A group of executives with the American Indian gambling industry who gathered last May for the UNLV Gaming & Hospitality Education Series at the Morongo Casino Resort & Spa near Palm Springs, California had a lot to crow about.
Virtually all the Southern California tribal gambling operations have been undergoing multimillion-dollar expansions with hotels, spas and other amenities, accelerating an ongoing evolution of tribal casinos to fully integrated resorts.
Meanwhile, new tribal facilities are being built in the Sacramento region by such prominent corporate partners as Hard Rock International and Caesar’s Entertainment. Boyd Gaming and Station Casinos also have regional projects on the drawing board.
The maturation of the tribal government casino industry—which consists of roughly 500 facilities in 29 states—is creating intense competition, both among tribal operations and commercial casinos.
San Diego County has 18 tribes, more than any county in the United States, generating an intense rivalry for customers between the casinos there and in neighboring Riverside and San Bernardino County.
Competition is also torrid in New Mexico, where 14 tribes and pueblos operate 21 casinos; Oklahoma, where 32 casino tribes operate about 140 facilities; and Connecticut, where the Mohegan and Mashantucket Pequot tribes compete with casinos in surrounding states.
Katherine Spilde, director of the San Diego State University Sycuan Institute on Tribal Gaming, suggests the highly competitive $9 billion California tribal casino industry is taking a toll on the Las Vegas gambling market, where annual visitation for five years has plateaued at 42 million.
As Southern California properties have expanded with upscale hotels, pools, spas and food and beverage facilities, the percentage of Las Vegas tourism from the region has declined dramatically, from 27 percent in 2017 to 19 percent last year, according to the Las Vegas Convention and Visitors Authority.
“All of your properties are either new or recently expanding,” Spilde told a panel of casino executives at the conference, sponsored by the University of Nevada, Las Vegas Harrah College of Hospitality and Global Gaming Business magazine.
“Las Vegas is wondering if this is a function of Southern California properties expanding and competing with them,” Spilde said. “Is that
really the strategy, to offer a Las Vegas-style experience here in Southern California?”
“That’s a good observation,” Morongo Resort COO John James replied. “As we’ve been adding these different amenities, it’s given the consumer more reason to say, ‘You know, why bother going to Las Vegas when everything I have is here?’
“We may not have the giant shows that Las Vegas has,” James said, “but I think—pound for pound—we offer equivalent experiences.”
San Manuel Casino in San Bernardino County—which is undergoing a $550 million expansion that includes a 450-room hotel—has lined Interstate 15 with billboards reminding Southern Californians returning from Las Vegas that there are plenty of casinos in their backyard.
“We want to get our message out to them, ‘Welcome home. There are some great options here,’” says Peter Arceo, San Manuel Casino’s general manager.
The growth of tribal resort casinos in the Golden State began in 2000 with 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 63 licensed casinos that in 2017 won roughly $9 billion, according to the National Indian Gaming Commission (NIGC) and other sources. That’s about a fourth of the $32.4 billion won by tribal casinos nationwide.
The notion that Southern California in 20 years would compete with the Las Vegas Strip for gamblers is impressive. Tribal casinos in central and northern California have long been blamed for a decline in the Reno gambling market.
But a similar scenario is taking place in Oklahoma, Connecticut, Arizona and other tribal gambling markets, where Indian casinos are evolving into fully integrated resorts, drawing visitors from nearby metropolitan areas.
“The current development in California tribal gaming is a continuation of the ongoing development of Indian gaming nationally in recent years,” says Alan Meister of Meister Economic Consulting, author of the Indian Gaming Industry Report.
“Here in California, though, it is definitely an acceleration of that development with so many existing properties undergoing or planning large expansions.”
“Tribes in San Diego County have to continue to improve and add amenities and stay fresh because they have so many competitors in their backyard,” says Dike Bacon, principal of HBG Design, a hospitality planning, architecture and interior design firm.
Although the statewide tribal markets are reaching saturation, growth continues. Greenfield projects are few and far between, but the industry has been rife with new hotels, spas, food and beverage offerings, entertainment and other non-gambling expansion.
The once double-digit growth of tribal casino revenue, which according to NIGC audits peaked in 2017 at $32.4 billion, has since 2006 largely leveled off, annually increasing at a rate of 2 percent to 6 percent. Revenues rose 3.9 percent in 2017, according to NIGC figures.
Meanwhile, revenue growth in California, Oklahoma, Washington, Connecticut and Wisconsin—five states that make up some 86 percent of tribal gambling revenues nationwide—ranged from 5 percent to 6 percent in 2016, Meister says.
