Southern California casinos experience a hospitality arms race

For roughly two and a half years, the Pechanga Resort and Casino in Temecula, California has been operating at 100 percent occupancy—seven days a week, 52 weeks a year.

It mattered little whether you were a fatigued high roller or a weary penny slot player. If you decided at the last minute you wanted to spend the night in one of the upscale resort’s 542 rooms and suites and didn’t plan ahead, you may have ended up napping on a couch in the lobby.

“Not only have we been turning away players who wanted to stay the night; more importantly, we’ve been turning away rated players,” says Jacob Mejia, director of public affairs for the Pechanga Band of Luiseño Indians.

A few miles south, Bill Bembenek, chief executive officer of the Pala Casino Spa and Resort, also bemoans the fact he often hasn’t been able to offer one of his 507 rooms and suites to a premium player looking to spend the night.

“We are at an impasse in terms of handling the request for rooms—particularly on weekends, promotional nights and holidays—even from our best guests,” Bembenek says. “We simply haven’t been able to handle all of the requests for rooms at peak times.”

 

Rooms to Move

There soon will be a lot more room at the inns. Pechanga and Pala, combined, are building nearly 1,000 more guest rooms and suites.

The new accommodations are part of major expansion projects at the two resorts that include not only rooms, but spas, pools, entertainment facilities, meeting space and restaurants. Pechanga will open its hotel tower this month. Pala will complete its expansion in the spring of 2019.

“The expansion of our hotel will permit us to go deeper into our database to allow people who haven’t had the opportunity to spend time at Pala to stay overnight,” Bembenek says.

“We saw a demand,” says Jared Munoa, a member of the Pechanga Development Corporation (PDC), the business arm of the tribal government. “If large conventions came in midweek we just didn’t have the rooms. We really just couldn’t accommodate people.”

The multimillion-dollar projects illustrate the rapid growth of the tribal government gambling industry taking place throughout Southern California.

At least four other San Diego-area properties—Sycuan Casino, Viejas Casino & Resort, Barona Resort & Casino and Valley View Casino & Hotel, not counting Chumash Casino Resort, which completed an expansion one year ago—are building more than $1 billion worth of hotel towers and other amenities.

Not to be left off the list is Harrah’s Resort Southern California, owned by the Rincon Band of Luiseño Indians. Harrah’s in December opened SR76, a brewery and tasting room, the last component of a $160 million expansion that began in 2014 and included a hotel tower and spa.

The nation’s first tribally owned brewery is equipped with 15 stainless steel tanks capable of producing 3,000 kegs a year.

“Three thousand kegs is not small; it is reasonably large,” Jim Murguia, chairman of the Rincon Economic Development Corporation, told Valley Center Happenings.com.

SR76 stands for the winding state road that leads to the remote, upscale resort and casino.

Further north in San Bernardino County, the San Manuel Casino last month announced plans for a 500-room hotel, 4,000-seat entertainment venue, 2,200-stall parking structure and additional meeting space.

“As a leading tourism destination in the region, we’re often asked, ‘Why doesn’t San Manuel have a hotel?’” says Jerry Paresa, chief executive officer of the San Manuel Band of Mission Indians. “A hotel and other improvements will allow us to meet the growing needs of our guests, and bring additional economic benefits to the community.”

The explosive growth of tribal resorts in the Golden State comes nearly 18 years after Proposition 1A, a ballot initiative that amended the state constitution to give tribes the exclusive right to operate casino-style gambling on Indian lands.

Sixty-one tribes currently operate 62 licensed casinos that in 2016 won roughly $8.4 billion, according to the National Indian Gaming Commission and other sources.

California is by far the largest tribal casino market in the country, generating a fourth of the $31.2 billion won by Indian casinos nationwide.

 

Pent-Up Demand

Very little of the industry expansion is gambling product.

There were 71,102 slot machines in California in 2015, a 3 percent jump over the previous year, according to economist Alan Meister, author of the Indian Gaming Industry Report. The inventory of table games held steady at 1,969.

As is the case with Pechanga and Pala, customer demand at other California operations is not for more machines and blackjack and poker tables. Statewide expansion is largely with non-gaming amenities such as hotel rooms, pool and spa facilities, restaurants and entertainment options.

