John Shagonaby knew it was going to be a banner day for the newly opened Gun Lake Casino when unprecedented traffic volume forced county police to close the interstate exits leading to the property. By noon that day the $165 million Wayland, Mich.-based facility’s 2,500 space parking lot was full and people were waiting hours in Midwestern winter weather for a chance to enter the casino and play its 1,400 slots and 28 table games.
“ The public response to our grand opening was outstanding… if anything, it was a little too crowded,” said Shagonaby, CEO of Gun Lake Gaming Authority, the wholly-owned entity of the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians that owns the western Michigan gaming property. “The feedback has been great; people seem to love the property and are having fun. As for us, we’re paying jackpots and making money-we’re very happy.”
To a tribal gaming industry still reeling from two-plus years of recession, it’s genuinely gratifying to know that if financing can be obtained and the property built in an underserved casino market, the people will still come, often in droves.
Those looking for further positive news can point to Gun Lake’s success as yet another sign that the Indian casino business is on the road to recovery. No doubt, it’s been a rough economic stretch recently, with combined tribal casino revenue declining 2.6 percent over the past two years, from a high of $26.7 billion in 2008 to $26 billion in 2010, according to a recent study complied by PricewaterhouseCoopers (PwC). But on a more positive note, PwC predicts a slight recovery to $26.4 billion in combined revenue this year.
“Outside of tribal casinos in Connecticut and California, I would say the market has weathered the recession rather well,” said Steve Rittvo, chairman of The Innovation Group. “If the market is down almost $1 billion, I would say revenue losses at Foxwoods and Mohegan Sun count for a large part of that sum. Like large commercial properties, the Connecticut tribal casinos relied on lodging, restaurants, entertainment and other non-gaming amenities for a large percentage of their profits-all the stuff folks cut back on when the recession hit. Most Native American casinos are small with modest non-gaming offerings and may actually have benefited from patrons deciding to stay and wager locally.”
Indeed, few doubt the tribal casino market will eventually rise above the current economic malaise. The more pressing question for many is, just how strong will this recovery be? PricewaterhouseCoopers calculates that by 2014, Native American gaming properties will generate $30. 3 billion in revenue with a five-year compound annual growth rate of 2.7 percent. This is a far cry from the annual double-digit growth rate tribal casinos experienced prior to 2007.
Some market analysts believe high annual growth rates for all forms of gaming are likely a thing of the past.
“I do think 2011 will be better than 2010 because it already is,” said Eugene Martin Christiansen, CEO and owner of Christiansen Capital Advisors. “What the gaming world will be like in 2012 and beyond, I have no idea; but I just don’t see the future looking like the past. The growth that was throttled by the onset of the credit crisis in 2008 was the product of a long era of very easy credit and a 15 year period when both state-licensed and tribal gaming was penetrating new markets, tapping latent unsatisfied demand, generating enormous capital investment and enormous increases in gross gaming revenue.”
“I don’t see how these market conditions can come back anytime soon,” Christiansen added. “I think the wheel has turned and that world is gone.”
So where can tribal gaming properties do to survive and thrive in the near future? Analysts believe the key is to adopt a mature market approach and look for business growth through infill development and expansion opportunities, improved marketing to attract and retain more patrons and the strategic use of technology to streamline operations and add to the bottom line through cost savings.
“Gaming as a whole is now a mature industry,” Rittvo said. “Most of the growth going forward will be organic, a function of an increase in population. That said, there will always be opportunities to tweak the business model to improve results. And by no means is gaming a saturated industry-there are still underserved markets and opportunities for expansion.”
EXPANDED THINKINGGun Lake Casino is a good example of a new project able to tap into underserved gaming demand. Located in the western part of Michigan, the property is at least an hour’s drive away from any other tribal gaming facility.
“We have our own little market right here,” Shagonaby said. “Fortunately, the economy in this portion of the state is diverse and not so reliant on the auto industry. There are a lot of people around here with disposable income who choose to spend it at our casino.”
The Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians is not the only tribe looking to provide infill casino development in otherwise mature casino marketplaces:
• The Navajo Nation has recently opened two new properties in New Mexico (Flowing Water Navajo Casino near Shiprock and Fire Rock Navajo Casino in Gallup), and has taken land into trust near Flagstaff, Ariz., to build the $120 million Twin Arrows Casino.
• The Tohono O’odham Nation recently received approval from Arizona Gov. Jan Brewer to bring land into trust in Glendale, with the goal of eventually developing a casino there.
• The federal government has approved a plan by the Cowlitz Tribe to put a 152-acre acre site in La Center, Ore., into trust. Preliminary plans call for the construction of a 134,500-square-foot casino and a 250-room hotel.
• The St. Croix Chippewa Indians of Wisconsin opened St. Croix Casino Danbury last summer. The property has 500 slots, 13 table games and a poker room.
Some gaming tribes are looking beyond niche infill opportunities and instead concentrating on major expansion into emerging commercial casino markets. Uncasville, Conn.-based Mohegan Sun has experience in this realm, having previously opened Mohegan Sun at Pocono Downs, an off-reservation casino in Wilkes-Barre, Pa. Currently, the tribe is involved in an attempt to develop a $600 million gaming resort in the western Massachusetts town of Palmer. Casino gaming is currently illegal in Massachusetts, but the state legislature is likely to consider legalization this year having almost passed an enabling measure last year.
“We believe we would be great for Palmer, we would be great for Western Massachusetts,” Mitchell G. Etess, CEO of the Mohegan Tribal Gaming Authority told The Republican, a Springfield, Mass-based newspaper. “We’ve got a great ability to create jobs and a great history of performing well and being a gaming leader in the Northeast.”
The good news for gaming tribes looking to follow a similar strategy is that more jurisdictions are likely to consider commercial casino expansion in the near future.
“You can take a map of the U.S., throw darts at it, and wherever the darts land there is someone seriously considering gaming,” Christiansen said. “Massachusetts, Texas, Georgia, Hawaii-every state and municipality is contemplating it. This is really a new and fundamental change brought on by the recession and the dire straights of government coffers. Casinos have lost their taint, politicians are no longer afraid of the issue.”
Tribes seeking casino expansion into either local or regional commercial markets best be prepared for a long and very bumpy ride. The Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians was recognized in 1999 and decided on gaming as an economic growth engine almost immediately. It took until 2011 for them to finally open a casino property.
“We went through many legal and political battles to get where we are,” Shagonaby said. “When we finally cleared the trust and signed a gaming compact, the recession hit and the credit markets collapsed. That was a challenge; it took longer than expected to get funding and we had to scale back our plans and start out smaller. When the economy fully recovers, we will build out to original scope.”
If anything, the development hurdles are set even higher for the larger, commercial-style projects. For example, the federal government has reportedly rejected a land-claim settlement between the state of New York and the Wisconsin-based Stockbridge-Munsee Band of Mohican Indians that would have cleared the way for the development of a $560 million casino resort in the Catskills Mountain community of Thompson. According to an internal memo obtained by the Times Herald-Record of Middletown, N.Y., the proposal was dead on arrival at the U.S. Department of Interior, which questioned the legitimacy of the land claim and its legality absent the approval of Congress.
Former New York Gov. David Patterson had reached a deal in which the tribe agreed to give up disputed lands in upstate New York in exchange for the right to build the off-reservation casino.
Despite its successful track record, Mohegan Sun may have a hard time winning any potential Massachusetts casino license, considering the current state of its economic affairs. The tribe and its gaming property were pummeled in the press when a year-end annual report to the Securities & Exchange Commission revealed a balance sheet showing $2.2 billion in debt against $64 million in cash. “We’re aware of the [debt] situation and we’re dealing with it,” Etess told The Republican. “We’re working on a plan to deal with our capital structure with the best advisors in the business. We’re seeing stabilization and the beginning of some growth. I’m very happy with the way our company is trending.”
