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Howard Stutz

Tribes That Worked to Bring Casinos to California Split Over New Compacts with State

26 April 2006

SAN DIEGO, California -- When more than 50 of California's American Indian tribes banded together in 1999 to sign the state's original casino gaming compacts with then-Gov. Gray Davis, it was viewed as a joint effort in order to bring economic prosperity to their struggling memberships.

Politics, however, has a way of dividing.

Fast-forward five years.

New California Gov. Arnold Schwarzenegger, opposed publicly by Indian tribes in his successful recall campaign in 2003 against Davis, wanted the lucrative casinos to kick in tax dollars to help choke off the state's ballooning budget deficit, estimated then at $15 billion.

In return, the Indian casinos wanted to add slot machines, eliminating the 2,000-machine limit called for in their agreements with the state. The tribes also wanted longer compacts and the right to keep slot machines out of California's card rooms and racetracks.

Alliances between the Indian tribes quickly dissolved over the issue.

Tribes operating smaller casinos weren't interested in adding games. Others said the state needed to live up to the original agreements signed with Davis and saw the move by Schwarzenegger, who was trying to pay back the Indian tribes for opposing his election, as heavy-handed.

Some of the tribes operating larger casinos that had room for expansion were willing to negotiate with Schwarzenegger.

"The tribes all have their own ideas on running their businesses," said Robert Smith, chairman of the Pala Band of Mission Indians, which operates the Pala Casino in Northern San Diego County.

"The Indian Gaming Act gave us all the right to have gaming, but everyone does it differently," Smith said. "Each tribe chooses its own destiny. I had a lot of friends in other tribes, but I'm not really sure if we're friends today."

Pala joined four other tribes in signing new gaming compacts with Schwarzenegger in June 2004. Collectively, the tribes kicked in $1 billion to the state's tax coffers and agreed to pay $200 million annually through 2030.

In return, the tribes each received a 10-year extension to their compacts and approval for an unlimited number of slot machines. The tribes agreed to pay increased licensing fees for all machines above the original 2,000-machine limit -- a token amount considering the expected revenue the additional machines would bring.

Pala, which had added a $125 million, 500-room hotel tower, convention space and spa in 2003, quickly grew to 2,250 slot machines. The casino also operates 85 gaming tables.

Smith, who has served as chairman of Pala's 700-person membership for 17 years, said the tribe is considering another casino expansion, but only to add more space allowing customers easier access around the 70,000-square-foot casino.

"We could add another 200 or 300 slot machines, but it's not something we're considering right now," Smith said. "We've always been a tribe to follow state law. As chairman, I've been through three governors and two presidents, so I've received a real political education."

Along with Pala, two other San Diego Indian tribes signed new compacts -- the Viejas Band of Kumeyaay Indians and the Pauma Band of Mission Indians.

The United Auburn Indian Community near Sacramento, whose Thunder Valley Casino is managed by Las Vegas-based Station Casinos, also signed the new compact. The tribe's casino grew to 2,722 slot machines.

Former Las Vegas casino executive Jerry Turk, who manages the Pala Casino for the tribe, said the 10-year extension to the compact was worth as much to the casino as the additional slot machines. Already six years into the original compact, Pala can operate safely, Turk said, while other tribes will have to go back to the bargaining table with the state much sooner.

"Everything moves along pretty fast," Turk said. "We didn't look at this as confrontational like some tribes might have. I don't know why other tribes did or did not negotiate new compacts. Pala had a philosophy to be cooperative."

With Schwarzenegger is seeking re-election this year, most California Indian gaming observers don't believe any more casinos will negotiate new compacts until after the election, waiting to see if the governor wins a new four-year term.

Compacts with tribes seeking to build new casinos in California are expected to fall under the language of new compacts. In San Diego, where nine tribes operate casinos, four more tribes are in the process of seeking state and federal approval for casinos.

Two other tribes that renegotiated new compacts are still looking to expand their gaming operations.

The Viejas Casino in southeastern San Diego County near Alpine is still operating with 2,000 slot machines in a 95,000-square-foot casino. The property is spending $18 million to add a wing onto the building.

The Pauma Casino, which is located in northern San Diego County near Harrah's Rincon, is still operating out of a temporary facility on a large plot of land surrounded by orange and avocado groves. The small, 35,000-square-foot casino has just 850 slot machines and 24 table games.

The Pauma tribe had signed management agreements at different times with Las Vegas casino companies. It's first deal with Caesars Entertainment fell apart when the company was purchased by Harrah's Entertainment last year. A subsequent agreement with the Hard Rock also ended.

An official with Pauma couldn't be reached for comment.

"We're not really sure what direction they're going in," said another San Diego casino executive who asked not to be named.

One tribe that knows its current direction is the Barona Band of Mission Indians, which operates the Barona Valley Ranch casino. The tribe chose not to negotiate a new compact with the governor.

Even though the Barona Valley Ranch could easily add more slot machines -- the tribe's 310,000-square-foot gaming space is almost double the size of the MGM Grand's gaming area -- tribal leaders are content with their business.

"We thought about doing it, but it just didn't work for us," Barona Tribe councilwoman Bonnie LaChappa said. "We thought it was better to just go with what we have. We have a talented (management team) that is always trying to find new ways to bring a better customer, not necessarily more customers, but better customers."

Barona markets to high-end gamblers who have six- and seven-figure incomes. Adding games could offset the volatility from that type of business.

"I'm not going to lie. Maybe we could used a few hundred more machines," LaChappa said. "But we're actually doing fine right now. More machines don't necessarily mean more money. We have a different mind set about what we do here. It's all about the customer and what makes them happy."