A similar trend has been occurring nationwide over the past decade as casino revenues have plateaued from the double-digit growth ignited with the passage of the Indian Gaming Regulatory Act (IGRA) of 1988.

“The current development in California tribal gaming is a continuation of the ongoing development of Indian gaming nationally in recent years,” Meister says. “Here in California, though, there is definitely an acceleration of that development with so many existing properties undergoing or planning large expansions.”

Casino operators contend much of the expansion is the result of an improved economy in the wake of the recession of 2008. But they also point to increased competition as a factor in prompting non-gambling development.

“As Pechanga took on the initiative to expand and draw new customers, I’m sure the other tribal casinos wanted to do the same to make sure they could keep hold of their customer base and not necessarily lose chips to Pechanga,” Munoa says.

San Diego has 18 tribal governments, more than any other U.S. county. The race for customers is fierce.

The competition became even more intense with the opening in October 2016 of Hollywood Casino Jamul on Highway 94, roughly 20 miles east of San Diego. The facility, managed by Penn National Gaming, has 1,700 slot machines and 40 tables. It does not have a hotel.

“The term ‘growth spurt’ might be taken to mean that the market is growing, but that isn’t necessarily the case if the casinos are just battling for market share or cannibalizing each other in some ways,” says an industry analyst who requested anonymity. “While I believe there is some growth, I think there is a lot of battling for market share, too.”

The economy is, indeed, improving.

“The unemployment rate is much lower than it was five years ago,” Bembenek says. “Construction has ramped up. There are more construction jobs.

“Things we were dealing with eight to 10 years ago—foreclosures and implosion of the real estate market—that has corrected itself to a great degree. We’re experiencing slow, stable, fundamentally solid growth.

“We’re also in a marketplace in Southern California—north of L.A. to the border with Mexico—with 20 million people. It’s a substantial market.

“There’s development occurring in Southern California not just in gaming. There’s more housing development than there was five years ago. It’s a desirable place to live. The population forecast probably is one of growth. It’s just a numbers game.”

Meanwhile, Todd Simons, general manager of Viejas Casino & Resort, says there is increased competition for a more discerning customer.

“I think it’s a little bit of both,” he says of the combination of market growth and increasing competition. “The market has a little growth in it. But competitively, it’s all about share capture: Who can deliver the experience to keep players coming back? You do that through service and the amenities you offer.”

Simons says the goal of expansion at Viejas is to create a “staycation” for potential drive-in customers from a 100-mile radius. Viejas recently remodeled and expanded its casino, and is constructing a 158-suite, adults-only hotel expansion.

John Dinius, general manager at the Sycuan Casino, agrees with Simons’ assessment. The San Diego County property has done all it can to capture the local player—providing a clean facility with liberal slot payouts—and is now looking to expand its market reach with a 12-story, 300-room hotel scheduled to open in 2019.

“We got into a position where we’ve done everything we can with our existing facility,” Dinius says of the 33-year-old casino. “We’re in a very mature market and a very competitive market.

“Player behavior and expectations have changed. Food and beverage has become a critical part of the overall casino experience.”

The $285 million expansion at Pechanga—which includes a two-story luxury spa, 70,000 square feet of ballroom and meeting space, a pool complex and two restaurants—solidifies the resort’s standing as the largest tribal facility on the coast.

“There are expectations that need to be met,” Mejia says. “We have a more discerning customer. We have a customer used to more luxurious experiences and amenities.”

 

The Timing is Telling

Many California tribes had already developed hotels and several had expansion projects on the drawing board when the recession struck in 2007.

“We thought it would be prudent to put the brakes on that project when the economy did what it did,” Dinius says of initial plans by the Sycuan Band of the Kumeyaay Nation to build a hotel tower.

Meanwhile, economically demanding tribal-state compacts negotiated by former Governor Arnold Schwarzenegger discouraged several tribes from making the investments needed to expand their facilities.

Schwarzenegger, who won a recall election on the pledge that he would make tribes “pay their fair share” of casino revenues to the state, served from 2003 to 2011.

“Those compacts were economically onerous,” says a tribal official who requested anonymity.

Schwarzenegger’s ploy of trading additional machines for a larger share of tribal gambling revenue was halted when the 9th Circuit Court of Appeals in Rincon v. Schwarzenegger ruled in 2010 that the negotiating tactic violated IGRA’s anti-tax provisions.

