Hot! Natives roll the dice on life after casino

National Post – Gambling seems like a tempting solution for many First Nations bands but it can also bring a world of trouble
Friday, February 15, 2008
Kevin Libin,

Chris Shade knew there was something about opening a casino on Blood Tribe land that didn’t make sense. The First Nation, west of Lethbridge, Alta., already had its share of heavy gamblers. Residents had come to refer to the route leading off the reserve as “Bingo Bridge,” because of its place in their minds as the way to nearby bingo halls. A study by the Alberta Gaming Research Institute on the reserve found respondents spending about $2,000 each on gambling, annually — four times the Canadian average — while half of those surveyed were classified as “high-risk gamblers.” Already poor, with 55% unemployment, the tribe’s council was battling widespread problems with gambling, drugs and alcohol.

A casino would create many desperately needed jobs, acknowledges Mr. Shade, who was chief of the reserve from 1996 until 2004, when debate over building a gambling resort reached its peak (he’s now CEO for the band’s health department). In fact, the Blood Tribe had been one of the first in Alberta to seek a provincial casino licence. Mr. Shade himself was one of the lead negotiators in hammering out the deal to allow native casinos in Alberta.

Witnessing the stunning success of the Foxwoods Casino Resort in the United States through the 1990s, Alberta’s First Nations and others across Canada began looking to the gambling industry as an economic opportunity on reserves, where few others exist. It is easy to see the temptation: Foxwoods is the largest, most profitable gambling spot in the world. Bankrolled by late Malaysian billionaire Lim Goh Tong, the five-million-square-foot complex (340,000 on the casino floor alone), which features 1,400 hotel rooms, nine restaurants, including a Hard Rock Café, a shopping mall and spa, has rained more than US$5-billion in gaming revenue down on the 700 members of the Connecticut’s Mashantucket Pequot tribe — once the poorest group in the state — since 1992, when it was transformed from a reservation bingo hall.

Since then, the glittering ivory and teal towers of Foxwoods have dazzled native bands across North America with the promise of their own gaming riches.

Frequently held back from fully developing their real estate by the constrictions of an outdated Indian Act, bands are forced, like the Bloods, to weigh the tricky choice between turning away one of the few economic opportunities available to them, and welcoming the risk of inflicting greater damage on some of their most troubled members.

Despite being an early champion of native gambling, after careful research and running the numbers, the Bloods rejected the idea for a casino in their community. Though located just 70 kilometres from 80,000 people in Lethbridge, two hours from Calgary and a short hop from the booming resort area around Pincher Creek, the band decided the profits, most of which would end up going to the province anyway, just weren’t enough to justify the potential for trouble.

Certainly, whatever wealth casinos promise to First Nations communities threaten greater social risks than something like a power mall or a natural gas well. But then, few communities are blessed with substantial rich resource deposits (and much of that wealth ends up in the hands of the federal government, anyway, which controls the mineral rights). Plus, energy and mineral projects come with a limited shelf life: the Enoch Cree Nation, near Edmonton, once 90% self-sustaining thanks to energy deposits, ran out of resources, and by 2003, had drained their trust funds. Finding themselves flat broke once again, they rolled the dice on gambling, opening Alberta’s first native casino in 2006.

Meanwhile, reserves located on what is often valuable real estate typically have problems getting industrial development projects off the ground.

Dr. Zoltán Grossman, a Native Studies professor at Washington’s Evergreen State College has compared the station of North American Indians today to that to the medieval Jews of Europe: banned from owning land, Jews were compelled to take up money lending to create wealth; locked out of the mainstream economy, aboriginals frequently consider a casino resort as one of the only ways to improve their modern lot.

There are, after all, dozens of bands that might be close enough to population centres, tourist or high-traffic areas, to make a casino destination seem halfway plausible, providing a foot in the door to complementary resort amenities, such as hotels or golf courses. Take, for example, the new Eagle River casino which the Alexis First Nation opened last month near the unlikely town of Whitecourt, Alta., home to just 10,000 people, but through which 15,000 drivers pass daily on Highway 43, which connects Edmonton to the oilpatch hub of Grand Prairie and on to Alaska.

“First Nations who are contemplating economic development say, ‘Well, why am I going to struggle and get an 11% royalty rate on resource revenues, and why am I going to beat my head against the wall and take years to get the proper clearance to put up a factory, when I can go to the province and I can negotiate a compact with them and initiate this whole gaming thing,'” says Yale Belanger, author of Gambling with the Future: The Evolution of Aboriginal Gaming in Canada, and a University of Lethbridge Native American studies professor.

Bands will even justify wagering on casinos that barely break even, if only to create jobs for the community (in Saskatchewan, 70% of the 1,700 employees in five First Nations casinos are aboriginal).

