Indian gaming finds stride as growing national industry

They started in tents, at least in the memories of most of us in the Southwest. Depending on how far you want to go, Indian gaming’s origins could be traced back hundreds of years, when wagers were placed on athletic events or games that required a certain skill set. In more modern times, Indian gaming that looks more like casino gambling started in the 1970s, when tribes in California and Florida operated high stakes bingo halls with the intention of raising money for local government and economic development.

By the late ’80s, there were 80 tribes across the nation working the bingo hall format to the tune of about $100 million in annual revenue . With tensions rising among states and tribes over how these operations should be regulated, the federal government in 1988 enacted the Indian Gaming Regulatory Act, officially legalizing and putting federal, tribal and state authority over Indian casinos. On one hand, the legislation opened the door to more gaming on tribal lands, but on another it also added heavier regulations.

Under the legislation, three gaming classes were also established. Class I is considered social gaming, or games tied to Indian traditions and ones played at tribal ceremonies. Tribes oversee these activities . Class II is for bingo operations, much like what was seen in the early days and expressly forbids banking card games such as black jack or slot machines. But Class III brought Las Vegas-style gaming with slot machines and table games. Because states also have their say on the regulatory side , tribes are limited on the number of certain games they can have in a casino.

But Class III gaming catapulted the industry to more than $27 billion in annual gaming revenue , or 43 percent of the nation’s entire gaming revenue , according to Casino City’s 2013 Indian Gaming Industry Report, put together by Alan Meister, an economist with Nathan Associates Inc., an Indian gaming industry consulting firm.

The report contains other noteworthy facts. There are 242 Native American tribes operating more than 341,000 gaming machines, 7,700 table games and 460 gaming facilities in 28 states. The industry also supports 339,000 jobs.

Nevada EFFECT

With Indian gaming’s run-up in the 1990s and beyond , the effect on Las Vegas and Nevada was often debated. Would Indian gaming put Las Vegas out of business ? Would it be the perfect enticement to spur more trips from drive-in markets?

These were the questions lurking in every analyst’s corner for 15 years. But now, with an industry that also saw its share of Great Recession concerns, more data are starting to surface when it comes to the effect of tribal gaming on Nevada.

“If you look at the spread of commercial and Indian gaming across the U.S. in the 1990s, that’s when the visitation of Vegas and revenues expanded. But in other parts of the state that’s a different story,” said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.

Schwartz said Reno/Lake Tahoe and Laughlin saw negative effects, particularly as a result of the growing number of Indian gaming sites in California. That state is the largest in terms of gaming revenue with $6.9 billion , which accounts for about 25 percent of all Indian gaming revenue nationwide. Schwartz even thinks downtown Las Vegas took its lumps from Indian gaming and points to data he has compiled through the years as evidence.

Overall, casino revenue in Nevada increased 13 percent from 2000 to 2012. But breaking down the growth further, Strip revenue increased 29 percent, downtown Las Vegas declined 24 percent and Washoe County (home to Reno/Lake Tahoe) declined 36 percent.

Sophistication

The proliferation of Class III facilities are making a nearby trip to a Las Vegas-like experience easier and probably more affordable. Many of these high-end Indian casinos are even designed by groups that helped create Strip resorts.

“I just spent time in the Mohegan Sun in Connecticut. It’s a massive facility with dozens of restaurant options somewhere in the neighborhood of 5,000 slot machines, table games, a nightclub attached to a huge arena. It’s a fully functioning entertainment facility,” Bally Technologies spokesman Mike Trask said.

Indian gaming expansion has been good for the slot machine manufacturers, Schwartz said.

Trask even admitted that Indian gaming clients are a large part of the company’s business, but said it is tough to say how much, as the company’s business is tracked by region, and each region likely has both Indian and commercial gaming sites in it.

Bally also provides gaming management systems for some of the largest Indian casinos in the country, such as the Mohegan Sun and the Foxwoods in Connecticut, both early and profitable entrants in the 1990s when Indian gaming was gaining steam.

Regardless of region, the largest demographic for the typical slot player tends to be 45- year-old and older women who are in the higher-end income spectrum and have discretionary dollars to spend on gambling, Trask said. “I haven’t seen anything much different in Southern California, Florida or Las Vegas, especially in the Las Vegas locals market. The Strip might see some slight difference,” he added.

What may be a greater effect on Nevada is tribal casinos’ investment in nongaming revenue amenities such as new entertainment options. The industry produced $3.3 billion in nongaming revenue . Expect that number to grow, said Meister, whose report also noted that tribal casinos invest big money in renovations and expansions of existing sites and are adding complementary amenities such as spas, concert venues and convention space to entice an out-of-town visitor with more money to spend.

But Schwartz said the effects on the Strip have likely already been felt. To minimize future revenue drops, Las Vegas needs to keep doing what it does best: add new attractions such as entertainment and nightlife options not available elsewhere.

Large casino operators have taken the approach of not fighting the growth, but joining it when possible. Station Casinos is involved with two tribal casino projects. MGM Resorts International was a partner in Connecticut’s Foxwoods $700 million expansion in 2005.

Gary Thompson, a spokesman for Caesars Entertainment, said the company’s three management agreements with tribal casinos are a positive for its Las Vegas properties.

“Our management contracts … allow us to reach and establish relationships with new customers and offer existing customers of those casinos recognition and rewards that encourage them to visit Caesars properties elsewhere,” he said.

Meister also said casino companies have gotten into jurisdictions that don’t allow commercial gaming by partnering with Indian casinos. California is an example of that. But tribes have also leaned on famous casino brands to help them out .

“Often what happens is that tribes just getting into gaming don’t have experience with it and need help. It can be a win-win and the tribe gets to experience the name branding of the gaming facilities, and they can develop their expertise,” Meister said.

Plateau or expansion

Less than half of the 566 federally recognized tribes operate gaming facilities. This may give the impression that there’s plenty of room for growth. But that’s not so much the case.

“In a lot of those cases they’re just not economically feasible to support a casino,” Meister said. “Even with the casinos that do exist, there is a huge disparity in terms of performance. A lot of small ones just get by and are just providing jobs for the tribe.”

Meister’s report says gaming revenue growth was “not uniform” across the country. Sixty-five percent of facilities experienced growth while 35 percent saw declines. The top 10 states made up 86 percent of total Indian gaming revenue.

The fastest-growing states are Alabama, Mississippi, Montana, North Carolina and Oklahoma. Conversely, the fastest-declining states are New York, Oregon, North Dakota, Connecticut and Idaho. Among the states that made “the largest positive contribution to nationwide gaming revenue growth” were Nevada’s neighbors, Arizona and California.

Although slower growth is expected, Meister said those who say the industry is starting to cannibalize itself may be overlooking some opportunities. Some tribes in Oklahoma and Florida have been upgrading sites from Class II to Class III operations and have seen revenue boosts as a result. And even markets that may look saturated could see boosts with some sparkly new additions.

“There are a number of markets that are by no means saturated with plenty of room for growth. Yet there are some who are getting fair enough competition from racinos and commercial casinos,” he said. “But it doesn’t mean a market can’t grow with the development of some new facilities.”

Meister points to Michigan as an example of what appeared to be a mature market with no potential for growth. But recent additions of properties in the southwestern part of the state have done well, he said.

As of November , there are 21 pending tribal casino applications on lands acquired in trust by tribal communities. Five of those applications are in California and three are in New York. Meister and other experts say the Massachusetts market will likely be a popular addition that will boost industries overall. But industry experts also say that growth could possibly come at the expense of established markets such as New York and Connecticut .