It Is the Year of the Rat and The Rat Virus

Xi Nian Kuai Le: Happy New Year! It is Chinese New Year, the Year of the Rat. This year, the celebration runs from January 25 through February 4. It is said to be the largest migration of people on the planet. Typically, hundreds of millions Chinese travel as part of the Spring Festival and the beginning of a new year; they visit relatives, eat traditional foods, give gifts and visit important cultural landmarks like the Forbidden City. However, the Year of the Rat’s beginning is not a typical kickoff to the new year. In an unprecedented decision, the Chinese government has canceled all public ceremonies, closed key tourism spots and locked down Wuhan city and other cities in Hubei province. As many as 50 million people are currently restricted to their city. The cause, you may have heard, is the coronavirus.

If it were possible, this year might be renamed the Year of the Virus. Sometime in December, an unknown pneumonia-like illness was first reported in Wuhan, a city of 11 million people in central China. According to Business Insider, in the beginning Chinese police arrested several journalists for “spreading rumors”. Clamping down on reporting, however, only kept the virus a secret for a little while. On January 14, the news leaked out into the world through Hong Kong. The story gained steam as more cases were reported, especially as cases began to be identified in places other than Mainland China. Cases have so far been reported in Europe, the United States, Hong Kong, Macau, Singapore, Thailand, Vietnam, South Korea and Japan.

On Thursday, January 23, in response to the crisis, the city of Wuhan was locked down. Eleven million people are currently unable to leave town or use public transportation. The virus is thought to have jumped from animals to humans in the Wuhan Huanan Wholesale Seafood Market. Its name notwithstanding, the now-closed market sold live foxes, crocodiles, wolves, salamanders, snakes, bamboo rats, peacocks and porcupines, along with traditional meats and fish. (Wait, rats? We could call it the Year of the Bamboo Rat.) Okay, it’s not funny. Nothing about a pandemic is funny, and this one is becoming more serious by the day. The World Health Organization thinks it is still too early to declare an international emergency, but the world is watching.

Macau certainly is. The government has issued instructions to test the temperature of every person entering the city and is requiring the casinos to test every gambler. Dealers are required to wear masks, people are asked to avoid all public gatherings, and everyone is being asked to be vigilant. The Chief Executive of Macau has canceled all public New Year celebrations and has said that the casinos may be required to close if the threat becomes worse. At the rate new cases are being reported everywhere, it is virtually certain that the situation will get worse, both in Macau and elsewhere.

The casinos in Macau have already been hit by a slowing Chinese economy, the trade war between the U. S. and China, and the visit of Chinese President Xi Jinping. This week, casino stocks from Las Vegas Sands, Wynn Resorts, MGM and Melco have all fallen on the news of potential sanctions. A friend asked me recently if I thought this was a good time to buy Sands stock, since short-term stock price dips are, usually, hardly a cause of long-term concern. The question is more complicated than it was a few days ago, however. I said that if the spread of the virus is brought under control in a reasonable amount of time, the Sands should have a good year financially, which means a significant drop in price is a good buying opportunity. But if this is not a short-term crisis, well, then, all bets are off.

Before the outbreak, analysts predicted that a new bird flu – one transmitted from animals to humans in the live animal markets of China – could kill as many as 65 million people worldwide. That would hardly be a minor, short-term crisis, and the impact on casino revenues in Macau would barely be noted under those conditions, although some analysts are already speculating on the virus’ impact on stock markets and economies worldwide. Some domestic casinos rely very heavily on Macau revenues; the Sands gets as much as 65 percent of its revenue from Macau. Add to that number the importance of the Sands Singapore, and the corporation’s investments in what are now the virus’ environs means a major outbreak would be a significant event in the company’s existence. Wynn and MGM rely heavily on Macau as well, although somewhat less that the Sands.