Among U.S. Indians, gambling advocates have taken to calling casinos the “new buffalo.” At last count, 224 American tribes had opened gaming operations, in 28 states, hauling in US$25-billion in 2006, more than double the take just five years earlier. In California alone, 51 tribes generate $4-billion in revenue and have created 40,000 jobs.

“They have this term down there called ‘BC’ and ‘AC’ — before casino and after casino,” says Clarence Louie, chief of British Columbia’s Osoyoos Indian Band, which is trying to build its own casino in the Okanagan but faces a provincial moratorium on new gaming enterprises.

“BC [Before Casino], they never had health dollars, other than facing the federal government’s underfunded grants, they never had the healthy economies they have now, they never had paved roads, which they’ve all got now, they never had police protection, which they have now.”

In Canada so far, 14 First Nations casinos have opened since 1996, when North Battleford’s Gold Eagle and Prince Albert’s Northern Lights pioneered the Canadian industry in Saskatchewan, inspired by the success of Foxwoods.

But while any First Nation would dream of matching the success of the Mashantucket Pequot, none have, or likely ever will, come close. Foxwoods has things going for it that no Canadian casino can match, notes Howard Morry, a partner at a Winnipeg law firm, Pitblado LLP, who works with First Nations groups on gaming issues.

“There are tens of millions of people within a three-hour drive,” just down the interstate from New York City, Boston, Hartford and Providence, says Mr. Morry. “And they have an exclusive [market]; their closest rival is Atlantic City.” Indeed, across the U.S., native bands have a near monopoly on gambling, since most states have tight restrictions on gambling off the reservation.

Compare that to Canada’s biggest First Nation casino, Casino Rama, located outside Orillia, Ont. It is within driving distance of a fraction of New York and New England’s population, and must compete with the provincial government’s own mighty Casino Niagara and Casino Windsor.

The take for the Rama reserve, at an estimated $500-million a year, is impressive, but pales to that at Foxwoods.

In addition, the province requires that the host band, the Chippewas of Rama Mnjikaning First Nation, share the take with Ontario’s 133 other bands.

Still, the Mnjikaning band is able to boast that the once impoverished reserve of about 500 now has just 10 members on social assistance, it has built a daycare, a seniors’ home, and created 3,000 jobs in its hotel, restaurants and entertainment facilities.

But Canada’s limited experience with native casinos has not always been so lucky; other gambling enterprises have struggled to simply stay afloat.

The Aseneskak Casino near The Pas, Man., reportedly lost nearly a million dollars its first year, and has turned only small profits since, while the Casino of the Rockies, at St. Eugene Mission Resort, in Cranbrook, B.C., was pressed into creditor protection in 2004, after just two years in operation.

“Obviously the casinos in good markets generate a lot of money. That’s a given,” says Calvin Helin, a B.C. based aboriginal lawyer and author.

“The trouble is, there aren’t that many good markets.”

In the United States, eight tribes account for 50% of reservation casino revenue, according to calculations from the Harvard Project on American Indian Economic Development.

There have also been some troubling episodes of poor management and fiscal irregularities in the native gaming business. In the United States, politicians and the media have criticized some of these casinos for enriching just a handful of tribe executives and their private-sector partners. “There is very limited trickle-down,” Mr. Helin says. Just a quarter of American tribes who run gaming enterprises pay dividends to their members — frequently around a few thousand dollars yearly (though chiefs sometimes choose to invest funds, instead, on community projects).

Canadian provinces take a significantly more involved role in reserve gambling than American states, including skimming off a larger cut of revenues. That, and the financial accounting it entails, has meant more political oversight, but it hasn’t entirely eliminated our own brand of financial mischief. When provincial officials pushed the Federation of Saskatchewan Indian Nations to open its casino books in 2000, it found that Dutch Lerat, the Chairman and CEO of the Saskatchewan Indian Gaming Authority, had helped himself to hundreds of thousands of dollars in unauthorized goodies, including trips to Europe on the Concorde, a Cadillac Escalade and a $75,000 trip for him and his wife to Australia. Even after Mr. Lerat stepped down, and the province promised more strenuous accounting procedures, a 2004 auditor general’s report found another $500,000 in questionable expenses on the books.

The Mnjikaning First Nation, meanwhile, has refused to publicly release yearly audits of where Casino Rama revenues are being spent — and whether it is, in fact, on the sorts of social and infrastructure programs for First Nations that the former NDP government required when it granted the gambling licence. The Mnjikaning have argued that the money belongs to them, not taxpayers, and they should be no more accountable to the public for how they spend it than any private business would.