Debt, and the lack of bankruptcy recourse for lenders in Indian country, could come to haunt funding for large-scale tribal gaming projects and expansions for years to come, according to Christiansen. “The mechanisms for resolving either defaults or restructurings in the private sector are not available with tribal gaming,” he said. “Sovereign default is a scary potential problem for lenders, given the odd legal status of tribal nations. Look at what’s going on in Connecticut; if you were a lender, would you give those tribes money right now?”
GOING TO MARKETInstead of waiting for credit markets to thaw to the point where money for large-scale expansion is available, many Native American gaming properties are looking inwards, searching for ways to incrementally grow the bottom line. One way to accomplish this task is by attracting new customers to the casino, and having them stay and play. Alpine, Calif.-based Viejas Casino, owned and operated by the Viejas Band of Kumeyaay Indians, has found a new way to do just this and it involves a surprising partnership with the California Lottery.
A chance meeting between a lottery official and a Viejas consultant at a Sacramento health club gestated into a shared promotion in which lottery players were invited to the casino floor and casino patrons enticed to try lottery games. For the month of February, when someone purchased $5 worth of Mega Millions tickets at one of 1,600 San Diego area lottery retailers, they received a voucher with a bar code and a chance for additional prizes that could only be redeemed at Viejas Casino. Once at Viejas, voucher holders were entered into the facility’s player club and directed to kiosks on the gaming floor where their bar codes could be read and additional rewards offered. The prizes ranged from free lottery products to iPods to a chance at a $5,000 weekly drawing.
Viejas officials said the promotion resulted in 22,000 winners receiving prizes at the casino, and that the ROI for the event was easily surpassed.
“Everyone talks about the value of partnership and being creative in this economy by trying things you normally wouldn’t,” said Rob Scheid, a spokesperson for Viejas Casino. “That is what we did with the lottery and it has been a true win-win for both parties. This promotion offered an incentive for lottery and casino players to purchase additional tickets and drove more potential gaming customers to the casino floor. We cross-pollinated our customers and it worked well for us and the lottery.”
The lottery told Scheid that this was the first time the organization ever partnered with a California casino, and as far as they knew, it was the first time any lottery anywhere worked with a casino is such a fashion. “The traditional belief is that lottery players and casino patrons are totally different groups,” he said. “I guess you could say we are testing to see if this theory is true and how we can go about breaking those barriers down if that is the case. It is truly a groundbreaking arrangement.”
In addition to targeting gamers who do not normally wager at casinos, tribal properties may be able to gain a market edge by enticing more play from younger clientele. “The gaming industry is not really tapping into the under-35 market very effectively,” Rittvo said. “Properties want to concentrate on their core players, who tend to be older. But if you’re looking to grow the customer base, it’s got to come from this younger age group, and to do that you need to offer the amenities and entertainment that will bring them through the door.”
Some properties are tackling this problem by embracing technology and offering the casino gaming experience on cutting-edge mobile computing devices. Northern California-based Blue Lake Casino, owned and operated by the Blue Lake Rancheria Tribe, has adopted iSino-an iPad programmed to play like a slot machine. The software to make this possible was developed by Acres 4.0, and allows the user to play slot games away from the casino floor, in this case, at a specially designed lounge with comfortable seats and coffee tables. The iSino device works on a wireless link that ceases to function once the iPad is taken outside the lounge area.
Blue Lake Casino launched its iPad gaming lounge in January and currently operates 52 iSino devices.
“I look on the iSino product as the natural evolution of gambling,” Eric Ramos, president of business operations for the Blue Lake Rancheria, told the North Coast Journal. “This game product excites younger players.”
TECHNICAL ASSISTANCEOf course, casino technology has attributes beyond attracting the young. By adopting the latest slots and systems, tribal casinos can attain market differentiation, boost customer retention and increase cost savings through more efficient operation.
