Indian Casinos Fund Diverse Portfolios

When Indian tribes got into the gambling business, they proclaimed reservation casinos as their new buffalo, providing sustenance just as the herds did before being annihilated a century ago.

Some tribes have since become fabulously wealthy--but having learned from experience, they are not relying exclusively on casinos as their meal ticket.

Flush with gambling profits, Indians today are diversifying:

* The Viejas tribe near San Diego has bought a bank, developed a factory outlet center, purchased a small TV station and is launching an ocean cruise day-trip business.

* The Barona Indians, in nearby Lakeside, are building a golf course and plan a resort hotel.

* The Agua Caliente Indians in Palm Springs--who already own their own resort hotel--have bought a bank and another hotel.

* The Morongo Indians in Cabazon have purchased Hadley Fruit Orchards, the California date-shake and dried fruit icon, and have opened Coco’s and A&W; restaurants alongside the busy freeway to Palm Springs.

* Other tribes are developing an industrial park in Bishop, a health club and fitness center in Jackson, and motels in Northern California.

As quickly expanding venture capitalists, tribal leaders are hiring savvy CEOs and consultants to help manage and diversify their portfolios. The issue is one of the prime focuses of discussion today when the California Nations Indian Gaming Assn. meets in San Diego for its first statewide conference.

Tribes are secretive about how much capital they have available for non-casino investments, but based on plans and recently completed business deals, they are sinking more than $200 million into California’s economy.

The casino gambling capital serves as a springboard in helping wean tribes from reliance on the uncertain future of gaming. Tribal leaders also say they find themselves in the delightful dilemma of deciding what kinds of businesses to start--a far cry from their impoverished past.

“We’ve talked about going into various businesses years ago, but we had no money, no track record and no one to lend us money,” said Tom Lyons, vice chairman of the Morongo Indians, who relied for years on the paltry revenue of almond and grape crops. “[Now] we’re meeting with developers, telling them we can’t decide how their businesses will fit in until we develop a master plan.”

The tribe, whose casino is on Interstate 10 in the San Gorgonio Pass, has purchased a huge Shell gas station, restaurants, and Hadley--including its trademark, its mail-order and Internet businesses, and its other stores in Palm Springs and Carlsbad--and is exploring construction of a bowling alley, an RV park, a truck stop and a factory outlet center.

Such investments go a long way toward “dispelling the notion that Indians in general don’t have a sense of can-do,” said Richard Milanovich, chairman of the Agua Caliente Indians.

“People see that we’re pretty sharp,” said Milanovich, whose tribe owns the Spa Hotel in downtown Palm Springs and recently purchased a hotel shuttered for eight years. “We’re no longer a victim.”

Not All Tribes Reap Benefit

The emergence of the new Indian economy is almost mind-boggling given the history of Indian tribes wallowing in poverty over the past century.

“To the current generations, this [prosperity] is all new to us,” said Anthony Pico, chairman of the Viejas Indians, recalling a reservation wracked with unemployment. “But it’s not new to Indians as aboriginal people, when we were self-supporting and had our own governments and economic institutions. We’ve now gone full circle.”

The window of opportunity is available now to fewer than half of California’s 104 Indian tribes. About 40 tribes operate casinos that can bankroll diversification. Other reservations are too remote for casinos, or the tribes have chosen not to open them because the state has not yet given authorization. (The legality of the state’s Indian casinos is under challenge before the state Supreme Court).

Most of the state’s non-gaming tribes remain poor. Some have used federal grants to launch small businesses. The Pala Indians in northern San Diego County make about $600,000 a year by leasing reservation land to a sand and gravel company and $500,000 a year growing avocados.

Even tribes made prosperous by casinos face development roadblocks, because some non-Indian businesses worry about entering a contractual arrangement with a governmental entity that enjoys many aspects of sovereignty--including protections against lawsuits in state and federal courts.

Such was the case when the Viejas sought tenants for their outlet center. “If there was a legal dispute, we’d have to go to a tribal court, which was something we were concerned about,” said Nike spokeswoman Claudine Leith. The two sides agreed that in the event of a lawsuit, it would be heard by a state court in Arizona.

Part of the impetus for tribes in diversifying is the concern that they may not be allowed to operate their casinos forever. Even as the number of tribal casinos expands across the nation--and California voters in November gave overwhelming support to reservation gambling halls--anti-gambling winds could at some point stir up politicians in Sacramento or Washington, tribal officials fear.

