Tuesday, July 8, 2014
Tuesday, July 1, 2014
Tuesday, June 17, 2014
While he is in the process of negotiating a new gaming compact with the Seminole Tribe, Florida Governor Rick Scott has jumped into the contentious debate on whether Internet gaming should be legal. In this, the Governor has lined up with casino mogul Sheldon Adelson in outright opposition to a component of the gaming industry that has wide support and already is being legalized within several states.
The emergence of the Governor in this debate comes at a time when he is working to develop expanded gaming for the Seminoles, as well as preside over a major review and potential overhaul of his state’s gaming industry by the State Legislature. That the Governor does not envision state adoption of iGaming is clearly evidenced by his April 22 letter to the Chairmen and Ranking Members of the House and Senate Judiciary Committees on Capitol Hill urging legislation that would reverse a Department of Justice ruling that the Federal Wire Act does not prohibit intrastate Internet gaming. This ruling reversed official federal policy on the subject, and several states are now allowing Internet gaming within their borders.
Governor Scott’s letter warned that iGaming will allow the “invasion” of gaming into “the homes of every American family, and be piped into our dens, our living rooms, our workplaces, and even our kids’ bedrooms and dorm rooms,” and called for Congressional “clarification” of the Wire Act to prohibit all iGaming within the United States. Copies of the letter were sent to the Senate and House leadership of both political parties.
While there is other public opposition to Internet gaming, development of this segment of the industry continues. Internet gaming is available throughout Europe and has been authorized in New Jersey, Delaware, and Nevada. Authorizing legislation is currently being considered in a number of other states. In a recent assessment, GamblingCompliance.com estimates that 10 states may legalize online wagering this year.
It is not surprising that the Indian gaming industry wants to pursue iGaming given its successful development of land-based casinos. To this point, the growth of tribal gaming has far surpassed anything envisioned when the Indian Gaming Regulatory Act became law in 1988. At this time, recognized tribes operate 450 casinos in 28 states, and they generate in excess of $28 billion annually. The scope of Indian gaming compares favorably to commercial gaming, which generates some $34 billion. Forty-four states have state lotteries, and they generate revenues of more than $17 billion. Rightly or wrongly, tribes feel that they already have the casino management experience and available funds to pursue and operate iGaming.
In short, many tribes are actively exploring online options, although it appears that the most sophisticated effort is being made by the politically powerful California tribal gaming industry. Although there have been setbacks in this effort due to the early departure of several powerful members of the state legislature, the matter is being actively debated in Sacramento, and pressure is building to enact legislation before the 2014 session is over. Effectively, this means by the end of August.
At least two California tribes – Santa Ysabel and Alturas – are indicating that they are prepared to begin online gaming immediately rather than await legislation. Both are proposing gaming websites that would take wagers from off-reservation players, claiming that they already have the legal authority to do so. Alturas has entered into a partnership with Great Luck, LLC and seems poised to commence operations and contest any legal challenges that arise. The only obstacle remaining to the Alturas project is a lack of a firm to process wagers. Another element that tribes are discussing would sidestep the question of whether off-reservation players could play by using on-reservation “proxy” players.
While the states are moving forward, there is activity on the federal level in the form of a bill that would ban interstate iGaming. Known as the “Restoration of America’s Wire Act,” the legislation has generated gaming industry efforts to block it. However, the powerful billionaire gaming mogul Sheldon Adelson is strongly supporting the bill and has persuaded a number of prominent members of Congress to join his cause. This legislation does present a serious threat to iGaming and should be of concern to the iGaming industry and the states that have enacted intrastate iGaming laws or will do so this year. Governor Scott’s April 22 letter should serve as something of a clarion call to all entities and parties with a stake in iGaming.
The growing interest in, and state legislation allowing, intrastate iGaming is gaining momentum, and tribes are now actively seeking to participate. While the iGaming “train” has left the station in several states, the fact remains that the iGaming industry needs to be ever vigilant to efforts such as the “Restoration of America’s Wire Act” bill or the train could be slowed or stopped.
Tuesday, June 10, 2014
The Michigan Gaming Control Board (“MGCB”) released the revenue and wagering tax data for April 2014 for the three Detroit, Michigan commercial casinos. The three Detroit commercial casinos posted a collective 6.5% decrease in gaming revenues compared to the same month in 2013. Aggregate gross gaming revenue for the Detroit commercial casinos in April also decreased by 10.1% compared to March, continuing a trend of decrease between March and April in prior years.
MGM Grand Detroit posted decreased gaming revenue results for April 2014 as compared to the same month in 2013, with gaming revenue decreasing by 4.1%. MGM Grand Detroit continued to maintain the largest market share among the three Detroit commercial casinos and had total gaming revenue in April 2014 of approximately $47 million.
