Economist: Indian gaming
slowdown is ‘artificial’

Copyright © 2008
Gallup Independent
By Kathy Helms
Diné Bureau

WINDOW ROCK — A struggling economy is only partially to blame for the slow growth of Indian gaming in 2007, according to a national study released Tuesday.

Alan Meister, Ph.D., an economist and vice president of Analysis Group Inc. in Los Angeles, has been studying Indian gaming for nearly nine years and is author of the seventh edition of “Casino City’s Indian Gaming Industry Report.”

During his years of research Meister has worked for different aspects of the gaming industry: tribes, commercial gaming entities, states, and the National Indian Gaming Commission, the federal agency which regulates Indian gaming.

“In the last several years, and years that I’ve been doing the study, you could see that Indian gaming has had very healthy growth. It’s continually outdone commercial gaming,” Meister said Monday prior to the study’s release.

“That continued to be true this year, but Indian gaming had slower growth in 2007 and this is actually the third year in a row of slower growth,” he said. “It was about 15 percent growth in 2005; in 2006 it was 10 percent, and now it’s only 5 percent.”

A sluggish economy is the “natural, easy thing to point to,” he said, “but while I think it’s part of that, I think there is a more pervasive reason why Indian gaming has been slowing down, at least in the last couple years.”

Public policies which include legislations, regulations and gaming compacts — both existing and proposed — that have been designed to artificially restrict the supply of Indian gaming also have contributed. “By limiting the supply, I mean not allowing tribes to have certain types of games or not allowing them to have more games,” he said.

The study analyzes growth in 2007 during which 230 tribes operated 425 gaming facilities in 28 states. Indian gaming facilities generated 41 percent of all U.S. casino gaming revenue in 2007, for a total of $26.5 billion, a 5 percent increase over the $25.3 billion generated in 2006, Meister states in the report.

Despite its poor performance, Indian gaming growth still was more than double that of the commercial casino segment, which grew about 2 percent from $31.7 billion in 2006 to $32.2 billion in 2007.

The much smaller racetrack casino, or “racino” segment of the gaming industry, had a 43 percent growth rate in 2007, almost eight times greater than that of Indian gaming and more than 23 times greater than that of commercial casinos, the study states.

The racino segment made up about 8 percent of the gaming industry in 2007, yet, nationwide, its revenue grew from approximately $3.7 billion in 2006 to $5.2 billion in 2007.
Total jobs and wages at Indian gaming facilities also increased. Indian gaming facilities, including non-gaming operations such as hotels and restaurants, directly supported approximately 346,000 jobs and paid about $12 billion in wages in 2007, compared to 343,000 jobs and $11.2 billion in wages in 2006.

“What I’m seeing is the tribes developing their facilities and wanting to do more, but they’re not allowed to. Even tribes where they try to renegotiate with the states or try to get more machines in certain places, the state just refuses to negotiate with them and won’t give them more.”

Arizona tribes were limited in their number of machines, but after five years their compact allowed them an increase.

“That just happened in 2008,” Meister said. In 2006, Arizona ranked No. 3 in gaming revenue but was bumped to No. 4 in 2007, replaced by Oklahoma, which has 31 gaming tribes compared to 15 in Arizona and 13 in New Mexico.

“The fact is that the tribes that are all renegotiating these compacts are trying to get an increase in supply. Why? Not because they don’t need it. They’re doing it because they do need it. In California, there’s going to be a huge increase in the revenue sharing the tribes are willing to pay to do this. They don’t do that lightly,” he said.

“There are some of these states where there seems to be limitations on supply but yet the demand is there — California for sure, Washington, Arizona, even some smaller states like South Dakota and Montana are examples where there seems to be demand greater than supply,” he said.

Before the economic slowdown those states had sufficient consumer demand to expand their existing gaming operations, however, their gaming compacts largely restricted them from doing so, according to the study.

“So I think that what I’ve seen happening is a slowdown, but it’s sort of an artificial slowdown. It’s not all because of the economy, it’s not because the market’s saturated, there’s no more players, or they don’t want to play. It’s in some ways because you can only do so much with what you’ve got.”

Despite the economic downtrend, Meister said it is not the end of Indian gaming. “I think the slowdown is likely to continue a bit more until the economy recovers, which is going to happen. This is the way the economy is — up, down. It will pick up, it will eventually turn around.

“When it does, and when the tribes get the consumer confidence back and they’re able to develop their facilities to fulfill the maximum potential of their compacts, you’re going to see some good, sizable growth. You’re going to see Indian gaming rebound, and you’re going to see some stronger numbers, back to where they had been before this past year.”

Meister said the fact that the Navajo Nation is going to be able “to come on line and add a new facility, is increasing the supply and meeting some unmet demand.”

One trend he has observed in the last few years is a movement toward adding non-gaming amenities, “sort of this resort/destination-type casino,” Meister said. “They’re adding hotels, convention centers, entertainment, restaurants.

“If you offer them non-gaming amenities, you get people to come from farther distances, they stay longer, and they spend more money.” Total non-gaming revenue rose about 9 percent last year, from $2.9 billion in 2006 to $3.1 billion in 2007.

Information: Meister, (213) 896-4547.