Analyst says $1.3 billion acquisition part of “next frontier” of tribes pursuing commercial licenses
When the Alabama-based Poarch Band of Creek Indians announced their acquisition of the Sands Casino Resort in Bethlehem for $1.3 billion in March, it raised a lot of questions and headlines, both in Pennsylvania and around the country, about who this tribe is and whether or not it will be capable of managing a commercial casino located only about 80 miles from New York City.
It also highlighted a trend that Gene Johnson, executive vice president of Victor-Strategies, which provides gaming advisory services with a focus on Indian country, said will grow in the future: the pursuit of commercial licenses by tribes.
In March 2017, the Seminole Tribe of Florida, along with other partners, announced the purchase, through its Hard Rock International brand, of the old Trump Taj Mahal in Atlantic City, which had been closed since October 2016, and its intention to convert the property to a Hard Rock. After more than $500 million worth of renovation, the new Hard Rock Hotel & Casino Atlantic City is slated to open June 28th.
The Mohegan Tribe of Connecticut, along with its partners, is expected to start construction later this year on a resort in South Korea for a planned opening in 2021.
“Pursuing the commercial license is the next frontier,” said Johnson, who moderated a panel on the topic at last week’s North American Indian Gaming Association convention in Las Vegas. “Tribal gaming has really grown tremendously over the last 30 years, and tribes are increasingly moving off the reservation to compete in the commercial gaming market. There are many examples.”
The latest activity comes more than a decade after the Mohegan Tribe of Connecticut acquired the Pocono Downs racetrack in Pennsylvania from Penn National. Initially offering only slots, the tribe later added table games and built a hotel that opened in 2013.
Johnson said the perception is growing that tribal gaming “is one of the best kept secrets in the industry,” and it’s been repeatedly pointed out that tribal gaming revenue usually exceeds that of commercial gaming.
Johnson said when the Poarch Tribe acquired Sands Bethlehem, he thought it was condescending that some analysts said, “it will be a step up for the tribe to manage a casino like this,” and that a lot of people will be watching how the tribe does with the property. The deal is expected to close in late 2018 or early 2019, and the casino is expected to be rebranded Wind Creek Bethlehem.
“This is the next wave of Indian gaming, because the growth of greenfield development has slowed, and revenues have plateaued,” Johnson said. “Tribal gaming has reached a level of competence in both finance and operations… it is at a point it can take off.”
Sands Bethlehem is a Las Vegas-style resort in the Lehigh Valley. It has a 282-room hotel, a 183,000 square foot casino floor with 3,000 slots and electronic games, 200 table games, a 150,000 square foot retail mall and a multi-purchase event center.
Wind Creek Hospitality, an authority of the Poarch Band of Creek Indians, owns and operates nine gaming and entertainment facilities. It manages the Tribe’s three Alabama facilities on reservation land; the Wa She Shu Casino in Nevada for the Washoe Tribe; Renaissance Aruba Resort & Casino, Renaissance Curacao Resort & Casino, as well as a greyhound track in Mobile, Alabama, a greyhound track and poker room in Pensacola, Florida, and a poker room in Gretna, Florida.
Robert McGhee, vice chairman of the tribal council, said the tribe looked outside of Alabama because it has faced the challenges of expanded gaming in the state and threats for a vote to shut down Class 2 gaming entirely through a constitutional amendment.
The tribe has offered to pay a share of the revenue if Alabama allows them to offer slots and table games. As Class 2, which means the tribe’s current machines are bingo-based or use pull-tab technology, it doesn’t pay tax.
The tribe’s plan was to go outside the state over the next ten years and produce the same amount of revenue it had coming from its Class 2 facilities in Alabama, McGhee said. It worked with financial advisor Innovation Capital to look for those opportunities.
“If they shut down gaming or expanded gaming throughout the state, we would take a financial hit,” McGhee said. “We looked outside the state of Alabama to protect the revenue that we have coming in that provides for our government programs. The tribe has invested so much into economic development opportunities and services we provided to members – health care, education and law enforcement. The infrastructure we have built for the members of our community… we could not put that in jeopardy.”
The tribal authority bought the racetrack in Florida because, if gaming was expanded upstate, the rights would go to a track owner. That is also the reason behind the purchase of the track in Mobile, McGhee said.
The tribe has had a commercial casino license in Mississippi since 2016, when the tribe acquired a property already approved for gaming. It plans to build a casino on the property. It was trying unsuccessfully to acquire a casino in Louisiana when it came across the opportunity in Bethlehem, McGhee said.
Poarch leaders have been relatively quiet since the Sands Bethlehem announcement, saying they wanted to talk with Pennsylvania gaming regulators first.
The tribal authority will fund the acquisition with a combination of existing cash on its balance sheet and new debt financing. Credit Suisse has committed to providing financing for the proposed transaction, and the tribe said the additional cash flow resulting from the acquisition will allow it to pay down the debt on an accelerated basis after closing.
It’s a scary proposition going into a $1.3 billion venture, but they are confident, McGhee said.
“We don’t mind taking the risk… we do our due diligence, and we have Credit Suisse helping,” McGhee said.
McGhee dismissed comments from analysts that the tribe is stepping out of its comfort zone in acquiring a commercial casino in Pennsylvania less than 100 miles from New York City and opening itself up to so much competition. He said many people simply aren’t aware of the Poarch Tribe and its holdings and experience, and that a lot isn’t yet known because it doesn’t have a compact with the state of Alabama.
The tribe, which has been successful because of the expertise it employs and because it is trusted by the tribal community, did a lot of research into the competition it faces, McGhee emphasized, saying that executives even flew to Pennsylvania and drove to the New York City casino to find out how long it took and to gauge the bus traffic.
“(Bethlehem) is a better access point… it’s all about accessibility and what you have to offer,” McGhee said. “One of the things we have always been proud of is how we treat our customers. We have dealt with competition. We are only 145 miles from Biloxi, Mississippi, (which has) full-blown Class 3 gaming. We are Class 2 (in Alabama). We know how to compete against the Class 3 market.”
It’s not only about a single casino in Pennsylvania, McGhee said.
The acquisition provides the tribe the opportunity to offer its Wind Creek Rewards program and its online Wind Creek Casino to millions of new customers throughout the northeast. The Wind Creek Rewards program offers perks like discounts to the tribe’s Caribbean resorts and are expected to be “appealing escapes for Wind Creek Bethlehem customers during the cold winter months,” according to the tribe.
McGhee said the tribe is planning to work with existing Sands Bethlehem management throughout the transition.