MotorCity Casino had monthly gaming revenue exceeding $38.2 million, with revenues decreasing by 3.8% in April 2014 compared to April 2013. Greektown Casino had monthly gaming revenue of nearly $27.1 million, showing a 13.6% decrease in revenues for April 2014 compared to the same month in 2013.
Tuesday, June 3, 2014
In April, the office of the Auditor General of Ontario released a special report criticizing the Ontario Lottery and Gaming Corporation’s Modernization Plan as “overly ambitious” and “overly optimistic”.
The Modernization Plan was released to the public in March 2012 and projected significant additional financial gains ($4.6 billion in net profit to Ontario), capital investment ($3 billion in private-sector capital investment), and employment gains (2,300 gaming jobs and 4,000 new jobs in the hospitality, entertainment, and retail sectors) to the Ontario gaming industry. According to the Modernization Plan, these gains would be achieved by March 31, 2018.
OLG’s planned changes included:
- reconfiguring the casino landscape to become more customer focused (improve access to gaming);
- expanding private-sector delivery of lotteries and gaming;
- cancelling the slots at racetracks program;
- expanding the sale of lottery tickets;
- enhancing responsible gambling programming; and
- continuing the implementation of Internet gaming.
The Auditor General, following an investigation into OLG’s Modernization Plan, made the following highly critical observations:
1. The Modernization Plan had an overly ambitious timeline. The Modernization Plan included a number of changes that needed to occur within eighteen months of the release of the Modernization Plan in order to achieve net profit projections, including obtaining municipal approvals and the downsizing, restructuring, and privatization of OLG.
2. The Modernization Plan depended on and assumed municipal stakeholder agreement. The Modernization Plan assumed stakeholder agreement from municipalities with respect to the construction of casinos. However, Toronto and Ottawa, two major metropolitan areas, rejected OLG’s proposals.
3. The Modernization Plan’s financial projections were overly optimistic. As of March 2014, OLG had lowered its original $4.6 billion projection to $2.4 billion. The Auditor General estimates the actual revenue projection could be as low as $1.84 billion.
4. The Modernization Plan’s job and private sector capital investment projections were overstated. The Auditor General concluded that it is more likely that there will be a net loss of provincial gaming jobs instead of a net gain in jobs. The Auditor General also estimated that private-sector capital investment will be around $938 million, which is 71% lower than what was initially projected.
5. The cancellation of the Slots at Racetracks Program was considered in the Modernization Plan but was unexpected by the horse-racing industry. The OLG was aware that the cancellation of the Slots at Racetracks Program would have a significant impact on Ontario’s horse-racing industry. Prior to the cancellation of the Slots at Racetracks Program, the horse-racing industry was not given any indication that the program would be cancelled. Further, upon cancellation, there was no plan to provide transition and support funding for the industry despite the government’s knowledge that certain racetracks would no longer be viable once the Slots at Racetracks Program was cancelled.
6. Some stakeholders have been disproportionately impacted by the cancellation of the Slots at Racetracks Program. On the positive side, the Auditor General found that “procurement processes to date have been fair, open, and transparent,” “the revised municipal hosting fee is consistent from one municipality to the next, with no secret ‘one-off’ deals,” and “the province and OLG took steps prior to the release of the Modernization Plan to prevent and mitigate problem gambling and continue to do so.”
While OLG’s Modernization Plan may have been overly optimistic, potential issues with the implementation of the Modernization Plan were exacerbated by the mid-term resignation of former Ontario Premier Dalton McGuinty and the selection of his replacement, current Premier Kathleen Wynne.
Wynne’s vision for OLG differed from McGuinty’s. Within a few months of Wynne becoming premier, Wynne announced she would be reviewing “all the issues” around OLG’s Modernization Plan. Shortly thereafter, OLG’s Chair, Paul Godfrey (a strong advocate of a downtown Toronto casino) was fired, and OLG’s entire board of directors resigned. Wynne also ensured that there would be no special hosting deal for Toronto if a Toronto casino was built. This eliminated any chance of a Toronto casino being built in the foreseeable future.
The future of OLG’s Modernization Plan is unclear. However, some positive steps have been made, as OLG will be launching Internet gaming this year and appear to be going ahead with a number of requests for proposals relating to the operation of various land-based gaming sites.
Tuesday, April 15, 2014
After years of losses in court and an estimated $3 million in legal fees, the Glendale, Arizona City Council appeared to ease its opposition to the location of an Indian casino in Glendale within the Phoenix metropolitan area and voted to begin formal negotiations with the Tohono O’odham Nation regarding the proposed West Valley Resort and Casino, which is projected to bring $300 million to the financially troubled city.