It is a reasonable point. Unlike banks, or automakers, First Nation casinos across Canada are required by law to set aside the bulk of profits for on-reserve social programs, rather than distributing it as dividends or investing in expansion. For provincial politicians, ever mindful of the sometimes uncomfortable optics of profiting from gambling, those kinds of rules help in lending the native casinos a more wholesome patina, not unlike those lottery commercials that celebrate the playgrounds that so many losing scratch tickets have paid for. In Alberta, for example, the government allows First Nations casinos to set aside just 15% of earnings for the operator. The province takes double that amount while 55% must go to First Nation charities or social programs. In Saskatchewan, the province takes a quarter of casino income for itself, while requiring another quarter goes to the area’s community development corporation. The remainder gets divided up across all the province’s First Nations to spend on social services or infrastructure. In Ontario, First Nations are limited to spending casino profits on one of “Five Purposes” specified by the provincial government.

Non-native casino operators, it’s true, are bound, too, by provincial revenue-sharing formulas that can be every bit as restrictive and arbitrary (and they readily point out that First Nations casino operators get an even better deal than they do). But there is an important difference: those investors have no shortage of options for investing their capital into other, less regulated ventures, if they choose — a freedom that First Nations do not enjoy to nearly the same extent.

With every acre of reserve land owned by the Crown, First Nations cannot sell real estate. It also means they are unable to leverage what are often vast property holdings to fund development. Any projects First Nations attempt must be cleared through their fiduciaries in Ottawa, where bureaucratic bottlenecks and fears of accepting liability risks conspire to ensure that even the most basic endeavours — something as simple as building a supermarket on a reserve — remain tied up in red tape for years before the first shovel is put in the ground.

Yet, casinos bring an entirely new set of constraints for entrepreneurially minded First Nations, this time from the province. Openings are limited to the handful the province is willing to allow, regulators dictate the number of games casinos can offer, and even sorely needed expansions are often difficult to get approved. Generally, whether a casino ends up paying off for a First Nation comes down to whether its feasible within the numerous and strict regulatory limitations; whether, with a prescribed profit margin, and caps on growth, there’s enough of a return to make payroll and still offer investors a competitive return (most gaming nations strike management partnerships with experienced gaming operators), all while outweighing the social risks.

“If you said to me ‘What are the obstacles to developing casinos?’ my answer would be, ‘At this moment, I would rank provincial restrictions over market restrictions,'” Mr. Morry says. “If you had a free-for-all right now and said you could have as many First Nations casinos as you want in Canada, I have no doubt that we would see many, many more casinos.”

By contrast, in the United States, where natives have stronger gaming rights, states are generally restricted to taxing the revenues of Indian casinos, often at significantly higher rates than for other corporations, but states cannot tell tribes how they should operate and how to spend their own profits. If giving aboriginal communities a shot at developing of the gaming success of their American cousins is really the goal here, provinces might have better luck following that model.

The difficulty is that Canada’s premiers have no incentive to do anything of the sort. The welfare of First Nations is a federal responsibility, not theirs, and provinces have a limited tolerance for how much of their significant gambling revenues they’re prepared to share: it was the provinces that took First Nations to the Supreme Court, in 1996, challenging the “right” of Indian gambling, and won. Getting any premier to give native bands the freedom to open more casinos, not to mention the flexibility to use a larger share of their profits to reward investors and expand, will take some powerful persuasion from the prime minister. But doing exactly that could give dozens of bands the ability to build wealth and jobs in ways where they never did before.

Not that a freer market for aboriginal gaming is a panacea: Some bands, like the Bloods, are bound to decide that casinos aren’t a good fit for their communities. And even among those who do try, some are surely destined to fail.

“You would have what you have in any market: you’d have competition, you’d have some casinos going under, you’d have some that would become more successful, some marginal, and you’d have a survival of the fittest going on,” Mr. Morry predicts. On poorly governed First Nations, there would still exist the potential for the abuse of profits by band elites — something that could happen, mind you, with any industry, and so probably more an argument in favour of better governance on reserves than against any particular business.

All of these things have happened since American tribes started their own gambling experiment. And while it does “not contribute to positive outcomes in all cases,” according to a study released last year, led by Cornell University sociologist Angela Gonzales, casino gambling on American reservations brings “improvements in social and economic welfare for both the Indian and [local] non-Indian populations alike.” On measures of employment, income and poverty levels, the Cornell study found most gaming tribes doing significantly better. A 10-year review of gaming tribes by the Harvard Project on American Indian Economic Development in 2005 found also that conditions among gaming tribes had improved dramatically over non-gaming tribes. They exhibited less poverty, reduced dependency on public assistance, and higher levels of education.

“The results are remarkable,” wrote the study’s editors Jonathan Taylor and Joseph Kalt. In most every category, they noted, “Census-measured socio-economic improvement is greater for gaming reservations than for non-gaming reservations.”

Natives, after all, have carved out a niche in the casino business not because they see it as the best possible industry to be in, but given the restrictive development environments within which they currently exist, one of the few readily available to them. It hasn’t always worked out perfectly. But it should be no surprise when the evidence suggests that providing aboriginals with a chance to develop some jobs and a little prosperity through gambling delivers them more benefits than leaving them with no opportunity at all.

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