Tribal casinos cope with recession, lure Nevada-bound customers

Hard economic times are pinching California, driving the jobless rate up to 8.4 percent and forcing the state to consider major tax increases and draconian cuts in public services. The fiscal woe in Sacramento – the latest red-ink estimate is $40 billion through mid-2010 for the state — is rippling through the state workforce and the cities and counties, which also are cutting back.

But California’s tribal casinos, while not bullet-proof against the ravages of a recession, appear to be holding their own, although some construction and expansion has been put on hold and there have been scattered layoffs of casino workers. A new half-billion-dollar casino, the Red Hawk, opened earlier this month near Placerville, the latest in a series of casinos aimed at luring Northern California customers away from Reno and keeping them inside the state instead.

“People are coming in and, in some instances, coming in even greater numbers than before, but they just aren’t spending as much money,” said Doug Elmets, a spokesman for several tribal casinos, including Thunder Valley east of Sacramento. “People are staying closer to home and looking for closer entertainment options, in say San Diego or the Sacramento Valley, rather than traveling to Las Vegas.”

The keep-‘em-at-home strategy may be working: The latest numbers from the Nevada Gaming Commission through the third quarter of 2008 show total winnings in Washoe County, where Reno is the hub, down by 9.8 percent for the year. The decline reflects a 10 percent drop in table and game revenues and a 9.6 percent dip in the take from slot machines. The total taxable gross revenue was down 7.7 percent for the period January through September. In Clark County, home to Las Vegas and most of Nevada’s gambling, total winnings were down about 6.5 percent. Overall, the total winnings in Nevada were down about 6.6 percent.

Figures for the month of October were also grim for Nevada casinos, which won $475 million from gamblers during the month, a 26 percent decline from the year before. The state’s total decline during October was 22 percent less than October 2007.

The decline reflects the weakening economy nationally, with fewer people willing to spend the money to travel to Reno or Las Vegas to gamble. But it also reflects the strategy of California’s tribal casino operations to keep more gamblers on their home turf.

Statewide gaming revenues have increased five-fold in Nevada since the early 1980s, but “those for the Reno-Sparks area have not quite doubled over the same period,” wrote Professor David Schwartz of the University of Nevada at Las Vegas. Schwartz specializes in gaming issues.

“The numbers don’t lie: The growth of Indian gaming in California, Oregon and Washington has severely cut into Reno’s traditional market. The advent of California Indian gaming, a $7 billion-a-year business, may be the unkindest cut of all, since several Northern California tribal casinos have effectively marketed to former Reno-goers,” Schwartz wrote in the Las Vegas Business Press.

California, with the third-highest unemployment of any state in the nation, is poised to unveil a new state budget that is likely to divert money – again – from special tribe-supported funds to the General Fund in order to help balance the state’s books. The money, in part, is intended to mitigate the negative impacts on the state of gambling and provide help to tribes that don’t own casinos.

In comparison with the magnitude of the state’s budget problem, the diversions may be small, perhaps $100 million. But the tribes believe they have greater leverage over the way the money is used when it was placed in the Special Distribution Fund. With the money in the General Fund, it can be used for any purpose to balance the books and not limited to tribe-related issues.

California’s current budget uses $101 million of annual tribal payments to repay previous loans to the General Fund from the Traffic Congestion Relief Fund. The Legislature’s nonpartisan fiscal adviser, noting the state’s dire fiscal condition, has recommended that the repayments be halted and that the money be placed in the General Fund instead.

Some 21 casino-owning tribes contribute to the Special Distribution Fund, and 14 tribes – those tribes with newer or amended compacts – contribute to the General Fund. Meanwhile, about 70 California Indian tribes – some of whom own casinos – receive funds from the Revenue Sharing Trust Fund, which is financed by the major casino-owning tribes. The RSTF, however, has been under-funded by some $40 million, and the administration has proposed using General Fund money to make up the difference.  A better way, according to the Legislative Analyst, would be to tap the major casino-owning tribes for the money – a move that would retain $40 million for the strapped General Fund.

The tribes’ casino profits are not publicly disclosed, but experts estimate that some five-dozen tribal casinos in California take in between $5 billion and $8 billion. The tribes operate more than 58,000 slot machines at 55 locations throughout the state, according to the California Gambling Control Commission.

In tight budget times, discussion inevitably turns in Sacramento to tapping gaming revenues. There is little likelihood that general casino gambling would be legalized in California as it is in Nevada, even though legalization would bring in an estimated $1.5 billion to $2 billion annually to the state.

“Any estimate would have to be speculative, as nobody knows how attached Californians are to going to Tahoe or Las Vegas,” Schwartz noted.

“An interesting point to ponder is that California may gain from having the gambling center of North America so near its borders. Although Californians drop a large amount of money in the neighboring state, Nevada orders goods and services from California and California workers bring money or send remittances from Nevada. Nevada orders could never cancel out California spending alone, but when one considers the gambling activity of all the other visitors and all of the orders it generates, that could well be a net plus for California.”

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