New Mexico is known for its panoramic landscape of desert, forests and mountains stretching from horizon to horizon under an oceanic sky. When it comes to scenic wonder, the license plates are correct: New Mexico is, indeed, a Land of Enchantment.
But at least a few casino managers for the state’s American Indian tribes must view New Mexico more as a difficult and unforgiving place to do business.
Fifteen Native American tribes and pueblos operate 21 casinos, a bingo machine parlor and four travel plazas equipped with slot devices that in 2015 generated $830 million in gross gambling revenue, according to state officials.
Unfortunately for the indigenous communities dependent on casino revenue to fund services for their citizens, the gambling enterprises are competing in a state with less than 2.1 million residents.
Indian casinos are not only embroiled in a hotly competitive marketing war against each other, but they are confronted with five state-licensed racinos, each with up to 600 slot machines. A license for a sixth New Mexico racino is out for bids.
Then there’s the lottery. Sales last year reached $46 million.
New Mexico does have a robust tourism industry along heavily trafficked Interstates 25 and 40. But most of the approximately 33 million yearly visitors are not drawn to the casinos. They come for outdoor recreation, indigenous culture and the aforementioned scenery.
“It’s pretty stiff competition,” says Derrick Watchman, who stepped down last year as CEO of Navajo Nation Gaming Enterprises, operators of three New Mexico casinos and a fourth near Flagstaff, Arizona. “Is the New Mexico gaming market saturated? My contention is yes, it is.”
“What’s unfortunate about New Mexico is it only has a little over 2 million people and there are 12-14 major casino properties,” says Jerry Smith, president and CEO of Laguna Development Corporation (LDC), the economic arm of the Pueblo of Laguna.
“New Mexico in terms of Indian gaming is probably one of the most competitive gaming markets in the country. Being able to compete with each other in this market is very difficult. It is a major challenge.”
“The opportunity for growth in New Mexico is limited,” agrees Skip Sayre, chief of sales and marketing for LDC, which owns two Albuquerque casinos and a travel plaza.
LDC in August announced it is purchasing the Isle of Capri Casino Hotel in Lake Charles, Louisiana.
“If we want to show any significant growth, we’re going to have to look outside the state,” Sayre says. “That’s what we’ve been doing. The Lake Charles, Louisiana, acquisition is an example of that.”
State casino revenue rose slightly in 2015 after a 3.1 percent dip in revenues in 2014, says economist Alan Meister, author of the annual Indian Gaming Industry Report. But Meister is not optimistic there will be much significant growth anytime soon.
“After seeing declines in gaming revenue in 2013 and 2014, New Mexico Indian gaming saw a rebound in 2015,” Meister says. “However, slow growth is expected in the short term absent any new major developments or changes.”
State Budget Struggles
Tribal revenue-sharing payments to the state in 2016 dipped below $60 million for the first time since 2007, according to New Mexico Gaming Control Board figures. The drop was blamed on new and amended tribal-state regulatory compacts approved by the state legislature in 2015.
The agreements, which expire in 2037, call for a graduated revenue-sharing rate of 8 percent to 10.75 percent of the net machine win. Sixteen of the state’s 17 tribes signed the agreements. The Zuni and Jemez Pueblo have compacts but do not operate casinos.
The revenue-sharing rate under the new agreements dropped at least temporarily for several tribes, allowing them more flexibility in doing business in the state.
In an acknowledgment of the highly competitive gambling market, the compacts also allow tribes to discount free-play marketing expenditures in calculating net machine win. The machine win is used to calculate the revenue share paid to the state.
“The state was willing to be flexible in areas important to the tribes,” Jessica Hernandez, former counsel to Governor Susana Martinez, said in a 2015 interview.
Hernandez, who has since left the governor’s office to become city attorney in Albuquerque, said the compacts “address free play going forward” and “demonstrate how willing the state has been to consider and accept new compact terms that are important priorities for the tribes.”
“I think they were trying to stabilize the gaming landscape in New Mexico,” Smith says. “I think they achieved their objective.”
But the drop in revenue sharing comes at an inopportune time for a state that has been operating at a deficit for two years and faces additional shortfalls in fiscal 2017-18.