Those of us who make our living in or around the casino industry see everything through the prism of casino revenue, but there are events in the world at large that sometimes eclipse ours. This virus has the potential to affect our lives at a much deeper level than revenues and stock prices. The Year of the Rat may ultimately be remembered only as the year that the annual migration did not happen. At the moment, the world is facing a much greater threat. I, for one, hope the Chinese government and health officials all over the world get a handle on this virus soon. 1997 began in Reno with a flood that disrupted business and closed many casinos; that flood changed the casino industry in downtown Reno permanently. This virus has the potential to change the entire world. That is frightening.

Filling the Shoes Bill Harrah Wore

The unthinkable is happening: Harrah’s, a Reno icon and the heart of the downtown casino core, will close. Caesars Entertainment and VICI Properties announced the sale of Harrah’s Reno on January 15th, and the buyer, CAI Investments, plans to close the casino and the hotel and create a mixed used housing, office and retail complex on the site called Reno City Center. In a fitting tribute to the significance of Harrah’s Reno, the Wall Street Journal published a story on the sale. Caesars is headed into a merger with Eldorado Resorts that is expected to be complete in the 2nd or 3rd quarter of 2020. Eldorado already has three properties in downtown Reno and does not need or want a fourth. No casino operator is likely to be interested in Harrah’s. It is a casualty of both the Great Recession and of Caesars’ bankruptcy; the property has millions of dollars of deferred maintenance and has not had been updated to compete in the 21st century.

Harrah’s Reno has been a neglected stepchild for much of the last 30 years. With the advent of Indian gaming, the casino industry in Reno stopped growing and began to shrink. Harrah’s Corporation, Holiday Inn, Promus Companies, Caesars – whatever it was called at the time – always had better places to invest its money. And with the ongoing expansion of casino gaming nationally, Harrah’s Reno has become even more insignificant in the big picture. This century has been very dynamic for the corporation now called Caesars. Harrah’s Entertainment bought Caesars in 2005; three years later, in 2008, Apollo Management and TPG Capital paid $17.7 billion to buy the company. The deal had been two years in the making. In the interim, the Great Recession hit. The company was saddled with $25 billion in debt and struggled to meet its obligations. In 2010, looking for some branding magic, Harrah’s became Caesars. In 2015, the company filed for Chapter 11 bankruptcy. There were more twists and turns, but the most important of them was in 2019, when Caesars and Eldorado Resorts agreed to merge.

The financial struggles of Caesars put Reno very far down its lists of priorities. An investment in other markets, like Las Vegas, paid big returns; Reno offered no such prospect. The only thing Harrah’s/Caesars did in Reno was to cut expenses to the lowest possible level, which left a very distressed and out of date property in a very competitive and challenged marketplace. The new company, under Eldorado, has promised investors that it will sell underperforming properties. Clearly, one of the properties they’re talking about is Harrah’s Reno. It wasn’t attractive to a casino investor, but Caesars found a developer who believed in a new Reno, a Tesla-driven one. He plans to build something completely different. Something that might suit the new Reno.

It all makes business sense, but for the citizens of Reno, Harrah’s was more than a business and more than a casino. It was part of the community. Nearly every long-time resident family in the area has their own Harrah’s tradition. Phil Satre, the company’s former CEO, celebrated his 40th birthday in Harrah’s Steak House. A friend of mine celebrated his daughter’s high school graduation there, and three other friends have a decades-long tradition of a pre-Sheep Dip dinner there. Year after year, birthday parties, anniversaries and holidays were all occasions to go to Harrah’s. As was entertainment; locals remember seeing Sammy Davis Jr., Frank Sinatra, Tony Bennett, Phillis Diller and hundreds of other big name, top drawer, world-class entertainers at Harrah’s. Entertainers loved to perform in Reno because no one treated them better than Bill Harrah, and the audience got the benefit of that treatment.

Harrah’s was Bill Harrah’s casino; he came to town in 1937 and stayed until he died in 1978. In the first few years he was a bingo operator, trying to grow his business. After World War II ended, Bill Harrah started to build the best casino he could envision. Those things that he could not image for himself, he hired experts to help with; Harrah also traveled the world, staying in the best hotels looking for ideas he could bring back to Reno. Everything was as good as he could make it. Harrah set the standard for casino operators in Reno. His casino, employees, entertainers, restaurants, hotel and procedures were the gold standard by which casinos were judged.