Conversely, they worry, California may become even more receptive to gambling, allowing it to spread off reservations.

“Their legal status is far from secure,” said Howard Dickstein, a Sacramento attorney who represents several gaming tribes. “So the tribes are doing the smart thing, by putting their eggs in other baskets.”

The Rumsey Rancheria near Sacramento, a client of Dickstein, is investing its casino profits in real estate--in 50-50 partnership with a non-Indian development company, it is the largest landlord of state government offices in Springfield, Ill.

Among the most aggressive tribes is Viejas, which opened a bingo hall in the early 1980s that evolved into one of the largest Indian casinos in California. Slowly, the tribe, with about 280 members, has improved its reservation--but more work is still needed on water delivery, streets and housing.

The tribe is sinking only some of its casino revenue into those improvements. It also is investing in other businesses.

“Tribes embraced gaming because it was the only thing they could embrace at the time,” said the tribe’s chief executive officer, John Winkleman. “But there could be a huge political swing in five years, and then where are we? I am an absolute advocate of diversification, and I would measure the tribe’s long-term strive for self-sufficiency in terms of multiple sources of revenue streams.”

The tribe’s first move was to buy 70% of the ailing Borrego Springs National Bank for $5 million in 1996.

The tribe then decided to develop a $30-million factory outlet center alongside its casino. Only after the center was virtually completed did cautious retailers sign on. Now, with 36 tenants, the tribe is spending $18 million more for expansion.

Earlier this year, the tribe agreed to pay nearly $5 million to buy a low-power San Diego television station that broadcasts a mix of English-language business news and Spanish-language soap operas.

The business plan: change the programming content and persuade area cable networks to pick it up for wider distribution. If successful only on that count, the value of the station will increase tenfold, Winkleman said, and the tribe could then sell it for a windfall.

Moreover, the tribe wanted the station to promote political and social issues of concern to the Viejas Indians and to promote the casino and outlet center, Winkleman said.

The station is awaiting FCC change-of-ownership approval.

Most recently, the tribe entered into a $5-million agreement with Commodore Cruise Line, out of Hollywood, Fla., to jointly purchase and refit a 433-foot ship, to be renamed the Enchanted Sun. Viejas would run day-trip cruises from San Diego to Rosarito, Mexico, where a new pier is under construction.

The ship would feature a two-story casino and, en route to Rosarito, 18 miles to the south, would head into international waters for gambling.

The theme of the tribe’s business decisions, Winkleman said, is to capitalize on leisure-time activities. “That’s the market we compete in and know, and we’re good at rapidly growing small companies into big companies,” he said.

Clashing Goals

Other tribes have struggled with whether to diversify.

Near San Bernardino, the San Manuel Indians make money by selling bottled water under the tribal logo. They also are investing in a $7-million bottling plant.

Tribal Chairman Henry Duro said he wants to move more rapidly, possibly building a commercial retail center off the reservation, and even building a tramway from the tribe’s casino to Running Springs, above the reservation in the San Bernardino Mountains.

However, many younger members of the tribe would rather distribute the casino profits among themselves.

“They don’t understand the philosophy of needing a contingency,” Duro said. “They see the casino working for us today, and I’m having to sell my own tribal members that we have to build a strong, diversified foundation for future generations to come.”

In San Diego County, Barona Tribal Chairman Clifford La Chappa is unapologetic that tribal members have mostly kept the casino profits on the reservation.

“People have to realize what our lifestyle was before gaming,” he said. “Our homes were ugly, a lot of people were on welfare.” Casino revenue has allowed the tribe to offer health care, housing and scholarships, and “the caliber of our people’s lives has changed 180 degrees.”

With that goal met, the tribe is ready to invest tens of millions of dollars in a golf course, resort hotel and convention center facilities at its rural reservation. Ground is already broken on the golf course.

“The resort theme is endless,” he said. “Concerts, tournaments, conventions.”

Tribal leaders say that as their business portfolios grow, so does their credibility as businessmen. More than one tribal chairman remarks that they may wear ceremonial Indian costumes one day, a three-piece business suit the next. The suits are becoming more commonplace.

“We want to end up with a diversified financial empire,” said Pico, the Viejas chairman. “I expect someday that the gaming buffalo will die. When it does, we’ll have a television station buffalo, a banking buffalo, an outlet center buffalo, a cruise ship buffalo. . . . “