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Let the games begin

Report tells the Indian gaming story

Pace of growth slows slightly in '06, future prospects remain strong

Gaming is still the most successful economic development initiative in Indian country. A recently released research report leaves little doubt that this will continue to be the case in the coming years.

The Indian gaming industry in 2006 sustained its year-over-year expansion, with revenue growth of 11 percent. While this marks a decline from the industry average of 14.6 percent growth between 1997 and 2006, one industry expert remains confident that expansion will endure.

Alan Meister is an economist with the Analysis Group, a Los Angeles-based financial consulting firm. His ''Indian Gaming Industry Report'' paints a thorough and upbeat picture for the future of tribal gaming.

''Amidst some future uncertainties, the outlook for Indian gaming as a whole remains positive,'' Meister wrote in the report. ''While proposed legislative and regulatory changes if enacted could slow the growth of Indian gaming somewhat, particularly with regards to new gaming land acquisitions and Class II gaming, they are not likely to stop the growth of established Class III gaming. And if renegotiated gaming compacts are ultimately ratified by the California State Legislature, there is likely to be sizeable growth on the horizon in California, and as a result for nationwide Indian gaming.''

While Indian gaming has improved the financial prospects of many tribes across the country, much of the industry's success remains concentrated in a relatively few places. California, with 54 gaming tribes operating 57 facilities, generated more than $7.7 billion, or 30.3 percent of the industry's total revenue. According to the report, the next most prolific Indian gaming state, Connecticut, produced just under $2.5 billion in 2006, 9.8 percent of the industry total.

Indeed, the top 10 states for Indian gaming revenue - California, Connecticut, Arizona, Oklahoma, Florida, Minnesota, Washington, Wisconsin, New York and Michigan - combined to produce almost 86 percent of the industry's financial yield.

Nebraska showed the most revenue growth in 2006 at 43.3 percent over 2005. Rounding out the top five are Alaska (42.4), Texas (32.5), Oregon (25.8) and Oklahoma (24.7). Only one state, Louisiana, experienced a decline in Indian gaming revenue.

Economic engine

The Indian gaming industry continues to be an economic engine not only for tribal governments, but also for their surrounding neighbors. Meister's report revealed that in 2006, the industry ''directly supported approximately 327,000 jobs and provided about $11.3 billion in wages in 2006.'' This compares to around 301,000 jobs with wages of $2.5 billion in 2005. Factoring in secondary employment and wages paid by contractors, suppliers and vendors, the industry generated some 703,000 jobs, $2.8 billion in wages, and $11.7 billion in payroll taxes for federal (which got 58.3 percent), state (24.2 percent) and local (17.5 percent) governments.

Non-Indian governments continued to get a piece of the Indian gaming pie in 2006. Revenue sharing in the form of direct payments to state and local governments totaled $1.2 billion, which breaks down into just over $1 billion for state governments, $136.2 million for local governments and $39.3 million to cover regulatory expenses.

In terms of its overall gaming market share, Indian gaming has gained ground on commercial casinos, with 42 percent of the market share versus 52 percent for commercial casinos and 6 percent for racinos. The competition between tribally owned and privately operated casinos remains vigorous. In Kansas, that competition is taking an interesting twist.

Competition

Three of the four gaming tribes in Kansas are considering an entry into the commercial arena to stave off potential competition. That's because recent legislation enacted in the Sunflower State permits private operators to run state-owned casinos in four counties - Ford and Wyandotte, and then either Cherokee or Crawford and either Sumner or Sedgwick counties. Voters in all but Sedgwick County have voted in favor of casinos, according to a June 27 Associated Press report.

The AP reported June 19 that the Prairie Band Potawatomi Nation has threatened litigation over the constitutionality of the new law, arguing that Kansas' constitution does not allow private operation of gaming facilities.

Meanwhile, the Kickapoo Tribe, the Sac and Fox Nation of Missouri in Kansas, and the Iowa Tribe of Kansas and Nebraska are all working on proposals to enter the commercial gaming sector. (Note: The AP referred to the third tribe as the ''Iowa Tribe of Kansas and Missouri.'')

According to Meister's report, the five Class III Indian casinos in Kansas generated $205 million in 2006. The four tribes operating these casinos paid a combined $1.5 million to Topeka to defray regulatory costs but made no direct revenue-sharing payments to the state.

The decision by the three Kansas tribes to enter the commercial casino market is noteworthy. Under the Indian Gaming Regulatory Act, they are restricted as to where they can site their casinos and how they can spend the proceeds, but under their compact, payments to the state are relatively minimal. Operating a commercial casino would mean greater tax payments to the state, but siting restrictions would be easier to overcome. And the use of proceeds would presumably not come under the same legal scrutiny - they would be income for a private business rather than governmental revenue.

Can the commercial casino operating model (i.e., a strictly for-profit business) serve tribal interests as well as IGRA can? Is the goal - keeping one or more of the four newly authorized casinos out of private hands - worth the investment?

Contractual agreements between tribal governments and commercial casino companies for facility management are common in Indian country. But arrangements by which an Indian tribe would operate a state-owned facility are not. What sovereignty questions will such a business deal raise?

The situation in Kansas bears watching.

The ''Indian Gaming Industry Report'' contains an incredible amount of gaming-related data - too much to be detailed here. To obtain a copy of the report, visit indiangamingreport.com.