe are very careful about making sure their people are being taken care of. They’re very cautious about encumbering tribal assets. That tends to make them very risk-averse.”

The evolution of casinos to hotel resorts has accelerated, however, with some $1.5 billion recently invested in hotels, spas, restaurants, entertainment and retail offerings and other major non-gambling expansions in Southern California alone.

As is the case with Las Vegas, where entertainment, hotel rooms, food and booze contribute roughly 60 percent of the bottom line, tribes are looking to non-gambling amenities as a means of generating revenue as well as luring guests to the gambling tables and slot machines.

“They won’t do anything that is revenue-negative,” Schoenfeldt says. “We’ve seen a lot of maturing not only in the market, but with the operators. They won’t add anything that’s a loss-leader. They will add something that can carry its own weight, plus enhance the gaming experience.

“If you combine the hotel, the banquet service and the food amenities, revenues from those three items almost equal revenue from the gaming floor in almost every situation I’ve seen. It’s definitely a trend.”

Because tribal facilities are primarily intended for locals, much of the non-gambling amenities consist of bowling alleys, arcades and movie theaters targeted to families. Entertainment venues are increasingly geared to millennials.

Tribes are also tending to promote indigenous culture and traditions unique to their communities. The Muckleshoot Casino in Washington state is offering beer brewed with locally raised huckleberries. The Navajo Nation is serving tribally raised beef in casino restaurants.

“We’re also seeing a huge movement to improve the brand identity of the tribe,” Schoenfeldt says. “They’re saying, ‘This is ours.’ They’re creating a unique space you can’t get anyplace else.

“We’re encouraging our tribes to bring out what makes them unique. We’re asking them what things are important to them as a tribe and as a nation. It’s part of our DNA as a firm to make sure we listen to the tribe.”

Looking Beyond IGRA

A number of tribes are looking beyond IGRA to commercial gambling, most notably the Poarch Band of Creek Indians of Alabama, which is in the process of acquiring Sands Casino Resort Bethlehem in Pennsylvania for $1.3 billion. The tribe also owns casino resorts in Aruba and Curaçao.

The Seminole Tribe of Florida, owner of Hard Rock International, and the Mohegan Tribe of Connecticut previously entered into the commercial segment of the legal gambling industry. The Cherokee and Quapaw Nations of Oklahoma are pursuing commercial casinos in Arkansas.

Meanwhile, the Mohegan and Mashantucket Pequot of Connecticut are partners in a proposed commercial casino in East Windsor, a project intended to head off competition from MGM’s Springfield, Massachusetts resort.

Poarch Creek, which operates three Wind Creek casino hotels in Alabama, also is pursuing hotel ventures throughout the Southeast. The Shakopee Mdewakanton Sioux Community and Mille Lacs Band of Ojibwe of Minnesota have also invested heavily in hotels.

“There is sophistication now, credit-worthiness and an access to capital,” Klas says of tribes involved in gambling. “There are deals beating a path to their door.”

“Hospitality is something the tribes know,” Shoenfeldt says. “It gives them the ability to train up their staff. It allows them to develop good people to lead up their operations rather than hiring from outside.”

An Uncertain Future

Predicting the future of tribal gambling is not easy. Unlike commercial casinos solely dependent on market conditions, tribal gambling is subject to a set of complicated legal and regulatory parameters along with federal, state and local politics.

IGRA states tribes must operate casinos on land placed in federal trust. It also requires tribes operating Class III casino-style gambling to enter into tribal-state regulatory agreements, or compacts, which often specify the games they can offer at the facilities. Compacts vary dramatically among the 29 states with Indian casinos.

Although IGRA largely limits casinos to reservations in existence when the law was enacted in 1988, there are Section 20 exemptions for newly recognized and restored tribes.

Tribes can also seek federal and state approval for new gambling off existing reservations, a usually long, arduous, expensive process. Politics frequently enter into the equation.

“Uncertainty is the nature of Indian gaming,” Meister says. “Commercial gaming is more stable, working within the parameters of state laws and regulations.

“The elements of Indian gaming involve tribal governments and state governments and tribal-state compacts for Class III casino-style gaming. The federal government leadership keeps changing, creating more uncertainty.

“It’s never clear what the federal policies are with Indian gaming, for land into trust, for instance,” Meister says. “You could submit an application to put land into trust for a casino, and by the time it comes up, President Trump will no longer be around.”

Klas is optimistic. Tribes in California, Arizona, Oklahoma and other states with substantial tribal casino industries have impressive records of working cooperatively with state and local governments, he says. That’s likely to pay off when compacts come up for renegotiations.

“I’m not going so far as to predict that the compacts are going to open things up, but I’m also not ready to foreclose the possibility that changes in compact terms and/or continued growth in Class II (bingo-style gambling) could result in growth, either in the number or the size of casinos over the next few years,” Klas says.

“You certainly won’t have new tribal casinos at the rate that you did. But there are still tribes chasing a variety of opportunities, some off the reservation. There are also compacts that are going to be coming up for renegotiation and renewal in the next few years.

“I’m not expecting the gaming industry will be flat. There will be growth in any criteria you want to point to: square footage, number of devices or positions and even, potentially, the number of facilities.”

Meister is cautiously optimistic.

“There are opportunities,” he says. “But again, there is so much uncertainty.”