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Casino Companies Win with Tribes

NEW YORK – As reported by BusinessWeek: "While MGM Mirage (MGG ) has raised its offer for Mandalay Resorts Group (MBG ), in a merger that would give MGM Mirage control of half the hotel rooms on the Las Vegas strip, other casino companies are looking outside Nevada for growth, frequently to Indian reservations.

"…Now, companies that manage tribal casinos have become one of the hottest plays on Wall Street. The reason: Traditional gaming markets are mature, and the cost of building a new resort now tops $2 billion. The number of Indian casinos, meanwhile, continues to soar. Last year, the nation's 377 tribal casinos generated $15.9 billion in revenues -- more than Las Vegas and Atlantic City combined. That number should climb as states such as California, New York, Connecticut, and Rhode Island continue to find gaming on tribal land more palatable than traditional casinos.

"…For casino companies, the Indian contracts can be lucrative. Longtime Las Vegas operator Station Casinos (STN ) lent the United Auburn Indian Community $50 million and guaranteed an additional $210 million in bank loans to build its Thunder Valley Casino outside Sacramento. Station, which gets a 24% cut of the casino's profits, is on track to earn $80 million in management fees -- roughly 20% of overall earnings -- from the property this year, according to Deutsche Bank casino analyst Marc Falcone.

"…It's also not an investment without risks. Politicians and community activists, who fear the Indian casinos will strain local resources without paying their share of taxes, have been opposing some new projects. Some states, most notably California, have also been asking tribes for a bigger cut of gaming revenue, something that could diminish the profitability of the management contracts. For now, however, the casino Establishment has found making peace with the Indians is a lot more profitable than waging war.

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