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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

California tribes clash over new slots

3 January 2008

CALIFORNIA -- California voters are being asked to approve an expansion to the nation's largest Indian gaming market.

But a pair of Indian tribes that own two of the state's largest gambling halls are among the opponents fighting the proposals that could add 17,000 slot machines to four existing Southern California casinos.

The opposition to the proposals has left Nevada's slot machine manufacturing industry on the sidelines and in a quandary.

Game makers would love to undertake efforts and help ensure passage of the four initiatives, which are part of the state's Feb. 5 presidential primary election ballot. The added growth would be a 27 percent expansion to the California market and more slot machines would translate into increased sales revenues for the companies.

But the equipment manufacturers are not interested in stepping into a fight that has some of their largest customers on opposite sides of the issue.

"We're trying to be Switzerland and work with everybody," said Bill Pfund, vice president of investor relations for WMS Industries, in reference to the country that proclaims neutrality. "All the manufacturers are pretty much in the same boat. We'll likely do nothing until after the election."

Bally Technologies Chief Operating Officer Gavin Isaacs said the slot maker is working with the tribes seeking to expand their slot floors only for preparation should the measures pass. Otherwise, the company is staying away from the political process.

"It's difficult to participate in something like this. We're just watching it closely," Isaacs said.

Chuck Brooke, senior vice president of government relations for International Game Technology, said the industry giant would normally take aggressive steps to support gambling expansion. Not this time. IGT is just monitoring the situation from afar.

"It's a matter of policy for IGT to stay out of tribal politics," Brooke said. "For now, we'll just watch and see how it all plays out."

The expansion would be a boon to the four tribes seeking to grow their businesses. California has 57 Indian casinos, with almost 63,000 slot machines. According to the 2007 Indian Gaming Industry Report that economist Alan Meister compiled, Indian casinos in California had gaming revenues of $7.7 billion in 2006, roughly 30 percent of $25.5 billion in revenues generated by tribes nationally.

Last summer, four tribes in Riverside and San Diego Counties -- Agua Caliente Band of Cahuilla Indians, which owns casinos in Palm Springs and Rancho Mirage; the Pechanga Band of Luiseno Indians, which has a gambling hall in Temecula; the Morongo Band of Mission Indians, which has a casino near Banning; and the Sycuan Band of the Kumeyaay Nation, operators of a casino in eastern San Diego -- signed 23-year gaming compacts with Gov. Arnold Schwarzenegger.

In exchange for the right to increase their slot machine allotments above the previously mandated 2,000 machines per casino, the tribes agreed to pay the state 15 percent to 25 percent of their profits from the additional games.

Proponents of the compacts said the new slot machines would generate $9 billion for the state over the next two decades. The governor's office predicted the expansion would bring the state an additional $539 million annually in revenues. A legislative analysis said the additional revenue would add up to only about $200 million annually.

Nevertheless, California's legislature approved the compacts in July. The state is facing a $10 billion budget deficit next year, and lawmakers will take what it can get.

But opposition to the compacts surfaced immediately.

UNITE-HERE, the national union representing hotel and restaurant workers, and Bay Meadows Land Co., which owns two of California's five thoroughbred horse-racing tracks, gathered enough signatures to qualify four ballot measures that required California residents to sign off on the expansion.

Leaders of the union, the parent organization of Las Vegas-based Culinary Local 226, believe the new compacts will impede worker organizing efforts. Racetrack officials say they have lost customers to Indian casinos and want to diminish expansion. Racetracks have also failed to get California lawmakers and voters to legalize slot machines at their facilities.

In December, the U.S. Department of the Interior approved the compacts, but opponents believe if the referendums are defeated, the decision will be overturned.

"There are no deals to review or approve until California's constitutionally guaranteed referendum process is completed with a statewide vote," anti-expansion spokesman Scott Macdonald told the Palm Springs Desert Sun.

One leader of the anti-casino expansion is Sahara co-owner Terry Fancher, the head of Bay Meadows. Through his racetracks, Bay Meadows near San Francisco and Hollywood Park in Los Angeles, Fancher has contributed $4.3 million of the $6.3 million raised by the anti-casino expansion campaign, according to Capitol Weekly, a Sacramento political newspaper.

Fancher, who was unavailable for comment, bought the Sahara through his Stockbridge Real Estate Funds in partnership with Los Angeles-based SBE Entertainment last year. The privately financed transaction was valued at between $300 million and $400 million.

