A Battle Begins in Earnest in Oregon and Washington

On Monday, April 24th, the Cowlitz Indian Tribe’s casino opened.  Impatient crowds chanted Open! Open! Open! during the formal ribbon cutting ceremony.  The crowds had been lining up for hours waiting for the doors to open and the state police reported an 8-mile long traffic jam of cars waiting to get into the property.  The casino that produced those crowds was not cheap to build; it cost over $500 million and was financed by the Mohegan Tribe of Connecticut.  The tribe and its backers expect 4.5 million people to visit the casino in the next twelve months.  The eager gamblers have been waiting for months, but the Cowlitz Tribe has waited much longer.  Getting to opening day took a long time. One of the tribal leaders said the process had taken 160 years; that is how long the tribe has been trying to develop a successful relationship with the federal government.

The Cowlitz Tribe claims a 12,000 year history in the area.  The tribe did have a legal relationship with the United States after 1906, but did not have a ratified treaty. The tribe received formal recognition 2000; in of 2015, its 152-acre reservation was taken into trust and construction on the casino began in December.  Even with recognition and a reservation, the Cowlitz still had to fight a series of legal battles.  The nearby town of La Center, the City of Vancouver, Clark County, the Confederated Tribes of the Grand Ronde and a group called “Citizens Against Reservation Shopping” filed a lawsuit to appeal putting the land into trust.  The suit claimed that because the tribe was not recognized and did not have a reservation in 1934, it was not eligible to establish a reservation for the purpose of operating a casino.  A federal judge disagreed.  The plaintiffs filed an appeal, but lost.  At that point, most of the litigants withdrew, but the citizen group persisted until the case ended when the Supreme Court refused to hear it.

The opponents based their claims on the question of the tribal legitimacy.  In their argument, the Cowlitz Tribe was just shopping for a place to put a casino and had no ancestral claim to the region. And besides that the casino would harm the card rooms in La Center and Grand Ronde’s Spirit Mountain casino across the border in Oregon.  The card rooms are hardly big business, but they are important to the budget of the town, contributing $3.1 million to the city annually.  Two of the city’s four card rooms have closed already and the other two are not optimistic about their futures.  La Center is worried about its ability to fund basic services without the card room cash.

The impact on the casinos in Oregon is expected to be much larger.  Spirit Mountain has projected a $100 million revenue loss due to the new casino.  Chinook Winds, operated by the Siletz Tribe of Oregon, will also be impacted by the Ilani Casino.  Chinook Winds and Spirit Mountain have shared the Portland market for over twenty years.  Spirit Mountain is the closest to Portland and thus generates more gaming revenues. But the loss to Chinook Winds will still be significant. Both tribes are heavily dependent on casino revenues. In addition to those two, the Oregon Lottery is also projecting a $100 million revenue loss, primarily from its VLTs.  That revenue loss will be very important to everyone in the state.  Next to income tax, the lottery is the second largest source of revenue for Oregon.  So, while the crowds outside of Ilani were chanting Open! the management teams in the card rooms, casinos and lottery were wiping away their tears and getting to work on their marketing plans.

 The result of those marketing plans will be a serious battle for Portland’s gamblers.  Portland has a population of 600,000 and is Oregon largest city, just a touch smaller that Washington’s largest city, Seattle.  A city of that size can support a considerable amount of gambling, but there is a limit and most observers believe the new casino will bring the total casino capacity to that limit.  It will be a long time before we can fully assess the impact of Ilani on the market.  But using the numbers projected by the lottery and Spirit Mountain, one might speculate that the market will have reached saturation, in fact surpassed it.  If that is true, the lottery and the existing casinos will be very hard pressed.  In the worst case scenario, the new casino will also suffer.  Like any casino, Ilani must generate enough cash to service its debt. That might be easy to do if there were less competition, or even if the competition were less well-heeled.  However, that is not the case.

At the end of a recent column I used the phrase, “the process of market adjustment will begin in earnest.”  I meant by it, that when a market reaches saturation a very painful process of market adjustment must take place.  Think about Atlantic City over the last ten years. At first the casinos just downsized, reducing the number of slot machines and employees and cutting any other expenses they could to match cash flow.  When that failed to solve the problem, some managed to find new buyers with more cash to invest, while others were forced to close.   Spirit Mountain and Chinook Winds have the cash to invest in improving their casinos to fight marketing wars.  The Oregon lottery can add more units and at the same time upgrade its product.  Unlike an Atlantic City casino that fails, they will not close their doors.

The only operations that are likely to fold are the two remaining card rooms in La Center.  They are just too small to fight the 500-pound gorilla; the others will fight back with whatever resources they can muster.  That effort will force Ilani to spend more on marketing and promotions thereby reducing the cash available for debt. It will be a vicious cycle; none of the opponents will surrender as a conventional casino might.  The situation will be worth watching because it will give us a glimpse of the battles that are coming in other jurisdictions.   As casino gaming continues to expand, most jurisdictions are nearing saturation.  At that point, when there is more casino capacity than a market can support, a war will ensue.  In those wars, casinos will fight each other in a very expensive battle for every gaming dollar.  As Atlantic City has demonstrated, not every casino will survive the fight.

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