For years, former Harrah’s employees were highly sought after, and not just in Reno. Harrah’s employees were known to be the best trained and most knowledgeable in the industry. Bill Harrah made certain that was true; he used consultants to develop the best procedures and training programs. Nothing was left to chance. The Oral History program at the University of Nevada, Reno published a history of the property called “Every Light Was On.” The title was a metaphor of Harrah’s operating philosophy; everything should be the best and always in perfect condition. On every eight-hour shift, the senior manager on duty would walk the property checking everything, literally looking to make certain that every light was on. And Lord help that manager if Bill Harrah found a light out. The community was proud of that tradition of excellence.

When Harrah’s/Holiday Inn sold the automobile collection in 1981, the city reacted with dismay. Harrah’s had no right to sell those cars, the argument went; they belonged to Bill Harrah. But more than that, they belonged to us, the residents of Reno. Now people are reacting the same way to the announcement that Harrah’s will close. You can’t do that, the argument runs. It belongs to us. But of course, Caesars can, and did, sell Harrah’s Reno. Its time has passed. Bill Harrah has been dead for 42 years, and the standard of excellence died long before the turn of the 21st century. This is the Tesla century in Reno. The Harrah century is over. The best of luck to CAI Investments and their City Center project, they are trying to fill some very big shoes.

The Year’s End – a glance back and a peek forward

December marks the end of the year, and every December, people are inspired to draw up lists of the most important events of the passing year. Last year in keeping with that trend, I drew up a list of significant events in gaming in 2018. I called it “A Wild and Crazy Year.” The column concluded with this statement: “Sports betting goes national, new casinos open up and down the East Coast, Steve Wynn exits, Atlantic City gets a makeover, Pennsylvania opens Pandora’s Box and REITs come to town; what a year.” Those trends and events were still around in 2019.

Steve Wynn is gone, although he and the Nevada Gaming Control Board continue to argue about whether the state of Nevada retains any authority. At issue is a fine and a permanent ban for Wynn that would label him unfit to hold a gaming license in Nevada. The company he founded, Wynn Resorts, has, meanwhile, moved on. The $2.6 billion Encore Boston Harbor opened in June, and while, to this point, it has neither met projections nor been quite as successful as the comparably priced MGM National Harbor in Maryland, it is improving each month and, under new leadership, is focusing on marketing and the local market. Encore increased the competitive pressure in the region. As a consequence; 2020 will be a very difficult year for the smaller and more remote properties as Encore, MGM National Harbor and Resorts World and other multi-billion-dollar properties up their marketing efforts.

Sports betting was even more significant in 2019 than it was in 2018. According to Legal Sports Report, $13.932 billion has been wagered on sports legally in the United States since June 2018. The win was $1.009 billion; that includes results from 10 states. Two additional states, New Mexico and Arkansas, have legal sports betting but do not report the numbers. This year, another 7 states legalized sports betting but have not yet begun taking bets, and nine more states will likely either legalize in 2020 or at least consider enabling legislation. In 2019, the sports narrative started to split into two parts: retail and online/mobile. That trend is likely to become even more pronounced in 2020 as the numbers from the cyberbooks begin to roll in. For now, New Jersey can serve as a good analytical model. Through the first 11 months of 2019, online revenues in New Jersey grew by 60 percent from 2018, and online sports handle represents 80 percent of the total handle. That trend is starting to be evident in the other states with online/mobile sports gambling, as well.

Real estate investment trusts were also as important in 2019 as 2018. The REIT rule – namely, that no big deal now gets done without a REIT component – certainly applied in 2019. The two gaming industry REITs, GLPI and VICI, own the real estate of 73 casinos in 26 states. Considering that GLPI was created in 2013 to hold the real estate assets of Penn National, and VICI was formed in 2017 for Caesars post-bankruptcy, it is not a only a new trend, but one that reached warp speed soon after liftoff. According to a recent CDC article by Howard Stutz, activist investor Jonathan Litt wants the two companies to merge. If that were to occur, it would be as significant as the Eldorado-Caesars merger was for operating companies. Over the next year, look for REITs to acquire the real estate of as many casinos as are willing to sell. There is a limit to the potential of REITs, but we have not reached that point yet.