The high court ruling, combined with the improved economy and more favorable compacts negotiated between many of the more lucrative tribes and Governor Jerry Brown, are believed responsible for the sudden surge in resort development.

“Now we are at the point that the market is fully healed. There’s growth in the market again,” Bembenek says.

“So we’ve decided it’s time for us to add another important element, which is more hotel rooms. The driver for this expansion is the hotel rooms.”

“This is really the second broadest, deepest expansion since the passage of Proposition 1A, almost 20 years ago,” Mejia says. “I think we were due for this kind of significant reinvestment back into tribal gaming.

“I think what you’re seeing is the natural evolution of the tribal gaming industry to offer more resort-style amenities.”

Unlike the commercial casino industry, tribal governments look to their citizens—elected tribal councils, business committees and general membership—for permission to invest in community projects, including casino expansions.

“We’re not like some publicly traded corporation that says, ‘No big deal. We’ll take on the debt,’” says a tribal official who requested anonymity.

“It’s a government. It’s the people. They have to have confidence we’re making the right decision and this is the right time.”

The process can be lengthy.

“It can be,” Pechanga’s Munoa says. “There are going to be more dynamics involved.”

Unlike many California tribes, Pechanga did not wait for a new compact with Brown to break ground on the hotel project.

“This expansion isn’t something new to the tribe,” Munoa says. “We planned the expansion prior to the last recession. Because of the uptick in the economy and, again, the demands of our customers, we decided to take the next step.”

 

Millennials Not a Factor

With passage of Proposition 1A, several tribes sought to emulate Las Vegas in developing their resorts. The theory has since been abandoned as operators find the Southern California clientele unique to the region.

“I don’t think it was a mistake. I think it was a test,” Bembenek says of the early days. “But I think operators here now realize Las Vegas is its own unique environment.

“We have a different clientele, especially as time has gone by,” he says, and Las Vegas casinos shift their appeal to younger gamblers.

“Las Vegas has done what it’s always done, and they’re brilliant in doing it. They’ve reinvented themselves. They’ve continued to evolve. The average age for customers to Las Vegas continues to plummet.

“I think our customers in Southern California are probably very stable. It’s the stereotypical 55-year-old person who has some time; their kids have grown and they have disposable income because they’re later on in their careers.

“We’ve come to the conclusion that the millennial, in terms of our property, isn’t really our customer yet. We believe they will come eventually. Maybe in the next five to 10 years they will become our customer.”

For now, California resort casino operators are targeting those seeking more than gambling.

“What we’re seeing in Southern California, if you look at the expansions, is casinos continuing to grow into resorts,” Bembenek says. “Pala was a little bit ahead of its time when we built a hotel, spa and outdoor area more than a decade ago. Now we’re seeing our competitors follow that model.

“It makes sense to be as broad in your appeal as possible, so there’s something for everybody.”


EXPANSION CHECKLIST

Pechanga Resort & Casino

Gambling industry expansion in Southern California is largely centered in the greater San Diego region, including the quaint wine community of Temecula, home of the Pechanga Band of Luiseño Indians, operators of one of the nation’s largest and most upscale gambling resorts.

The Pechanga Resort and Casino this month will cut the ribbon on a $285 million expansion that will include a 568-room hotel tower, a two-story luxury spa, 70,000 square feet of additional meeting space, an outdoor recreational area and two new restaurants.

When completed, the resort will boast 13 restaurants, 1,090 rooms and suites, a 4.5-acre pool complex, a spa, additional event spaces, a golf course and a 200,000-square-foot casino floor with 4,500 slot machines.

“It’s a proud moment for us,” tribal Chairman Mark Macarro said at a May topping-off ceremony. “When this is complete, Pechanga will be the true leader in Indian gaming.”

“This development will complement our current offerings, enhance the resort experience for guests, and cement Pechanga Resort & Casino as the pre-eminent luxury gaming destination in California,” said Patrick Murphy, president of the Pechanga Development Corporation.

The project is expected to have a combined economic impact on the region of some $550 million, generating 560 permanent jobs.