Indeed, a desire to better meet customer expectations in the most efficient matter possible is why the Otoe Missouria tribe of Oklahoma selected Advantage casino management and the sbX experience management enterprise-wide solutions from International Game Technology (IGT) for its four properties and 2,300 games.
“When it came down to selecting a systems partner, we chose IGT for one reason above the rest: technology,” said John Shotton, chairman of the Otoe Missouria tribe. “Only IGT could offer us the flexibility and control we need to bring our players a more dynamic and personalized experience.”
A newly expanded area at First Council Casino in Newkirk, Okla., will exclusively showcase 150 new sbX-connected games with Service Window. This feature provides a unique player experience with a menu of applications such as bonusing, player account information and guest services that the operator can customize. Approximately 500 games across all four properties will offer this player display.
“This centerpiece at First Council will elevate the player experience in Oklahoma,” Shotton said. “Together with IGT Advantage, sbX gives us the tools we need to gain a competitive edge. This solution really raises the bar for us in terms of communicating with our players, and being able to give them the games and services they want, right at the slot machine.”
Other systems providers are also making a technology splash in Indian country. When Isle Vista Casino, the Red Cliff Band of Chippewa Indians resort located in Wisconsin, decided to overhaul its existing systems technology it turned to a suite of products provided by Bally Technologies. These products included SDS, an integrated information system that collects slot-accounting and player-tracking data while continually monitoring slot machine and customer gaming activity; CMP, a player-tracking system that helps manage and evaluate the player database and enables casinos to gather and track data; TableView, a real-time table rating and player-tracking solution; Power Rewards and Power Promotions, a package of bonusing, gaming and promotions programs; and Player-User-Interface Displays, which provide player’s club and marketing messages on the casino’s gaming devices.
“Our new partnership with Bally will deliver system overhaul that will produce greater functionality, enhance and provide new customer-focused options, and produce a level of casino data that we have not seen in our history,” said Jeff Gordon, general manager for Isle Vista Casino. “This installation takes us far beyond a win-win scenario.”
Bally Technologies and IGT are just two of the hundreds of technology companies offering cost saving and revenue-producing products to the tribal gaming industry. Individually, these devices can’t offer the economic punch of casino expansion or resort development in an untapped marketplace. Collectively, however, technology may be able to provide a financial life raft until the economy recovers, the credit markets open up, and the gaming industry is truly motoring again.
SIDEBAR: Tribal gaming revenue to recover by 2012The Indian Gaming Regulatory Act of 1988 permits states which allow gaming activities to authorize tribes to operate casinos on Native American reservations. New casinos fueled growth at double-digit annual rates through 2006. Since then, fewer openings, a slower economy, and increased competition from regional casinos led to slowed growth in 2007–2008. In 2009, revenues fell by 0.7 percent.
We expect an additional decline of 1.9 percent in tribal casino revenues in 2010, and then a recovery as the economy improves. However, we do not expect a return to the double-digit increases that characterized the first half of the decade. The market will no longer be boosted by new casinos, and existing casinos are facing intensifying competition from new and expanding regional and racetrack casinos.
Overall revenues at tribal casinos will increase from $26.5 billion in 2009 to $30.3 billion in 2014, a 2.7 percent compound annual increase. This growth rate will lag well behind the US casino gaming market as a whole, but ahead of Atlantic City. In addition to the impact of the economic conditions, the opening of Yonkers cut into slot revenues at Mohegan Sun and Foxwoods, which are located in Connecticut, and which draw from the New York City area. The competitive pressure is being further increased by the opening of the Hollywood Casino Perryville in Maryland in September 2010, and by the opening in the first half of 2011 of Genting’s new gambling parlor at the Aqueduct Racetrack in Queens.
Reprinted with permission from Playing to Win, a PricewaterhouseCoopers study on casino and Internet gaming.