“We have both an economic problem and a revenue problem,” economist Jon Clark told the New Mexican newspaper.
The state, which depends heavily on oil and gas revenue, is primarily impacted by the volatility in crude oil prices.
Legal Battles Complicate Matters
The state’s share of revenue from the upscale Buffalo Thunder resort, Cities of Gold casino and two travel centers near Santa Fe ended in the second quarter of 2015, the result of a compact dispute with the Pueblo of Pojoaque, which owns the gambling operations. The case is winding its way through the federal courts.
Pojoaque is among New Mexico’s more lucrative operations, its net machine win totaling $60.6 million in the last year before it allowed the compact to expire, according to state figures.
But the pueblo encountered serious financial problems shortly after the resort opened in 2008, and the following year, it defaulted on repayment of $240 million in bonds used to build the facility. The debt was restructured in 2014 with about $84 million forgiven.
Meanwhile, the Fort Sill Apache Tribe in Oklahoma is suing the National Indian Gaming Commission for the right to conduct gambling on its ancestral lands in southern New Mexico.
Pojoaque contends revenue sharing in the compacts violates provisions of the Indian Gaming Regulatory Act. IGRA prohibits state taxation of casino revenues without tribes getting a benefit, usually statewide or regional exclusivity to operate gambling.
The U.S. Department of the Interior allowed the new and amended 2015 New Mexico agreements to go into effect, “deeming” them in compliance with federal law. In letters to Interior, the 16 tribes endorsed the deals.
“Every one of them had to write to Interior saying the agreement was in their best interests and economically more advantageous” than existing compacts, says a source in the governor’s office who requested anonymity.
But Kevin Washburn, then Interior assistant secretary for Indian affairs, said in letters to tribes and state officials that he was “troubled” by the rate of revenue sharing in such a highly competitive casino market.
Pojoaque, claiming the state was negotiating in bad faith, is seeking to use Interior secretarial procedures to negotiate a compact directly with the federal government. New Mexico has filed a lawsuit against Interior challenging the process. The case is awaiting a decision by the 10th Circuit Court of Appeals.
Fees normally paid to the state as revenue share under the expired Pojoaque compact—roughly 8 percent of the net machine win—are going to an escrow account pending the court ruling.
In a related matter, federal Judge James Browning in February ruled that Governor Martinez did not violate the law in instructing vendors to stop doing business with Pojoaque Pueblo’s gambling enterprises. That matter also is being appealed to the 10th Circuit. But in March, the casino turned off slot machines made by several major vendors as a result of this court order.
“The federal court reaffirmed what we’ve said from day one: Pojoaque Pueblo is operating as an illegal gambling enterprise,” Mike Lonergan, Governor Martinez’s press secretary, said in an email. “Pojoaque Pueblo continues to believe they can break the law and play by a different set of rules than other New Mexico tribes. In this ruling, the court recognized the state’s right to license and regulate non-tribal vendors.”
Pojoaque attorney Scott Crowell says he has a “high level of confidence” the pueblo will prevail in the 10th Circuit on the vendor issue as well as the compact negotiations dispute.
“IGRA doesn’t give the states a sledgehammer to force tribes into what are essentially illegal deals,” Crowell says, characterizing New Mexico compact revenue-sharing provisions as “an illegal tax.”
A Blip In New Business
Albuquerque area casino revenue grew roughly 3 percent last summer, Sayre says.
“The state is showing a little bit of improvement. There’s some single-digit growth going on,” he says. “Travel has been good on the interstates. Commercial traffic has been good. The lower fuel prices are putting more dollars into peoples’ pockets. We think we’re benefiting from that.”
But the uptick is largely due to a rise in discretionary income and not an increase in gamblers.
“There’s no population growth in New Mexico,” Sayre says. “In fact, the state is losing people.”
Competition for players is forcing casino operators to offer extensive free play coupons in an effort to draw customers, a practice that for many has been abused, eroding the bottom line.