These three trends – increased competition in the Northeast, the continued growth of online sports betting, and the impact of real estate investment trusts – will certainly continue. Next year should also see the completion of the Eldorado-Caesars merger and the sale of some of those operational assets to other gaming companies. In 2020, Illinois, Pennsylvania and Indiana will be building out to the new limits set by the recently passed expansion legislation, a process that will undoubtedly continue in 2021 and 22. Sports betting and video slot routes can ramp up reasonably quickly, but building new casinos will take several years. And the Chicago casino may take even longer, as it does not yet even have the necessary legislation to get the process started.

Sports betting will have the biggest impact on the gaming industry and on American culture, and it will continue to spread nationally in 2020. It is, in itself, creating separate trends: in the media coverage of gambling, the growth of sports gambling companies, and the now-widespread sponsorship agreements between gambling companies and sport franchises. Online and mobile betting will make the most significant contribution to the changing landscape; even states that did not initially authorize cyberbetting will be watching the revenue it generates and likely begin rethinking their stances at budget time. That is the oldest trend in the gaming industry; every year when states are struggling to find the funding for a state budget, they look to gaming. As long as there are any opportunities to expand, that trend will continue. That is it. Looking back I see increased competition, REITs and sports betting. Looking ahead, I see the same trends changing and evolving: subtly different, but essentially the same.

Looking to Xi’s New Macau

The citizens of Hong Kong have been protesting for six months. They are objecting to a law that would give China more extradition powers over Hong Kong residents. The government withdrew the bill, but the demonstrations continued. The citizens are now demanding a more democratic process and a full investigation of police activities during the protests. Hong Kong is one of the Special Administrative Regions (SAR) permitted by the mainland government; each is allowed a form of independence and a separate economic system. The protesters would like to be more independent and have less interference from China, although Chinese President Xi Jinping is rumored to have said, “Hong Kong doth protest too much, methinks.” He does not seem to be inclined to repeat the mistakes of Tiananmen Square in 1989, when the Chinese army, in reaction to pro-democracy demonstrations, killed and wounded thousands of protestors.

Instead, Xi has been quite cautious in Hong Kong, leaving the control of the demonstrations to local authorities. To his credit, Hong Kong has not erupted in the kind of violence that has plagued political demonstrations in other countries. The Hong Kong government has tightened some transportation restrictions, limited the locations available for demonstrations, and cancelled fireworks for New Year’s Eve, a most cruel punishment in Chinese culture. There has only been one overt act by the mainland Chinese Communist government: a Chinese army garrison stationed in Hong Kong did send troops, running in unison carrying brooms and trash bags, to clean up after a demonstration. It might have been a demonstration of power, but it remained only that. The local authorities have been accused of excessive force and allowing criminal gangs to bust heads and intimidate the protestors; to this point, however, no deaths have been reported. The official media continually portrays the protesters as an unsavory minority and claims to be supported by the vast majority of the citizens, but there have been no heavy-handed crackdowns by Chinese forces.

Neighboring Macau, a sister city in the SAR universe, proposed a similar extradition law. No demonstrations took place, the law was passed, and the citizens went quietly went about their lives, likely mildly annoyed at the disruptions Hong Kong is causing to their lives President Xi is scheduled to be in Macau from the 18th to the 20th of December for the 20th anniversary of Macau’s return to the Motherland. President Xi’s visit is significant both for him and for the citizens of Macau; over 650 journalists applied for media credentials to cover the president’s visit and the celebrations.

Upon landing, Xi praised Macau’s government for “fully and accurately” implementing the “one country, two systems” principle and for defending national security. Xi did not mention Hong Kong, and his praises of Macau are seen by political analysts as an implicit disapproval of Hong Kong for its demonstrations and the city’s failure to be Macau-like in its loyalty. In the ramp up to Xi’s visit, there have been dozens of articles in the local press, the English language press in China, and other outlets covering the region. Nearly all have heralded the success of the SAR in Macau and ignored Hong Kong.