“We want to have a casino and resort near Glendale. It’s going to bring people into Glendale who will spend money, and we desperately need that. We’re so broke,” Councilwoman Norma Alvarez told local reporters. The City’s series of legal challenges and defeats, outlined below, have monopolized the City Council’s time and burned through its legal budget, and after a series of positive informal negotiations, the Tribe and the City appear closer to finding common ground.
The Council also decided in a narrow 4-3 vote to withdraw its support for HR 1410, Arizona Congressman Trent Franks’ federal legislation introduced to block construction of any tribal casinos in the Phoenix area, including the Glendale project, until 2027 when the existing Arizona gaming compacts expire. The withdrawal of the City’s support for Franks’ bill may ensure that the bill does not become law.
Glendale Casino Timeline:
1960: Federal dam projects flood large parts of the Tohono O’odham Nation reservation near Tucson.
October 20, 1986: Congress enacts the Gila Bend Indian Reservation Lands Replacement Act of 1986 to compensate the Tribe for its loss of land. Section 6(d) of the Act required the Secretary to accept land into trust in any of three counties, including Maricopa County, home to Phoenix and Glendale, but not “within the corporate limits of any city or town”.
November 27, 2001: City of Glendale adopts Ordinance No. 2229 annexing unincorporated Maricopa County land completely surrounded by the city of Glendale.
May 28, 2002: After a landowner’s challenge of the annexation in Arizona court, the City subsequently passes Ordinance no. 2258 “abandoning” the annexation.
November 5, 2002: Arizona voters pass Proposition 202 authorizing the State to enter into Class III gaming compact renegotiations with Indian tribes.
January 24, 2003: Secretary of the Interior approves Tohono O’odham Class III gaming compact.
August 21, 2003: Tribe anonymously purchases 135 acres of the unincorporated land within Glendale city limits, a prime casino location with access to the large Phoenix market.
January 28, 2009: Tribe submits application to Bureau of Indian Affairs to acquire 134.88 acres of Tribe’s Glendale land into trust status.
January 29, 2009: Tribe publicly announces intention to build a casino at the Glendale site. Casino opponents charge that the Tribe had promised to limit off-reservation gaming in metropolitan areas in talks prior to Proposition 202 and the 2003 compact.
June 23, 2009: To prevent the pending trust acquisition, the City adopts Ordinance No. 2688 deeming portions of the Tribe’s land to be incorporated into Glendale as of 2001, arguing that its own reversal of the 2001 annexation never became final.
March 10, 2010: Superior Court of Maricopa County grants summary judgment to City of Glendale holding that the 2001 annexation was valid and effective.
March 12, 2010: Tribe amends its trust application to ask BIA to proceed with 53.54 acres and hold the application for the annexed portions of the land in abeyance until the annexation issue was resolved.
July 23, 2010: U.S. Assistant Secretary of the Interior – Indian Affairs issues decision to accept 53.54 acres into trust, determining the land met all the requirements of the Gila Bend Act as the land is not “within” the city limits of Glendale, but withholds decisions on eligibility of the land for gaming.
February 3, 2011: Arizona Court of Appeals reverses the March 10, 2010, grant of summary judgment in favor of Glendale, holding that the 2001 annexation never became final and orders the City to pay Tribe’s legal fees.
March 3, 2011: U.S. District Court for the District of Arizona grants summary judgment in favor of the United States in challenge brought by the City of Glendale and Gila River Indian Community, concluding that the Secretary of the Interior reasonably applied the Gila Bend Indian Reservation Lands Replacement Act when he accepted the Glendale land into trust.
September 11, 2012: A split panel of the U.S. Court of Appeals for the Ninth Circuit affirms the District Court’s March 3, 2011, order granting summary judgment to the United States in Gila River et al. v United States. The dissenting judge called the decision by the Secretary to accept the land “an extraordinary assertion of power.”
April 11, 2013: Congressman Franks introduces federal legislation, entitled “Keep the Promise Act of 2013,” prohibiting gaming on the Glendale land.
May 7, 2013: U.S. District Court for the District of Arizona rejects claims by State of Arizona that the Tribe’s 2002 gaming compacts prohibits new casinos in the Phoenix metropolitan area, rejecting the State’s claim that the Tribe misled voters in a ballot initiative allowing the compact and secretly planned to build in Glendale. The court orders additional briefing on the State’s claim that the Tribe breached an oral contract to not build the casino.
June 25, 2013: Arizona federal judge rules for the Tribe on the remaining breach of contract claims, holding that there was no agreement in the compact or enforceable oral agreement that the Tribe would not open a casino in the Phoenix metropolitan area.