“There’s definitely a maturing of the market, but by no means is there an overall saturation,” Meister says.
Reaching Beyond the Locals
“The most important non-gaming amenity has got to be the hotel,” Bacon says. “It increases stay. It increases play. The hotel is the best place to create a guest experience.”
Oklahoma gambling resorts with entertainment and food and beverage attractions are drawing visitors from the Dallas-Fort Worth corridor.
Meanwhile, the Mohegan and Mashantucket Pequot of Connecticut are partners in a proposed commercial casino in East Windsor, a project intended to head off competition from MGM’s Springfield, Massachusetts resort.
“A lot of our clients are capitalizing on good business conditions and building a lot of amenities,” Bacon says. “It’s pretty healthy out there. The gaming industry is pretty strong.”
Tribal casinos nationwide primarily market to local gamblers.
“Eighty-five percent of our business comes from a 25-mile radius,” says John Dinius, general manager of Sycuan Casino Resort near San Diego. “Just imagine if we could grow that to 30, 35 miles.”
Sycuan recently completed a $226 million expansion that included a 12-story hotel and 60,000 square feet of casino space.
The Sycuan project and expansions at other Southern California properties are intended to grow their markets, some to nearby metropolitan areas such as San Diego, Los Angeles and San Francisco.
“The evolution of the Southern California gaming market has gotten to the point where the current operators in the market are expanding their facilities to capture an additional gaming customer,” says Todd Simons, general manager of the Viejas Casino, which recently completed a 159-room luxury hotel.
“That’s not a customer necessarily in the market but within what we would call the drive market, which is within a 100-mile radius of the property. The goal is to create what we would call a staycation.”
Enterprise Rancheria, in partnership with Hard Rock International, a corporation owned by the Seminole Tribe of Florida, recently topped off an eight-story, $470 million gambling resort near Sacramento that’s expected to draw visitors from Tahoe and San Francisco.
“The brand is so powerful it will clearly attract people in both the local and the regional area,” says Mark Birtha, president of Hard Rock Sacramento.
Pretty much all the expansion in the Southern California region is hotels, pools, spas, bars, restaurants and other non-gaming amenities. The fact there has been little in the way of new slot machines and table games indicates the limited demand for more gambling.
The recent $285 million expansion at the Pechanga Resort and Casino in Temecula—which included a hotel tower, two-story luxury spa, ballroom and meeting space, a pool complex and two restaurants—solidifies the resort’s standing as the premiere tribal facility on the coast.
“There are expectations that need to be met,” says Jacob Mejia, vice president of public and external affairs for the Pechanga Development Corp. “We have a more discerning customer. We have a customer used to more luxurious experiences and amenities.”
As is the case in Las Vegas—where an increasing percentage of revenue is coming from off the casino floor—tribal casinos have also turned to non-gambling revenue. The percent of non-gambling revenue on the Las Vegas Strip has climbed in 35 years from below 40 percent to nearly 67 percent.
“The traditional idea of expanding the gaming floor has given way to creating a mix of gaming and non-gaming amenities,” says John Cannito, president and COO of the Penta Building Group.
Tribal government gambling, from its inception, has been an early adopter and utilizer of technology, whether it was bill validators or the advancement of Class II, server-based electronic devices.
“Tribes have always been on the cutting edge of technology,” says Gene Johnson, executive vice president of Victor Strategies.
That trend will likely continue as competition drives the increasing use of mobile technology in customer service.
“The number of slot attendants and people on the floor has diminished,” says Tom Soukup, vice president of system products for Konami Gaming.
“All of us, as operators, are facing compressed margins,” Dinius says. “We’re in a very mature market and a very competitive market.”
Customer Service Is Key
The current key to success is personal service, upscale amenities, smoke-free gambling and slots that allow for time on machine.
“At the end of the day the cash cow is the slots, the gaming experience,” Dinius says.
Before its recent expansion, Sycuan was luring players with personal service and loose machines.
“There were a number of amenities that we were lacking,” Dinius says. “We were smoke-filled. We had no hotel and very few food and beverage offerings.
“While you might not make a whole lot of profit (with those
amenities), it’s a tremendous opportunity to drive traffic to the casino.”
Unlike a Strip casino that counts on visitors two to four times a year, tribal operations look to bring in their regulars 20 times a month or more. That requires creating an entertaining experience and a pleasurable guest-employee relationship.
“I think the tribal properties have evolved themselves into a family type of experience,” James says. “That’s what consumers are looking for.”
“We’re kind of in the middle, offering Strip-like experiences yet getting to know our customers,” Birtha says. “That provides us with a competitive advantage.