The government and its semi-official press are good at ignoring anything that does not fit the official narrative. Recently, a senior Chinese diplomat, speaking in Geneva, made a presentation of all of the benefits of the SAR and the success of Macau. He spoke of the health of the population, the average annual income, the lack of unemployment and the millions of people who visit Macau each year. He neglected to indicate that the benefits came not from Macau’s relationship to China, but from the casino industry.

That is part of President Xi’s long-term plan. Xi wants gambling and casinos to become a smaller part of Macau. That has always been his goal. The last time Xi visited Macau, in 2014, he initiated an anti-corruption campaign that had a disastrous impact on the VIP segment of the market. On December 18th, Xi said that he will be joining with the city’s officials to draw the blueprint for Macau’s future development. He is proposing making Macau a financial center with its own stock exchange. That might have been a threat to protesters in Hong Kong, but probably not. Xi expects big things from Macau, and intends to make it more important in the general scheme of things. It is important in the development of the Great Bay Region, Belt and Road, and the central government’s plans to draw international tourists and their currency to China.

China has been working diligently to improve the infrastructure in Macau. The city has a new $1.3 billion light rail transit system that was ten years in the making, and a bridge to prosperity. China spent nine years and $19 billion to build a 34-mile-long bridge, tunnel and island complex to connect Hong Kong and Macau to the mainland by road. It is all part of the larger strategy. The area has a combined population of over 68 million people and a $1.5 trillion economy. Macau’s casinos are insignificant in the big picture; Xi wants Macau to contribute to China’s world growth and control strategy. Casinos are just a stepping stone. The casinos have been contributing by building bigger and more expensive resorts, with smaller casinos. The billions of dollars operators have spent on diversity efforts may help them with China in the short term. But in the long term, Xi’s grand vision for China and Macau may well render casinos unimportant, and, possibly, even undesirable.

Cyber Bowl Sunday and Dialing in Your Bets

It’s becoming increasing evident how significant online and mobile gambling is becoming in the gaming industry. Atlantic City is the leading case study, due to the fact that online casino gambling and sports betting have been operational there longer than in any other state. But as Pennsylvania and Indiana gear up, the trend will become even more obvious.

In Atlantic City, online gaming has saved the city’s casinos from the last decade’s drastic decline, most of which was caused by gaming expansion in neighboring states. It is uncertain how long online gambling will continue to grow in Atlantic City, but it is likely to be a long-term trend, regardless of what happens with the bricks and mortar casinos.

That trend in gaming mirrors the trend in retail sales. The litmus test for online shopping is the Thanksgiving weekend. Black Friday has traditionally been the day that kicks off the holiday shopping season and puts retail stores “in the black” for the year. Millions of people lined up outside their favorite store early in the morning, huddled in the cold, waiting for the doors to open and to be allowed to surge inside and capture the bargains. There were times in the not-too-distant past when it seemed as if the entire country stood still and every able-bodied consumer was out shopping on the Friday after Thanksgiving. This year, Black Friday was the busiest day for in-store activity with 84.2 million shoppers. Thanksgiving Day itself had 37.8 million consumers, and even Cyber Monday rated 21.8 million shoppers.

As busy as the stores may have been, the majority of the spending was not done in a brick-and-mortar store, it was online or by smartphone. This year, shoppers spent $4.2 billion online on Thanksgiving Day, $7.4 billion on Black Friday and $9.4 billion on Cyber Monday. It is part of the national trend in retail and has been for a while: the lion’s share of consumer spending is moving online. It is not a new trend, and it is not limited to retail. For example, online or on smartphones is where most people get their news, which is forcing traditional news outlets to restructure and reengineer their business models. The internet is also where most people go to plan a trip and book their travel, hotels and tours. There are very few businesses or services that have not been affected by the internet. There is a 21st century rule: whatever can be bought online will be bought online.