 

Pala Casino Spa and Resort

Farther south, Pala Casino Spa and Resort in May 2019 will complete a $170 million project that will include a 348-room tower, a pool and entertainment complex and a 420-space parking garage.

The expansion, which is ongoing, includes a 12,000-square-foot casino expansion with 500 new slot machines—bringing the casino inventory to 2,500 machines—and additional table games.

There will also be new restaurants and a remodel of the existing 505-room hotel. Some restaurants will open next month.

“Our ability to exponentially expand and refresh Pala Casino Spa & Resort is a true testament to not only the growth of Pala, but also to the thriving economy and the continued strength of the gaming industry in California,” tribal Chairman Robert Smith said.

“This is a significant milestone for our tribe, and we look forward to continuing to exceed the expectations of our loyal patrons.”

 

Viejas Casino & Resort

Early next year is the target date for the opening of what the Viejas Band of Kumeyaay Indians calls a “resort within a resort” at its reservation hotel casino in Alpine, east of San Diego.

A 158-suite, adults-only hotel, pool, spa and dining facility comes on the heels of a 300-machine expansion and remodel of its casino floor.

“We run in the high-90 percent occupancy range,” General Manager Todd Simons says of the existing 237-room hotel. “There is a need to provide additional room capacity.”

 

Sycuan Casino

The Sycuan Casino near El Cajon is constructing a 12-story, 300-room hotel, scheduled for completion in 2019.

The tower is part of a $226 million development that also will include a large pool complex, 12,000-square-foot ballroom and additional bars and restaurants.

The 33-year-old casino currently is 90,000 square feet, with 2,000 slot machines, more than 40 gaming tables and a poker room. The facility also includes a concert venue and five restaurants.

“We strictly focus on the local gamer,” General Manager John Dinius says of the ability of the casino to compete without hotel rooms. “Ninety percent of our customers come from about a 25-mile radius or 25-minute drive time.

“We try to ensure they get sound time on device.”

Dinius doesn’t want to encroach on his loyal customer base, but he sees the need to cast a wider net throughout Southern California and, perhaps, Arizona.

“I think there are a lot of possibilities with Arizona,” he says. “I know there are a lot of tribal properties out there. But it’s interesting to see the migration of Arizona license plates into San Diego in the summer months.”

 

Barona Resort & Casino

The Barona Band of Mission Indians has been “modestly” renovating and expanding its casino and 400-room resort amenities near Lakeside, according to the San Diego Union.

The expansion also includes a new entrance and additional restaurant offerings.

 

Valley View Casino

Valley View Casino & Hotel this fall announced a $50 million expansion which includes building a new entrance, adding more than 42,000 square feet to the casino floor and installing a new restaurant.

Work will begin in April 2018 and is expected to take a year to complete.

 

San Manuel Casino

The San Bernardino County casino announced in November it plans to build a 500-room hotel, a 4,000-seat entertainment venue and a 2,200-stall parking structure on 795,000 square feet of property adjacent to the existing casino. The project will also include an expanded casino and meeting space.

The project will be completed in two years.

 

Chumash Casino Resort

The Santa Ynez Band of Chumash Indians opened a $165 million expansion of its Chumash Casino Resort, located to the north of Los Angeles, near Santa Barbara. The project included 320 rooms and 55 suites, more food outlets, a new pool, expanded gaming floor, renovated spa and more.

Bill Peters, general manager of Chumash, says the tribe is very happy with the results.

“We’ve met or exceeded every yardstick we set during the planning stages,” he says. “It’s been a home run for us.”

 

Hollywood Casino Jamul

The new player on the block, Hollywood Casino Jamul, owned by the Jamul Indian Village and managed by Penn National Gaming, reportedly got off to a bit of a rocky start.

The casino, which opened in October 2016 with 1,700 slot machines and 40 table games, encountered difficulties working with county and local officials on traffic problems and only recently was able to secure a permanent liquor license.

There also have been reports of management upheavals.

“We are in the process of some new additions to our management team there, but don’t have any details to share at this time,” says Jeff Morris, director of public affairs.

Jamul Indian Village last year refinanced $460 million in debt, enabling the tribe to repay Penn $274 million in construction costs.

“We are continuing to see an improvement in the overall performance,” Morris says.

Author: Dave Palermo

Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law. He can be reached at dgpalermo1@gmail.com.