While the state claims it took pains to negotiate a compact enabling tribes the flexibility to compete in a crowded market, at least one high-ranking official in the governor’s office does not believe Martinez can be held responsible for the native demographics.
“Geographically, there’s still more room for casinos. Most of the tribes are located in the northwest quadrant of the state,” the source says, with more than half New Mexico’s population in metropolitan Albuquerque area. “The racetracks, with two exceptions, are located far afield from the tribes.
“Intertribal competition is something the state cannot really negotiate into a compact.
“We tried hard to provide tribes as many options to attack new business as we could,” the source says. “That’s reflected by the fact all the tribes except Pojoaque accepted the new compacts.”
The Navajo Nation, which was late to legalize gambling on its sprawling, three-state reservation, noted a drop in business at tribal casinos in Colorado, Arizona, New Mexico and other areas that drew from the Navajo reservation.
“When NNGE (Navajo Nation Gaming Enterprise) was created in 2004 there was some reduction in the performance of the competition,” Watchman says. “Many Navajos were commuting to Cliff Castle, Skye City and Mountain Ute, casinos in proximity to Navajo.
“When gaming came to Navajo we kept that gaming dollar on Navajo land.”
The New Mexico compact allows Navajo to build a fourth casino on its To-Hajiilee Chapter near Albuquerque no sooner than 2021, at which time market saturation in the metropolitan area is expected to have eased.
The current competitive war between eight Albuquerque-area pueblos makes a major investment and debt load problematic.
“There’s really not enough growth in this market to justify a large casino and hotel,” Sayre says. “There’s certainly no question about that. It would just be cannibalizing what is already here.”
Tribes Turn To Non-Gaming Amenities
As is the case in highly competitive markets in the 27 other states with Indian casinos, New Mexico’s indigenous communities are taking steps to enhance their facilities with hotels, restaurants, retail shops and other non-gambling amenities.
“The New Mexico market is trying to diversify, from gaming and with gaming,” Watchman says.
Santa Ana Pueblo, owners of the upscale, non-gambling Hyatt Regency Tamaya Resort and Spa near Albuquerque, announced in February plans to build a $50 million hotel at its nearby Santa Ana Star Casino.
The pueblo in 2000 broke ground on what was supposed to be a seven-story, 288-room hotel, but it was never finished. The tribe did not disclose specifics about the new planned development.
“You need play and stay,” Watchman says. “That’s the footprint you need to maximize casino investment—the gaming floor, food and beverage and a hotel.”
But there’s no longer any guarantee in New Mexico that expansion will translate into additional customers.
“There was a time you built it and they would come,” Smith says. “There was a time you could grow market share very easily, by building a hotel or adding more machines on the floor. It didn’t take a whole lot of brainpower to add 100 machines and get more revenue.
“But because of the competition and what has been reported as negative population growth, the market is saturated.
“We have seen competitors build huge properties and not see any growth in revenues,” Smith says. “It doesn’t make any business sense to be investing major dollars in New Mexico. What you have to do is improve what you’ve got.”
Looking Beyond Gambling
With a history of natural resource management and defense contracting and more than three decades of economic diversification, much of it under LDC, Laguna Pueblo has the management and corporate expertise to meet the demands of a challenging gambling market.
“We’ve prepared for this. Now we’re executing our plan,” Smith says. “We have competent general managers and site teams to manage the existing operations,” he says of the tribe’s portfolio of casinos, hotels, travel plazas, retail stores and a luxury RV park.
“I also have a cadre of corporate leaders out there not only looking at potential investment opportunities and businesses, but also making sure we have the structure in place to be able to engage in those enterprises.”
Tribal businesses also include a technology company and a transmix processing plant to produce diesel fuel.
“We want to seek opportunities to invest in our core competencies, which are in the hospitality business: gaming, food and beverage, hotel, those kinds of things,” Sayre says.
The pueblo plans to expand distribution of its Laguna Burger and is seeking additional opportunities in commercial gambling, such as the Isle of Capri in Louisiana.
The pueblo also wants the state’s sixth racino license with plans to build a racetrack and casino in Clovis, in eastern New Mexico.
It’s a sparsely populated area on the Oklahoma border, with little competition.