Until recently, that rule has not been applicable to casinos, since gaming regulations and federal law prohibited it. But that, too, is changing. The catalyst of the change was the Supreme Court ruling that opened the door to a state-by-state expansion of sports betting. And in some states, that means online and mobile wagering. Not all states that legalized sports betting have also legalized online wagering as well, but the states that have are seeing a dramatic shift to online and mobile. Mobile is fast becoming the most popular platform. In October, mobile sports betting handle accounted for 84 percent of total handle in New Jersey and 82 percent in Pennsylvania. In November, 63 percent of sports wagering in Indiana was done from a mobile platform.

But don’t expect a Cyber Monday of sports betting to sweep the nation. Online sports wagering will not become a national trend the way e-commerce has. Gambling, of course, is heavily regulated, far more so than retail, and those regulations vary from state to state. Some states have indicated, at this stage, that they will not authorize online betting even if they do permit sports wagering. However, that may change over time, as it is likely that the tax generating success in some states will entice other states to follow suit. Michigan and Illinois are in the process now. The numbers for Indiana, Pennsylvania and New Jersey show that it going to be a very successful activity for the operators and for the tax collectors. And we have not yet seen a Super Bowl, March Madness, NBA championship or World Series with mobile betting.

That will be the real test, either Super Bowl Sunday or March Madness. On a slightly smaller scale, they have the potential to become the equivalent of Cyber Monday or China’s Singles’ Day. Singles Day, the biggest shopping holiday in the world, was November 11; sales hit $30 billion for the day. That illustrates the underlying operative principle: the larger the audience, the greater the spending. And nothing delivers a larger audience than the internet and smart phones. They make the potential audience thousands, if not millions, of times larger than would be possible at any physical location. When a popular event, such a nationwide sale or a sports championship, is combined with a large population, it is a game changer. This year in Indiana, Pennsylvania and New Jersey, people anywhere in the state will be able to dial in their bets on the Super Bowl for the first time. The numbers could be staggering on Cyber Bowl Sunday.

Ameristar is Waiting and Watching, like Wynn

In my piece from November 15, Maddox and Wynn Resorts Know When to Hold’Em, I opined that Wynn Resorts was waiting for Las Vegas to stabilize after undergoing some dramatic changes in the casino marketplace.  The changes include major expansions of convention facilities, two new mega-resorts, the remodeling and rebranding of some of the older casinos, new casinos owners on the Strip, and the official arrival of the Las Vegas Raiders. In science that could easily be considered a chaotic environment; from those environments new things emerge, but it is difficult – in fact, nearly impossible – to accurately predict the emergent properties.  The chaos model is one way to think about Las Vegas over the next decade, but Las Vegas is not alone in currently having a complex, changing and unstable environment.  Many casino jurisdictions are entering a comparable situation.

Sports betting has become a major factor in destabilizing the gaming industry. Thirteen states have legal sports betting now, and another six will begin taking bets next year.  Not all of those states have a full-fledged casino industry, but they border states that do.  21st century sports betting is not your father’s Las Vegas sports book: it is run by a wide variety of operators and located wherever lobbyists and legislators want it, essentially.  Nevada seems to be alone in trying to keep a lid on sports betting; the new books that open are slated to be located in many places besides casinos, including bars, sports venues, and online.

The online version is likely to have the biggest impact on casinos, sports and society in general, although the nature of that impact is still uncertain.  It is unlikely that it will be visible for years.  The players include lotteries, English bookmakers, U. S. casino operators and Indian tribes. The UK companies are jumping in with both feet, investing in seemingly every opportunity that presents itself.  The casinos are forming partnerships with betting companies and leaving the larger capital investments to those companies. Not everyone will succeed or even survive.  It is much too early to even attempt a guess at the winners and losers in this game.  It seems certain that mobile sports betting will be popular, but what that means for traditional sports books or casinos in general remains a looming question.

