Thursday, September 25, 2003
Copyright © Las Vegas Review-Journal

Tribal casinos gaining clout

Flood of Wall Street funding seen for Indian developments

Players try their luck on slot machines at Harrah's Ak-Chin Casino, south of Phoenix, on Jan. 7, 1998. A new report foresees more growth in Indian gaming. THE ASSOCIATED PRESS FILE PHOTO

The tribal casino industry's increasing credit worthiness could pave the way for more Wall Street funding of Indian gaming expansion, a new report suggests. Standards & Poor's released a report Wednesday showing the creditworthiness of tribal operators was on par with major gaming companies, generally ranking BB- or better, or slightly below investment grade.

That means, analysts suggest, that the floodgates could open wide for Wall Street funding of new tribal developments.

"We'll keep seeing the impact of tribal gaming on the state of Nevada," said Bruce Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company.

Standard & Poor's analyst Michael Scerbo said the overall credit quality of most tribal gaming operations is "noninvestment grade due mainly to their limited business diversity and evolving competitive landscapes."

"However, many (tribal) gaming operations benefit from limited competition in areas they operate, good market demographics and high margins relative to the gaming industry as a whole," he said.

Gordon notes, however, "they're at or approaching investment grade levels. It looks as if some (more established tribes) are seeing positive effects from management by publicly traded companies."

He cited the United Auburn Indian Community, rated BB- by Standard & Poor's, which has a management agreement with Station Casinos for running its Thunder Valley Casino outside Sacramento, Calif.

Among tribal interests, only the Mashantucket tribe, which runs the Foxwoods in Connecticut ranks investment grade. Among major gaming companies, Harrah's Entertainment and International Game Technology rank investment grade.

The number of American Indian gaming operators rated by Standard & Poor's increased to six in September, up from four in 2000, and is expected to double again within the next two years, the report said.

This reflects the growth in demand for gaming throughout the United States and the desire of the tribes to finance expansion through debt offerings, among other factors, said Craig Parmelee, Stand & Poor's hotel and gaming group team leader.

Tribal gaming already is generally the fastest-growing segment of the casino industry, with revenues rivaling the size of all operators in Las Vegas. And analysts are projecting that growth will continue through the end of the decade.

The expansion has been largely concentrated in California and other Western states, including Arizona and Washington, the Standard & Poor's report said.

In California, compacts have been signed by more than 60 recognized tribes with at least 50 operating casinos.

In 2002, these operating casinos generated more than $13 billion in gaming revenue, compared with approximately $9.5 billion generated by gaming operations in Nevada, the report said.

Gordon said the growth likely will continue, especially since current credit ratings for the tribes "are decent and can be expected to improve as they establish themselves in the marketplace and prove to have a reliable cash flow."

Tribal gaming, however, has a growing number of critics.

Las Vegas professor and casino gambling expert Bill Thompson, for example, warned the expansion of tribal casinos has been fueled by "an unholy alliance" that includes taxes, illegal games and political contributions.

"The law is not being followed. It says there will be no taxation of Indian gaming and they can only have games under certain circumstances," he said.

"Governors are charging Indians and letting them have games they are not supposed to," Thompson said.

The Indian Gaming Regulatory Act of 1988 clearly says how they can spend the money and it does not provide for making campaign contributions, he said.

The act limits tribal spending to government programs, the general welfare of tribal members, promote economic development, donate to charities and help fund local government operations.

Because of "gutless politicians," tribal gaming likely will keep growing, especially in California, Thompson said.

"Congress doesn't have the guts to do anything about it and neither does (the) Bush (administration) because they're afraid of Indians. (Secretary of the Interior) Gail Norton should disallow illegal Indian compacts. She should terminate all compacts that allow taxation of Indian casinos," he said.