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Keller George: On tribal enterprise diversification

The following is the text of a talk at the Symposium on Economic Diversification of Gaming Revenues, sponsored by the Harvard Project on American Indian Economic Development, held in Cambridge, Mass, Jan. 7:

It is a privilege and an honor to be a part of this economic diversification symposium. I must confess, however, that my real motive in agreeing to be on this panel was to learn the secrets of successful on-reservation diversification from my fellow panelists and the rest of you. In reality, I don't think there is much that I can teach any of you on that subject. The best I can do, I'm afraid, is share with you some of the insights the Oneida Nation has gained as it has pursued various economic development opportunities over the past 15 years.

The gaming revenues that have facilitated economic diversification for the Oneida Nation originated with a small bingo hall we opened on our reservation almost 20 years ago. Casino gaming was the logical extension of our successful bingo operation, so in 1993, after concluding a compact with the State of New York, we opened Turning Stone Casino. The profits we have realized from Turning Stone have allowed the Oneida Nation, for the first time in its history, to provide housing, tuition assistance, employment opportunities, medical care and other benefits to our members. Those profits also have generated the funds we need to pursue other economic development opportunities.

It never ceases to amaze me - as soon as you have a little bit of money to inves - how many people suddenly appear with ideas on how "solve your problem." A day does not go by without someone presenting our Nation with a new business proposal. How do we go about deciding whether such proposals are worth our time and money? The first question we ask ourselves is "Where do we want the Nation to be five years from now? Ten years from now?" And most importantly, what will produce the greatest benefit for future generations?

When evaluating the relative merits of new business opportunities, I try to bear in mind a story I once read about IBM and AT&T. In the early 1980s, IBM decided it was going to try to penetrate the long distance market. Accordingly, it invested hundreds of millions of dollars in a new satellite communications joint venture. At about the same time, AT&T decided it was going to become a player in the computer industry, investing significant sums of capital in hardware development. Both companies failed with these ventures for one simple reason: neither knew anything about the business of the other.

As the Oneida Nation has pursued new economic development opportunities, we have found that it is wise to build on what we know and what we do best. For example, shortly after we opened Turning Stone we were compelled to invent a new, cashless gaming machine that would allow our customers to use a "smart card" - like an ATM card - instead of coins or tokens. We were motivated to develop this technology because conventional slot machines are illegal in New York. And our efforts paid off; we were able to produce the most sophisticated cashless gaming system in the industry, which we market today through a wholly-owned subsidiary called Standing Stone Gaming.

Because gaming is fundamentally a form of entertainment, we have also expanded our casino enterprise so as to provide our customers with additional recreational options. We have added a showroom that brings nationally recognized performers to Central New York. We have built new meeting facilities and a conference center. And we have three first-class golf courses and are in the process of constructing two more. We have pursued these opportunities because they complement our core business and allow us to utilize our expertise in developing a destination resort community.

While we have generally focused on growing and diversifying our core businesses, for various political and business reasons, we have also pursued certain business ventures in areas in which we have very little expertise. For example, a few years ago we formed a new enterprise called Four Directions Media, which acquired Indian Country Today, the most widely read newspaper in Indian Country. We hope to realize a profit from the newspaper, although if you have ever been involved in the newspaper business you know that profitability does not come quickly.

Apart from the prospect of profitability, Indian Country Today provides us with a vehicle for communicating the views of all Indian nations to policy makers in Washington and elsewhere. And we discovered that it can open doors in other media-related industries. For example, a couple of years ago we formed Four Directions Entertainment, a project devoted to producing films about Native American subjects. The company's first production, "The World of American Indian Dance," will be aired on NBC this April. And our success with this project recently provided us with an opportunity to conclude a special distributorship arrangement with the Panasonic Corporation. This new strategic alliance will allow us to provide high-end video and multi-media equipment to all Indian nations. Coincidentally, much of this equipment can be utilized by casino resorts for both surveillance and entertainment purposes, bringing us, once again, back to our core business.

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In reality, the ingredients of a successful business in Indian Country are not much different from those that can be found in corporate America. However, as Indian nations, we confront several unique issues that most companies never have to face.

First, and foremost, we are governments. As such, we enjoy sovereign immunity. But if we abuse this special status, we run the risk of losing it, and we provide ammunition to our enemies who constantly argue that we are really businesses, not governments. Thus, with respect to our on-reservation businesses, our tribal governments need to provide many of the same protections for employees and customers that are found in corporate America. For example, we need to establish tribal claims commissions and judicial systems that will provide redress to those who suffer injury while on our lands. And we need to ensure that our employees are given the same basic rights and benefits they would receive from other employers.

One of the most politically sensitive issues in Indian country today is the right of Indian nations to decide if and when they will engage in collective bargaining with labor organizations. And while everyone in this room today would agree that Indian nations should not be forced to accept unions within their borders, any competent labor lawyer will tell you that the best way to avoid problems with organized labor is to treat your employees well.

A second question we confront when pursuing on-reservation economic development is what legal structure we should utilize for our new ventures. A new tribal business can be owned and operated directly by the tribe. Alternatively, it can be established as a separate legal entity, which can be chartered under either tribal or state law.

As a general rule, our government prefers to create separate legal entities for each new enterprise. This makes it easier for us to measure the economic success of the venture and to market its products and services to the public. And finally, for various business and legal reasons, it makes sense to keep new businesses separate from the tribal government.

If a tribe does elect to separately incorporate a new business venture, it must decide whether that enterprise should be chartered under state or tribal law. The resolution of this question should, in my opinion, ordinarily hinge on where the new venture will be conducting its business operations. If it will be an on-reservation project, then a tribal corporation or a tribal limited liability company should be used since wholly owned tribal entities typically enjoy many of the same attributes of sovereign immunity and non-taxability that are possessed by the tribe itself.

However, with respect to those commercial enterprises conducted off-reservation, a state-chartered entity may be preferable. If an Indian nation operates a business enterprise beyond the borders of its reservation - either in the name of the tribe or through a tribal corporation - and if that business asserts its immunity from state regulation and taxation, it will likely incur the wrath of both its competitors and the state government. While, legally, it may be able to get away with this, politically it is unwise for a tribe to try to exploit its sovereign immunity beyond the borders of its reservation in this fashion.

While we are on the subject of taxation, we should remember that our reservation-based retail businesses are often criticized because they do not collect and remit state and local sales taxes. I am not suggesting that we should collect or pay the taxes of another government. But we can effectively mute that criticism if we impose our own taxes and use those revenues exclusively for governmental purposes.

And finally, on-reservation diversification can be enhanced through investments made by unrelated corporations. We need to do a better job of selling corporate America on the benefits of establishing retail outlets and manufacturing facilities in Indian country. Accelerated depreciation, employment tax credits and immunity from property taxation are just some of the incentives available to a non-Indian company that conducts business on a reservation. We need to do a better job of educating corporate America concerning these advantages, and the United States Congress needs to create additional incentives for corporate America to invest in Indian country.

In sum, my message today is quite simple: (1) the successful ingredients of on-reservation diversification are no different for us than they are for non-natives - stick to what you do best and use that as a foundation for further development, and (2) give careful attention to legal and tax considerations when you establish and structure new economic enterprises on your reservation. If you are guided by those two principles - and if you have little bit of luck - you should succeed. Thank you.