July 9, 2013: Tohono O’odham Nation moves the Arizona federal court for an award of its attorney’s fees of over $4 million.
The support of the City and the defeat of HR 1410 in Congress would remove the most significant political hurdles for the Tribe. The prime location in Glendale and direct access to the large Phoenix market would guarantee success for the project. It would also guarantee fierce competition for the other tribal casinos already serving the lucrative Phoenix market.
Tuesday, April 8, 2014
Location, location, location is a well-established mantra in the real estate business. Tribal casinos are not exempt – particularly in California, where tribal casinos are a dominating influence in the state’s gaming industry (card rooms being the other major gaming industry).
The impact of the Graton Resort & Casino in Rohnert Park, California, on the River Rock Casino on the Dry Creek Rancheria is a case on point. The River Rock Casino is some six miles west of the Geyserville, California, exit on U.S. Highway 101 on a two-lane road and up a narrow driveway to the top of a hill overlooking the Alexander Valley wine country. While the setting offers sensational views, it is not easy to get to. However, for 12 years it was the only casino in its service area. As a result, its location was of little significance until the Graton casino opened last November.
The Alexander Valley is one of California’s most productive grape-producing valleys and the home of some of the finest wines produced anywhere in the world. The land owners long ago organized as the Alexander Valley Association (“AVA”), and the organization has been an important and effective voice for the valley landowners and their primary industry. When Dry Creek first announced its intentions to develop a casino, the AVA leadership recognized that the Rancheria location was troublesome for many reasons, the most important of which was potentially heavy traffic through the pastoral community of Geyserville and the difficult travel for both cars and large trucks serving the casino along the two-lane road and up the hill on which the Rancheria was located. The AVA suggested that the casino be located on Highway 101 and identified available off-reservation sites. The Tribe understandably wanted to develop its casino project within the boundaries of the Rancheria, and with that in mind, the project was developed on the Rancheria hill, which required the development of water and sewer service, as well as a major construction project to “stabilize” the hill itself so that the casino facilities could even be constructed. The “hill stabilization” project alone cost the Tribe and its investors an additional $15 million.
Geyserville is some 30 miles north of the Graton casino in Rohnert Park, meaning that the Graton casino is more convenient to people in the high population areas of Marin County and San Francisco to the south. The Graton casino and resort also offers many drinking and dining venues – including several restaurants opened by celebrity chefs from the Bay area, as well as a resort hotel and extensive gaming stations throughout the property. And patrons save at least 40 minutes’ drive time each way on the multi-lane U.S. Highway 101, which Graton directly abuts.
The impact of Graton on River Rock has been significant. It reinforces the need to include in long-range planning for casino development the three key ingredients for any project placement: “location, location, location”.
Prior to the Graton grand opening this past November, the Dry Creek Pomo enjoyed a 12-year monopoly on gaming in the immediate vicinity and had the closest Highway 101 gaming facility to Marin County and San Francisco. During that time, the casino was so prosperous that the Tribe was making per capita payments in amounts reported to be $600 monthly to each of its 640 tribal members, who previously had little economic opportunity. The revenues for 2010 (the last year for which financial data is available) were reported to be $124 million, and River Rock employed more than 600 people. The Tribe itself had more than 60 full-time employees.
However, glory days do not always last. Since the Graton casino opened, the River Rock revenues have declined. Tribal officials state that their revenues have dropped by 30 percent. It has been asserted that the actual drop is greater. In any event, more than 100 of River Rock’s employees have moved to Graton, and the tribal employment has fallen from 60 to a reported “handful” of staff members. Also, the per capita payments are now reported to be substantially lower than what they were only a few months ago.
Adding to the economic troubles facing the Tribe is the report that it has an outstanding debt of $150 million owed to bondholders.
The Dry Creek Pomo is now disenrolling members. One of the disenrolled Dry Creek members is the former Tribal Chair who oversaw the planning, construction, and development of River Rock. A recent notification of another round of disenrollments has been circulated, and among the next 75 to be expelled are the two daughters of that former Tribal Chair. Fewer tribal members typically equates to larger per capita payments to the remaining members. This is a pattern of conduct that has occurred within several tribes experiencing economic downturns in casino operations.
As already noted, the 12-year run was wildly successful for the casino and the Tribe. However, the inevitable development of competition has become reality. The development of Graton to the south on Highway 101 will soon be matched by a smaller tribal casino proposed for Cloverdale, which is only 9.5 miles north of Geyserville and also abutting Highway 101. Yesterday’s “great” location can quickly become today’s “challenging” location, and this underscores the need for careful consideration of potential future competition and the selection of the best available site for a casino development.