For some tribes, casinos no longer a sure bet
The recession has contributed to downturns at some tribal casinos nationally and in Washington state.
Seattle Times staff reporter
Once viewed as sure bets, some tribal casinos around the country and in Washington are hurting.
Revenues dipped as much as 30 percent at some tribal casinos in the state in 2009. The Nooksack tribe is in court with its lender and the Snoqualmie tribe is struggling to make payments on its casino debt. The Skokomish tribe closed its casino last fall rather than keep hemorrhaging cash.
In Indian Country, W. Ron Allen, chairman of the Washington Indian Gaming Commission and longtime chairman of his tribe, the Jamestown S'Klallam near Sequim, Clallam County, sees a business shakeout. "We were riding a high wave and a long one," Allen said. "You didn't have to think, you could just go ahead and implement a marketing plan because it sounded good, you didn't have to question it or challenge it.
"Now this is forcing tribes to step back to say, 'wait a minute now.' "
Nationally, three big casinos defaulted last year: the Mashantucket Pequot's massive Foxwoods Resort Casino in Connecticut — the largest in the country — and the Inn of the Mountain Gods and Buffalo Thunder casinos run by tribes in New Mexico.
Default by the Nooksack tribe on its debt and cash-flow problems at the Snoqualmies' new casino have been noted in the national investment-and-gambling-trade press, and have become the talk of the professional-conference circuit, raising questions about how lenders might be repaid in Indian Country, where they can't seize the land or the business. And can a tribe declare bankruptcy?
When times were good, no one was paying too much attention to the fine print spelling out unique risks of investing in tribal casinos — perhaps because lenders were so eager to earn 9 percent or more betting on some ventures.
Nontribal commercial casinos, especially in Las Vegas, already had been falling victim to the recession. "It's like nothing we've seen, over the past two years," said Craig Parmelee, managing director and team leader for gaming and lodging at the rating agency Standard & Poor's. "Going back to 1997-2007, never did more than two gaming companies default, and in many years none did, and in the past two years, 20 did."
Indian casinos have been consistently stronger performers than nontribal casinos, making the 2009 loan defaults the more notable. "Things have changed," Parmelee said. "It's been a difficult time for any participant."
There's plenty of money at stake: Nationally, tribal casinos have attracted nearly $10 billion in investment, and that's just counting debt tracked by rating agencies.
"What is in the back of everyone's mind is, what happens if the bet goes bad?" said Kevin Quigley, a St. Paul, Minnesota attorney who specializes in the finance and regulation of tribal casinos. He spoke in Seattle this month at a tribal-gaming-conference presentation on bankruptcy and Indian casinos, a topic no one would have thought would be on the agenda — until now.
Tribal-casino investments pose unique risks for tribes and their lenders. For tribes, everything is at stake: Casino revenues aren't just about profit.
Casino profits can be paid directly to members in per-capita payments and are used to help pay for every type of service tribal governments provide, from health care to housing. Some tribes even pay full-ride scholarships to send members to college.
Casinos have helped lift many tribes for the first time out of poverty, especially those such as the Tulalip, Muckleshoot and Puyallup casinos near the urban areas of Puget Sound.
Legalized by Congress in 1988, tribal casinos built on Indian lands boomed to a $26.8 billion business in 2008. Lenders have gotten in on the action, backing the construction and furnishing of tribal-casino properties all over the country. But now lenders are wondering how they will get repaid if debts go bad.
If a tribal casino craters, creditors can't foreclose on the property because the land is held in trust for the tribe by the U.S. government. The lender can't seize the casino business, either, because only the tribe can get a license to run it.
It's not even clear tribes can declare bankruptcy. Or that lenders can sue in state or federal court to get their money back.
"We are really in uncharted territory," Quigley said. "I don't know the answers. I don't know that anyone does."
For some Washington tribes, 2009 brought setbacks to economic-development plans.
The Skokomish tribe shuttered its Lucky Dog casino in Union, Mason County, last September, put 80 people out of full-time jobs and sent its rented gambling machines back to the manufacturer.
