Recognized by the federal government in the 1980s, Indian gaming could conceivably account for half of the total of the industry someday if trends continue.
Most Indian casinos began as glorified tents, with tribes in California and Florida operating bingo halls in the 1970s to raise funds for government programs.
Supreme Court rulings and action by Congress to pass the Indian Gaming Regulatory Act (IGRA) in 1988 accelerated the development of tribal gaming until by the end of the 1980s there were 80 tribal bingo halls bringing in about $100 million annually. IGRA allowed for more casinos, but also subjected them to tougher regulation. More and more Indian casinos converted from Class II to the more profitable Class III, although the fact that states have more say in this type of gaming tends to limit the number of slot machines per casino.
By the end of last year, Class III gaming accounted for 43 percent of the market, or more than $27 billion. According to Alan Meister’s annual Indian Gaming Business Report, 242 tribes accounted for 460 casinos in 28 states, operating 341,000 slots and 7,700 gaming tables. That is still less than half of the federally-recognized tribes that could legally operate casinos.
Beginning in the 1990s, Nevada-based gaming companies became alarmed by the growth of Indian gaming, and frequently tried to stop its spread. However, when they were decisively beaten in 1999 and 2000 in California when the voters legalized Las Vegas style gaming, some of the largest gaming companies decided to throw in their lot with tribal casinos that have sprung up in the intervening 15 years in the Golden State. Nevada-based casino developers such as Station, MGM and Caesars Entertainment have often designed Indian casinos to be competitive with their Las Vegas counterparts in terms of sophistication and the overall experience.
According to Gary Thompson of Caesars, quoted by the Las Vegas Review-Journal, “Our management contracts … let us to reach and establish relationships with new shoppers and provide existing buyers of these casinos recognition and rewards that encourage them to visit Caesars properties elsewhere.”
The knowledge of such companies, as well as their branding, often mean that the tribes they partner with realize bigger profits than they would have done if they had developed their casinos on their own.
Nevada’s gaming revenues continued to expand by 13 percent from 2000 to 2012, although Indian gaming acquired a larger share of the market, and markets such as Reno, Lake Tahoe and Laughlin suffered by as much as 36 percent. Today California’s gaming revenue is nearly $7 billion, or a quarter of the total of Indian gaming in the U.S. Some experts assert that even Las Vegas has lost revenue to the Golden State since, although the Strip’s revenues increased 29 percent during that period, the downtown casinos lost 24 percent.
In the long-term, the fact that Indian casinos don’t have to pay as large a share of their revenue in taxes to host states means that they can plow a larger percentage of their profits into entertainment and other amenities to make them even more competitive.
One segment of the gaming industry that has undoubtedly benefited from the rise of Indian gaming is the slot machine manufacturers as well as manufacturers of gaming management systems.
A study of the demographics of casino patrons shows that virtually the same types of customers frequent Indian and commercial casinos.
Although fewer than half of the American tribes have casinos, that doesn’t necessarily mean they are ripe for developing them. However, says Meister, the majority of tribes that could develop casinos probably have done so. The ten largest Indian gaming states account for nearly 90 percent of the revenues from Indian casinos.
Not all existing casinos are expanding into their markets. About a third have seen revenue declines. Alabama, Mississippi, Montana, North Carolina and Oklahoma are expanding rapidly, while New York, Oregon, North Dakota, Connecticut and Idaho are seeing declining numbers. Arizona and California, both next to Nevada, continue to show increasing profits.
In California five tribes have applied to the federal government for the right to operate casinos out of a total of 21 nationwide. New York accounts for another three.
With Massachusetts on the verge of building a total of four casinos, the question is whether the U.S. market is near to saturation. Some experts, like Meister, assert that it depends on what sector you are talking about. And even in sectors that are nearing saturation, there is still room for some new casinos to be built, he says.