The uncertain nature of sports betting is not much different in the states which have authorized new casinos.  For traditional casinos, every region and every state is nearly at the saturation point.  Sometime in the not too distant future there will be too many casinos in Pennsylvania, Illinois, Indiana and New Jersey.  Much like sports betting, it is too soon to predict how many casinos will be viable in those states in five years, but it is a sure bet it will be less than the number reached at the peak of build out.  Potential casino investors and developers are moving much more slowly now than in previous expansions. Both Illinois and Pennsylvania currently have licenses available for which there are no bidders.  Of course, there are two issues for would be licensees – not only the addition of more casinos in already crowded markets, but the VLTs spreading out across the landscape, as well. As casino operators in Illinois can attest, those VLTs cut into both traditional casino revenue streams and mobile sports betting. No traditional market study is going to be able to give careful investors all of the information necessary to make good investment or development decisions.

Also on the list of changes affecting the industry are the states that have authorized riverboat casinos to move onto land.  The first state to authorize the end of boating casinos was Mississippi.  After Hurricane Katrina hit the Gulf Coast, Mississippi passed legislation allowing casinos to move on land, under the premise that it was safer.  The casinos in Mississippi responded as quickly as they could.  In fact, it seemed to be a no brainer; riverboats are artificially confined locations that restrict the ability of casino operators to create optimal casino layouts. But subsequent onshore legislation has not had the desired result: a year after the authorization in Louisiana, the casinos are all still sitting on the water.

Indiana is experiencing a comparable trend. Well, sort of. One of the Hoosier State’s casinos, the Tropicana Evansville, has moved onto land; another, the former Horseshoe Southern Indiana, will reopen on land December 12 as Caesars Southern Indiana; a third will relocate as part of the move of an existing license from one location to another; and two are testing the waters with partial moves to an existing land-side pavilion.

Ameristar in East Chicago is one of those casinos.  Ameristar did not pick up lock, stock and barrel and set up camp on terra firma. Instead, it’s made small moves one step at a time.  Ameristar first built a high-limit room in its pavilion and then in October opened a sports book in the same location.  The book is doing so well that the casino is adding more slots and games to its pavilion.  A casino spokesperson said there was room for still more land-based expansion, but management would be waiting and watching to see how the new pavilion works.   With the sports book driving traffic, a small investment seems justified in the current environment.  Ameristar is right to be cautious; the situation is far from stable.

Across the state line, Illinois has not yet finished its buildout, which will include sports betting.  The state is expected to introduce it in 2020, and it will include the option for mobile wagering.   That is part of the reason that the sports book in Ameristar is doing so well right now: half of the handle for the state stems from its proximity to Illinois and the Chicago market.  That advantage will go away.  The bottom line is that the situation in Indiana is in flux, as it is in Pennsylvania, Illinois, New Jersey and Las Vegas.  It seems to me that the only prudent strategy at the moment is to wait and watch, much like Ameristar and Wynn Resorts are doing.

When Is an Indian Casino an Indian Casino?

Indian gaming is not easy to define these days, now that tribes are beginning to move into traditional commercial casino gaming.   The legal definition of Indian gaming itself has not changed: Indian gaming is a gaming enterprise authorized by the National Indian Gaming Regulatory Act of 1988 (NIGRA) and conducted under the conditions agreed upon by a tribe and state.  In the 31 years since 1988, Indian gaming has grown exponentially.  When the act passed, there were a few bingo halls and small casinos scattered across Indian country; today, 28 states have a total of 460 tribal casinos, and Indian gaming annually generates revenue in excess of $30 billion.  By comparison, in 2018 the casinos, VLTs and sports betting in traditional commercial casinos in 23 states generated $43 billion.

Indian gaming and commercial casino gaming are governed by a different set of laws and regulations, but within each state, the conditions are comparable.  The major difference between the two forms of gaming is the ownership.  Commercial casinos are owned by corporations or individuals. Tribal casinos are owned by Indian tribes.  Commercial casinos pay a state tax based on the gross gaming revenue and distribute their after-tax profits to their individual shareholders and owners, and the individuals pay state and federal taxes on that income.  Indian casinos do not pay a state tax as such, although the tribes pay the state and local governments a fee based on the casino revenue. Some tribes distribute a portion of the profits, also, in the form of a per capita payment. In those cases, tribal members pay federal taxes on their income.  However, the majority of the profits from Indian gaming go to fund tribal governments and to other tribal businesses.  Economic development was a requirement of the enabling legislation.  The NIGRA requires the funds to be used to promote tribal economic development and self-sufficiency and for tribal services and benefits.