"We got pushed to the point it was, 'Do we keep it open and keep losing money?' " said Guy Miller, chairman of the tribe. "It was the council's choice to save some money and not keep throwing money into a bad situation."
The tribe is mulling whether to reopen the Lucky Dog this summer.
The Snoqualmie Tribe took on a $330 million debt in January 2007 to open a casino the following winter in North Bend. The first year was a struggle: Standard & Poor's Rating Services in November warned investors the loan was at risk because the casino's cash flow was not hitting projections — or even covering fixed costs.
"They are burning through cash," said Ben Bubeck, credit analyst and director in corporate ratings for S&P, which has downgraded the credit rating to junk on notes issued by the Snoqualmie Entertainment Authority to build and equip the casino.
The casino needed to ramp up quickly to hit projections, but instead ran smack into the recession and unusually bad weather. Higher-than-expected costs also have taken a toll, Bubeck said. "We are concerned," he added.
Tribal leaders did not return several calls for comment.
The Nooksack tribe last October wound up in court with its lender, Marshall Bank, of Minnesota, after missing payments on about $26 million in loans used to build and equip its Northwood Casino near Lynden, Whatcom County. The recession wasn't the reason, according to a written statement provided by the tribe.
Instead, the tribe says it wants a lower interest rate from the bank. Tribal leaders would not discuss the matter further, citing ongoing litigation and negotiations.
Some success stories
Despite the troubles some tribes had in 2009, business has continued to grow overall at Indian casinos, albeit at a slower rate, with tribal casino revenues up 1.5 percent nationally in calendar year 2008 over 2007. In Washington, total tribal-casino revenues were up slightly to $1.6 billion in the fiscal year ended June 30, 2009, according to the Washington State Gambling Commission, from $1.5 billion in 2008.
Slow growth was expected to continue, and that's just what some tribes are seeing. With local markets, tribal casinos can be better situated to ride out the economic downturn than destination resorts in Las Vegas, gambling experts say. And some tribes have honed their product carefully to fit their customers' tastes.
The Puyallups' newest Emerald Queen Casino and Hotel offers a converted Best Western along Interstate 5 in Fife with modest restaurants and no table games. It's a no-frills, true machine-gamblers' casino, with 1,490 video-slot machines whirring away under a low ceiling, in dimly lit rooms with little décor save a blaring casino carpet.
The place is packed, and the tribe has yet to see a dip in its casino success. Despite the recession, the Puyallups continue to make about $250 million a year from two casinos along I-5, said Chairman Herman Dillon. The tribe is still sending every tribal member a $2,000 check each month from casino revenues, and spending on tribal-government services continues to grow.
Just ask Joyce Tobolski, higher-education coordinator for the tribe. On a recent morning she wrote a $26,000 check from the tribe to cover a student's bills for one semester at Vanderbilt University, one of 215 students the tribe is putting through school this year. "I just paid a bill yesterday for $16,000 for one semester at Stanford," she said with a smile. "I never thought we would be doing this; I never thought there was a future."
The Tulalip Tribes, with a casino north of Seattle on I-5, have taken an entirely different approach to their market, with a $130 million investment in a glamorous new resort.
The tribe's gamble on a true Las Vegas-style property, with splashing fountains, tribal art, white-tablecloth dining and a four-star diamond hotel, so far is paying out, despite opening in a difficult economic climate in June 2008, said Chuck James, treasurer for the Tulalip Tribes board of directors.
Yet the struggles of some tribal operators, especially the biggies like Foxwoods, could chill lending, said Bill Lomax, president of the board of directors of the Native American Financial Officers Association.
"It used to be, they would do anything," he said of lenders. "Now they kind of look at things and say, 'You know, this tribal deal is different from these other deals. And there are so many of these other deals, why don't I just put my money there?' "
Allen, the Jamestown S'Klallam chairman, said lenders shouldn't wonder whether they'll make money in Indian Country — they already are, even now. Lenders often have charged steeper rates for rolling the dice on tribal-casino ventures.
"Don't go whining to us," Allen said. "They are making a ton of money. And even though they are making a ton of money off the tribes, they want less risk.
"This is not a risk-free deal."
Lynda V. Mapes: 206-464-2736 or email@example.com
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