“We get to know our guests. We have guests that are literally in our properties 20 or 30 days a month. They become part of our family. Our guests and our employees know each other.”
Doing Las Vegas on a Budget
Arceo says San Manuel has never considered competing with the entertainment offerings of the Las Vegas Strip, focusing instead on customer service and creating a “memorable experience so that when they consider gambling, they’ll stay local first.”
“Some people want great odds,” Arceo says. “Some people want the friendliest staff. Some people want a great meal.
“We are OK with the fact that when they consider entertainment they’ll perhaps choose somewhere else.”
Southern California operators contend they have an edge in competition with Strip properties that charge for parking and levy resort fees ranging from $36 to $44 a night. That’s on top of transportation costs.
“You either fly into Las Vegas or drive,” James says. “It’s either fuel costs or airline tickets. The room rates are not exactly cheap anymore. The average daily rate if you want a nice place is $199 to $249.
“By the time you’ve locked, loaded and landed in Las Vegas, $500 out of your wallet is already spent in getting there.”
Birtha recalls a recent celebratory evening on the Strip when he spent roughly $600 for a meal and a show.
“I had a really, really good time,” he recalls. “But to leave with the last thought of my experience on the property paying a $35 fee to park—after I just paid $500, $600—was disturbing.”
“Parking and resort fees could pay for another trip, literally,” Arceo says.
Customers to the San Manuel Casino are looking for a slot floor with new products and variety. A regular customer recently told Arceo he walked a Las Vegas casino and couldn’t find his favorite machine.
“I couldn’t wait to get back home,” he said.
SoCal Tribes Don’t Care About Sports Wagering
Executives with several American Indian casinos in California displayed muted enthusiasm for legalized sports betting at a recent conference at the Morongo Resort Casino in Cabazon, perhaps aware of the potential controversy the issue poses for their tribal governments.
“A lot more time and discussion is needed,” John Dinius, general manager of the Sycuan Casino Resort, told attendees at the May 21 University of Nevada, Las Vegas Gaming & Hospitality Education Series. “But it’s not going to drive a lot of revenue.
“I think it will drive a tremendous amount of traffic into the casino, as long as you can keep it exclusive to Native American properties.”
The state’s 61 casino tribes have expressed opposition to any attempt to amend the state constitution to extend sports betting to card rooms and racetracks.
An amendment to the constitution approved by voters in a 2000 ballot initiative gives California tribes exclusive rights to operate slot machines and banked and percentage games. Tribal-state compacts would need to be amended to allow tribes to offer sports betting should a constitutional amendment be approved to permit the activity.
Tribes are suing card rooms and state regulators, claiming the clubs are offering banked card games in violation of exclusivity provisions in the constitution and state compacts.
“It is a unique development,” said Peter Arceo, general manager of the San Manuel Casino, of the May 2018 U.S. Supreme Court decision to strike down a federal prohibition on sports betting, leaving it to the states to take up the issue.
“We’ve got a long way to go before we realize what the landscape is going to be like.”
Of 15 states that have legalized sports betting operations since the Supreme Court ruling, only New Mexico has a significant Indian casino gambling industry. While tribes in Mississippi and Montana recently legalized sports betting, wagering on college and professional sports remains illegal in virtually all the 29 states with tribal casinos.
Many tribes are leery of amending tribal-state compacts for fear of negatively impacting government revenue from their casino operations. Others fear that expanded gambling including sports betting would encroach on exclusivity provisions in the agreements.
“Whenever you see tribes involved, you’re going to see tribes saying, ‘Wait a second, take a little more time, let’s get a better understanding of it,’” Luiseño Victor Rocha, owner of the Pechanga.net news website, told conference attendees. “The states that don’t have tribal gaming are going to move a little faster.”
Vic Salerno, president of US Bookmaking, which manages sports wagering for the Santa Ana and Isleta Pueblos, says New Mexico tribes embraced the business because it did not require amending their compacts.
“Most of the tribal casinos are growing. They’re comfortable where they’re at and they don’t want to open up the compacts,” Salerno says.
“It’s the same with the risks involved in getting out from under the tents and building hotel rooms.”
The 14 New Mexico tribes are also locked in intense competition with 21 tribal casinos and travel plazas competing with five racetrack casinos—in a state with less than 2.1 million citizens.
Salerno predicts tribes will eventually realize sports betting is a valuable tool in generating traffic and revenue, first with retail sales on the property and later with mobile and account wagering.
“They need somebody like us to come in and teach them how it’s done,” Salerno said of US Bookmaking. “Once they learn, they’ll take it over themselves.”