In the early years of Indian gaming, most tribes used the money to help provide basic services; the casinos themselves were a source of employment in areas where unemployment was traditionally very high.  That employment, and the other economic activities surrounding the casino and tribal services, represented the extent of the economic development.  However, as the tribes accumulated cash, experience and economic vision, that began to change.  For example, the Tulalip Tribes of Washington started adding other businesses and eventually developed a retail “city.”  The Mohegan and Pequot tribes from Connecticut looked for opportunities with tribes in other states, offering financing, expertise and management services.  The Connecticut tribes also began to explore entering the commercial casino market, including most recently in Europe and Asia.

Currently, tribes from Alabama, Oklahoma, Connecticut, Florida, Mississippi and North Carolina are either bidding for casinos licenses in other states or have already purchased existing casinos.  Tribes have also explored other businesses, including banking, manufacturing, utilities, real estate and ranching.  But casino gaming remains a primary target when a tribe wishes to expand its revenue sources and strengthen its economy.  The tribe which has pushed the model the farthest is the Seminole Tribe of Florida.

The Seminole Tribe was one of the tribes with some form of limited gaming when NIGRA passed.  The Seminoles began adding games and amenities and building more updated casinos and new locations.  By 2007 the tribe was very sound financially and ready to take the next big step out of Florida, and out of Indian gaming.  That year, the tribe purchased Hard Rock International for $965 million.  As of July 2018, Hard Rock International had venues in 74 countries, including 185 cafes, 25 hotels, and 12 casinos.  Every time there is an opportunity for a new license or a viable casino for sale, the Seminoles are there with the Hard Rock brand, bidding on the opportunity.

The Indian gaming landscape has become increasingly confusing for me.  I divide my daily report into sections by segment: there is an international section, one for horse racing, national news, the top stories of the day, and Indian gaming.  The expansion of Indian tribes outside of the confines of the NIGRA thus presents me with the question, “Is this Indian gaming?”  For example, when the Poarch Creek Indians buy the Sands in Bethlehem, Pennsylvania, is that Indian gaming?  How about when the Poarch Creek offer the state of Alabama a billion dollars to allow them to offer Class III gaming at their Class II casinos and to add a couple more in key cities in the state – is that Indian gaming?  How about the tribes from Oklahoma that want a casino license in Arkansas, or the tribe from Wisconsin that wants a license in Illinois? Are either of those Indian gaming stories?

My position on the subject is changing. For most of the 17 years that I have been doing a daily report for CDC Gaming Reports, I have stuck to the law.  If a casino operated by an Indian tribe was authorized by the NIGRA and regulated by a tribal-state compact, it was Indian gaming.  If the Mohegan tribe bought a casino in Pennsylvania or the Seminole Tribe bought a casino in Atlantic City, it was not Indian gaming.  However, the latest round of gaming expansion in Indiana, Illinois, Massachusetts and Arkansas has changed my mind.  In each state, there is at least one tribe bidding for a license.  Those licenses will be governed by state law and regulations, not the NIGRA and a tribal-state compact.  On the other hand, the tribes seeking those opportunities have the wherewithal to do so because of Indian gaming. In the 31 years since the NIGRA passed, tribes have acquired the ability to finance, the expertise to operate, and the confidence to move out of state and compete against the industry’s biggest gaming corporations.

In fact, some tribes, like the Seminole, are indeed now among the gaming industry’s biggest players.  And that was intent of the act, to allow Indian tribes to conduct casino gaming as a way of becoming financially independent.  I can think of very few pieces of federal legislation that have been as successful in meeting the legislative goals as the Indian Gaming Regulatory Act.


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