The union and the racetracks' efforts were supported financially by two Indian tribes, the Pala Band of Mission Indians, which operates the Pala Casino in San Diego; and the United Auburn Indian Community, which owns the Thunder Valley Casino near Sacramento. The tribes each contributed $1 million to help qualify the ballot measures.

Those two tribes signed new gambling compacts with Schwarzenegger in 2004 that allowed them to expand their slot machine totals in exchange for payments to the state. But the tribes said those agreements are structured differently from the new compacts and they have to pay higher percentage fees.

Doug Elmets, a Sacramento-based political consultant who represents the Pala and Auburn tribes, said the issue was a matter of fairness. He said Pala and Thunder Valley have the ability to expand, but it would cost them more money than is called for under the new compacts. For Pala, the issue is also one of location; Pechanga and Pala are situated within a 30-minute drive from each other and compete for a similar customer base.

"We believe the compacts should uniform so that all tribes have the same competitive opportunities," Elmets said. "There is a lot of evidence that some of the marginal tribal casino operations will be damaged by these compacts. California is a very competitive casino environment and these compacts allow four tribes to control the market."

Al Lundeen, a spokesman for "No on the Unfair Gambling Deals," said he expects the Pala and Auburn tribes to continue their financial support as the election draws closer.

Political consultants working in support of the expansion believe their tribes will also pony up. Roger Salazar of Sacramento said the four tribes have already invested $20 million into the campaign. He said the Pala and Auburn tribes aren't happy with some of the provisions in their 2004 compacts and are just trying to halt any competition.

"They now have the feeling they didn't get the best deal and they don't want anyone else to get one either," Salazar said. "These are good deals for the state. It's not the only answer to the budget problems, but it helps."

Despite the challenges, Sabrina Lockhart, a spokeswoman for Schwarzenegger, said the Republican governor stands behind the new compacts, saying they are good for both the tribes and state. For now, the former actor isn't planning to campaign on behalf of the compacts, but that could change as Feb. 5 nears.

She said the governor is happy with both the 2004 and 2007 agreements.

"It's difficult to compare compacts," Lockhart said. "Each compact is unique, simply by the mere fact they were negotiated by sovereign entities."

With a month to go before the election, political consultants said the early presidential primaries could determine turnout. If the nominees for both parties are still undecided, California voters could have a strong turnout. The question remaining is whether voters will look beyond the presidential campaigns and focus on the ballot questions. In addition to the slot machine issue, voters also have a term limits matter to decide.

Harvey Englander, a Los Angeles-based political consultant who is not representing either side on the Indian gaming issue, said the tribes have historically spent the money necessary to communicate their message and turn out voters.

The difference this time is that different tribes will be spreading opposing messages.

"The Indians have always been successful in showing the benefits to the voters and the voters have always responded," Englander said. "Over the years, the tribes built a significant base of public approval, and, we're going to seem them control the airwaves once again."

Contact reporter Howard Stutz at hstutz@reviewjournal.com or (702) 477-3871.

***

INVESTORS INTERESTED IN CALIFORNIA SLOTS

Wall Street is watching the vote in California with interest.

In their financial forecasts, slot makers have not accounted for the potential of dividing up the sales revenues from 17,000 new slot machines in California. So approval could give investors a reason to take another look at possible returns from the gaming equipment manufacturing sector.

Deutsche Bank gaming analyst Bill Lerner anticipates voters will allow California casinos to expand their slot machine offerings. "We would be surprised if voters nullified the compacts given that they would only expand gaming at existing locations while at the same time providing significant tax dollars to the state from the incremental machines relative to none previously," Lerner said. A positive vote might result in 8,000 slot machines being shipped to California by the end of March, Lerner said.

Equipment makers already know they'll be able add up to 5,500 slots to one California casino next year. The San Manuel Band of Mission Indians saw their new compact approved in September and is not subject to the Feb. 5 ballot referendums.

The San Bernardino County tribe, which operates the San Manuel Casino in Highland, about 65 miles east of Los Angeles, had the least controversial deal. Its employees are represented by the Communication Workers of America, which kept UNITE-HERE from challenging the deal. Meanwhile, the new agreement could be worth up to $160 million annually to the state.

"They've negotiated a contract and their workers have a voice on the job and we think that's the most important thing," UNITE-HERE spokesman Jack Gribbon told the San Diego Union-Tribune in September.