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Daring Decision Pays Richly for Seneca Nation Casinos

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NIAGARA FALLS, N.Y. - Cyrus Schindler made one of the biggest gambles in
the dramatic history of Indian gaming, but it wasn't at the slots or
gambling tables of his Seneca Nation casinos.

As president of the Seneca Nation of Indians in 2002, he took a business
risk that speeded the opening of his tribe's first casino by nearly half a
year. Its success has cascaded through the Seneca gaming industry in what
could well prove to be a half-billion dollar swing in its fortunes and in
the Western New York economy. It could also show a new direction for Indian
gaming, in which the tribes reap a much larger share of its profits.

Schindler, now chairman of the Seneca Gaming Corporation, described the
business history of the newest and one of the most successful tribal casino
chains in an exclusive interview with Indian Country Today. It involved a
controversial high-interest loan from a Malaysian family, a daring decision
to start work on a building the tribe didn't yet formally own and a
construction company willing to work on credit. Above all, it was a tale of
a tribe foregoing the usual management contract and keeping total control
of the project.

A blunt and hearty former ironworker, Schindler talked with Indian
informality in the borrowed office of his Corporation's president, G.
Michael ("Mickey") Brown, who he emphasized was a Nation employee. A tinted
window overlooked the musical hum of the Seneca Niagara Casino gaming
floor, whose nearly 3,000 slot machines generate more than $500,000 in cash
a day.

The Senecas are shrewdly exploiting the cash flow here and at their newly
opened Seneca Allegany Casino on their southwestern New York territory,
while casino plans for tribes in the eastern part of the state continue to
move forward, although slowly. Their experience shows the immense advantage
of speed in opening gaming operations.

(New York State legislation in 2001 authorized six new tribal casinos,
three for the Senecas in the West and three in the Catskills and Hudson
River region north of New York City. Two existing casinos were operated by
the St. Regis Mohawks and the Oneida Indian Nation, owner of Four
Directions Media, which publishes Indian Country Today.)

The Senecas signed a compact with the state in August 2002 after stubbornly
excluding the issues of taxation and land claims settlements that have
caused political upheavals in the Mohawk talks. Every time the state
mentioned taxes, said tribal attorney Barry Brandon, "You would hear the
sound of five chairs pushing back from the table."

Schindler noted the irony of talking with Republican Gov. George Pataki
after leading tax protests just four years earlier. He told ICT "[Pataki]
says, 'I believe in your sovereignty.' And I say, 'Yeah, and I believe in
yours too.' I was just fighting him on the Thruway and was arrested, you
know, but I put my personal things aside."

The Senecas had raw politics on their side. Republicans had lost badly in
western New York in the 2000 Senate race, said Schindler, and Pataki
desperately wanted to show economically depressed Niagara Falls and Buffalo
that he was doing something for them. He also needed income to shore up a
state budget devastated by the 9/11 terrorist attacks. To sweeten a
"revenue sharing" deal amounting to an average 17 percent of the slot drop
over the 14-year life of the compact, he agreed to sell the tribe the
financially troubled Niagara Falls Convention Center and 12 surrounding
acres for one dollar.

A little-known provision in the 1990 Seneca Settlement Act made this
provision very attractive. The Congressional Act, which settled the
Salamanca lease crisis on the Allegany territory, set up a compensation
fund and provided that any land purchases made from it would convert to
Seneca trust territory in 60 days. The Senecas are hoarding this fund as
"golden dollars," and the chance to put 12 prime acres in trust for only
one of its super-dollars far outweighed the $21 million in outstanding
Convention Center bonds they also agreed to assume.

In spite of intense controversy over the terms, the tribe approved the
compact by 101 votes. The performance space in the middle of the Niagara
casino floor is named Club 101 after the vote margin.

After the public signing in the shadow of the Niagara Falls Convention
Center, the Senecas announced they would convert the building to their
first casino for a New Year's Eve opening. This ambitious four-month
timetable suddenly became more daunting when they discovered that the
Convention Center roof "was leaking like a sieve." The sealant could only
be applied above 50 degrees Fahrenheit, and as their staff scrambled
through almanacs to find the likely onset of the harsh upstate winter, they
discovered they would have to start work immediately or wait until spring.

But Interior Secretary Gale Norton had not yet approved the gaming compact,
nor had she formally taken the Convention Center land into trust. And
without the legal paperwork or a gaming track record, the tribe was getting
turned down by every bank it approached for financing. In spite of it all,
said Schindler, "we started, you know, and we started. We started."

This decision was only possible, Mickey Brown told ICT, because the Senecas
had decided to run the project themselves instead of turning to a
management company. Schindler said the nation didn't want to pay a 30
percent fee when they realized they could hire Brown and his experienced
network directly. Brown, who previously had set up the enormously
successful Foxwoods Casino Resort for the Mashantucket Pequots in
Connecticut, brought in another crucial contact, the Lim family of the
Genting Holdings casino company of Malaysia.

The patriarch of the family had backed Foxwoods when no one else would, and
his son K.T. negotiated an $80 million loan with the Senecas at 29 percent
interest. "It was a hard pill to swallow," said Schindler, reminding him of
the time he started a smoke shop by maxing out credit cards at 25 percent
interest.

But the loan kept the work going, which the Klewin construction company had
begun on faith. Schindler's ironworker background helped, too. As a project
supervisor, he had a reputation for building big bridges on budget and
deadline. As a union member, he said the casino would be union-built and
kept excellent relations with the construction trades council. Work
continued up to deadline, and is still going on in parts of the building,
but it opened on time - and the cash started pouring in.

With resources the Senecas already had combined with the cash flow, they
were able to reduce their reliance on the Malaysian loan, ultimately
drawing down only $53 million. As the slots kept chiming, the Corporation
poured the revenue back into projects that further increased business. It
built a parking garage that solved downtown congestion and produced an
immediate surge in attendance. And the cash flow financed the rapid
construction of the Seneca Allegany Casino in Salamanca, which opened
debt-free May 1 and is already producing revenue beyond projections.

Now the banks are knocking at the door for a cut of the business. The
Gaming Corporation recently floated a $300 million bond issue at one of the
lowest interest rates a gaming issue has ever reached, and it was
oversubscribed by four times the amount. The funds are financing
construction of a brand-new resort hotel project to be connected to the
Seneca-Niagara Casino and which broke ground May 18.

The success is producing problems of its own. The tribe has tried to
insulate the casinos from political pressure by setting up a Seneca Gaming
Corporation with three subsidiary corporations for each of the eventual
facilities, but this arms-length effort, said Schindler, had "pretty short
arms." Many in the tribe are asking where their share is, he said.

The tribe distributed per capita payments of $500 before Christmas last
year and will probably make one or two more before the November tribal
elections, said Seneca Nation President Rickey Armstrong Sr. But complaints
about economic disparities are beginning to echo in the local press.

Tribal leaders express their awareness of such issues and are working
quickly to ensure that resources are being directed to tribal programs that
will benefit its citizens. Housing is a primary concern as is elder and
child care, and over time (their first casino opened 14 months ago) they
said the benefits will become evident and highly visible.

Even so, the nation now has the tangible payoff of two humming casinos and
steadily increasing employment and the prospect of becoming an economic
power in western New York. Schindler said that even his critics are
impressed when they visit the Niagara casino. "They look around and after a
minute say, "Man, this looks like a real casino. The Seneca Nation did
this?"