Journalism
Indian Casinos: Wheel of Misfortune — Who Gets the Money? (Part 1)
Anita Hollow Horn, a bright, attractive member of the Oglala Sioux tribe, is a fairly typical beneficiary of Indian gaming. She lives in Pine Ridge, S.D., on her tribe's reservation, with its overcrowded dwellings, 88% unemployment and a school-dropout rate of almost 50%. Hollow Horn, 37, and her four children share a three-bedroom home, opposite a landfill, with her mother and stepfather—and seven other relatives. Fourteen people live in the one-story house with a single bathroom. Hollow Horn and her daughter, 9, sleep on a bed in a corner of the basement; her other children sleep on the floor upstairs. Her brother Reginald, 35, who has cancer, sleeps in another corner with his two sons, 10 and 15. It's toughest when the basement floods. "Sometimes the sewer backs up," says Hollow Horn, "and it just gets all over down there." Black mold has already consumed one wall underneath the staircase and is eating its way up the other.
So how, exactly, is Hollow Horn prospering from the $ 12.7 billion Indian gaming industry? Like most Native Americans, not at all. Last year the Oglala's Prairie Wind Casino, housed in a temporary, white, circus-tent-like structure smaller than a basketball court, turned a profit of $ 2.4 million on total revenue of $ 9.5 million. Most of the money went to fund general programs, such as services for the elderly and young people, as well as education and economic development. But even if there had been profit sharing instead, the payout would have worked out to a daily stipend of just 16[cents] for each of the 41,000 tribe members.
That's not to say that members of a few small tribes near big cities aren't doing very well from gaming. In Minnesota, 300 members of the Shakopee Mdewakanton Sioux community reportedly take home more than $ 1 million a year. But bands like that are the exception. Only 25% of gaming tribes distribute cash to their members, usually no more than a few thousand dollars each.
So if the overwhelming majority of Native Americans like Hollow Horn aren't benefiting from the Indian casino boom, who is? In many cases, the big winners are non-Indian investors, some of whom pocket more than 40% of an Indian casino's profits. Actually, calling these people investors understates their role. They often serve as master strategists who draw up the plans and then underwrite the total cost of bringing a casino online: ferreting out an amenable tribe, paying a signing bonus, picking up tribal expenses and paying the salaries of the tribe's officials, all of this before a spade of dirt is turned. If an Indian band isn't federally recognized as a tribe and is thus ineligible for a gaming venture, these full-service backers will bankroll genealogists to construct a family tree, then hire lawyers and lobbyists in Washington to help change the band's status. And if a reservation isn't prime real estate for a casino, the investors sometimes purchase a more suitable patch and instruct their lawyers and lobbyists to persuade the government to designate the land as a trust, as reservation property is called. Building the casino is the easiest step.
The Moneymen
There is almost no oversight of the backers. The National Indian Gaming Commission (NIGC), the understaffed, underfunded, underperforming and undersupervised agency that is supposed to police gambling on Indian reservations, knows little about most of the investors. Under its regulations, the agency must approve the management contracts between outside companies and tribes. But a billion-dollar loophole allows tribes to retain companies under consulting agreements without the NIGC's approval. Neither the companies, their investors nor the consulting terms are subject to the commission's review. A Department of the Interior investigation in June 2001 showed that there were 332 Indian gaming operations, from firehouse bingo games to full-scale casinos, but that only 31 were operating under management contracts approved by the NIGC. As the department's Office of the Inspector General later concluded, "Almost all tribes are utilizing consulting agreements to circumvent the regulatory and enforcement authority vested in the National Indian Gaming Commission."
As a result, tribes are pretty much free to cut financing deals as they like. Sometimes investors' names surface; sometimes they don't. Tribal leaders don't have to disclose executives' pay or management arrangements, report their profits, issue audited financial statements or divulge self-dealing contracts to the public or their tribe's members. Not all these deals work out for the moneymen, but the ones that do yield spectacular returns. A few of the outside investors have distinctive—some would say controversial—pasts. Here are profiles of three:
THE POKER PLAYER. Say what you will about Lyle Berman—and people have called him a lot of things: a pit bull, an intimidator, a fearsome competitor—but no one has ever accused him of modesty. Of his casino-development company, Lakes Entertainment Inc., Berman once told reporters, "We're the most successful company in Indian gaming." Because of the secrecy surrounding gambling on Indian reservations, it's impossible to know whether that's true. But Berman has clearly done quite nicely since he began developing and managing Indian casinos more than a decade ago. Among his real estate holdings: a ranch in tony Telluride, Colo.; a house in Palm Springs, Calif.; an estate called Casa Berman Palmillia on the Mexican Riviera; a condo in Las Vegas; and a $ 5 million estate in Wayzata, Minn. By his account, as of September 2001, he was worth almost $ 69 million.
A born entrepreneur, Berman first revealed his flair when he turned the family wholesale-leather business into the nation's largest retailer of leather apparel, now known as Wilsons the Leather Experts Inc. But Berman's true passion is gambling: he has won three national poker titles, and is a member of the Poker Hall of Fame at Binion's Horseshoe in Las Vegas. At a poker table, Gaming magazine once wrote, Berman plays "with the insight of a psychiatrist and the determination of a club fighter."
Of all the bets Berman has placed, the smartest was to gamble on Indian gaming with his 1990 decision to join forces with a Minnesota tribe, the Mille Lacs Band of Ojibwe Indians, and build a casino on its reservation 70 miles north of Minneapolis. In return for managing the place, Berman and his partners got 40% of the profits for seven years, after which the tribe took over. Eager to duplicate the model, Berman backed three more Indian ventures: the Grand Casino Hinckley, also in Minnesota, and two casinos in Louisiana. In 1999 a predecessor company, Lakes Gaming Inc., which was publicly owned, earned $ 54.7 million in management-fee income and had a net profit of $ 28.8 million. Berman has done so well that in 1997 executive-compensation guru Graef Crystal called his compensation package for the previous year—which totaled $ 18 million in salary and stock options—the "third most outrageous" in the U.S.
But not everyone has fared well from Berman's business ventures. In the mid-'90s, his firm, then called Grand Casinos Inc., invested heavily in a hyped Las Vegas casino and resort, Stratosphere, that ended up in bankruptcy court nine months after a ballyhooed opening. Stockholders lost millions. As for Berman, he unloaded a block of stock before it plummeted. Disgruntled shareholders sued, claiming they had been misled over potential profits. The suit was settled for $ 9 million, but in the agreement Berman denied the charges.
Today Berman has deals to develop five more Indian casinos: three in California, one in Massachusetts and one in Michigan at a prime spot just 70 miles east of Chicago.
THE AFRICAN CONNECTION. They don't make them more controversial than Solomon Kerzner. There's the over-the-top casino he built on a South African homeland, taking advantage of apartheid; the money scandal that linked him to a Prime Minister who had to resign; the succession of wives, including a former Miss World; and these days the Mohegan Sun, a billion-dollar Indian casino in Connecticut that he made happen.