What could become a jackpot for gambling machine manufacturers and distributors could create a losing streak for California card clubs.
Last week’s passage of Proposition 1A, the Indian gaming initiative, is expected to generate a demand for more video slot machines while decreasing business for the state’s card clubs, according to some industry leaders.
Proposition 1A is a constitutional amendment that ratifies gambling compacts signed last fall between Gov. Gray Davis and 57 California Indian tribes.
Under Proposition 1A, tribes and the governor can negotiate compacts for house-banked, Nevada-style card games and slot machines , big moneymakers for existing Indian casinos. U.S. Secretary of the Interior Bruce Babbitt has 45 days to approve Proposition 1A.
While the measure still needs final approval, Rollie Hill, vice president of sales for South Dakota-based Sodak Gaming, Inc., has already begun working deals with California tribes.
In anticipation of Proposition 1A’s passage, Sodak has several licenses to conduct business with current California gaming tribes, including those in San Diego County.
Sodak, a slot machine vendor, is a subsidiary of International Game Technology, a Reno, Nev.-based slot machine and video gaming machine manufacturer.
Hill said Sodak plans to open two sales and service offices in California , one in Southern California, the other in Northern California.
“California represents a very dramatic increase in business for us,” he said, pointing out Sodak already does business with Indian casinos in 16 other states, including Connecticut, Oregon, North Dakota and Arizona. “We’ve been gearing up for this for a long time.”
Hill said Proposition 1A will allow tribes access to new gaming technology, such as elaborate ticket voucher verification systems and coin “hoppers,” machines that allow coins to be dispersed. California Indian casinos currently use a ticket voucher system for video slot machine winners to claim their cash prizes.
Hill also pointed to a possible Native American progressive system, which links certain big jackpot slot machines to all Indian casinos across the nation. Such games include Megabucks, Wheel of Fortune and Elvis.
Hill said it’s unknown whether such a system would be allowed in California. He said Sodak would like to set up an intrastate system for Indian casino big jackpot games.
The Viejas Band of Kumeyaay Indians near Alpine plans to replace 60 percent of the 1,132 machines in its Viejas Casino and Turf Club with a mix of video house-banked games and coin hoppers. Viejas will license the machines from Sodak.
“It will be a test period to see what the guests like,” Viejas Chairman Anthony Pico said.
Viejas has been one of the most successful gaming tribes in the state. The tribe has used casino profits to build an outlet center, buy a bank and to launch a planned one-day gambling cruise from San Diego to Rosarito Beach, Mexico, with Commodore Cruise Lines. The tribe also plans to build a resort hotel and golf course.
“We have made a decision to only go in the direction of the hospitality and entertainment industry,” Pico said. “That’s where we have had the most experience and the most success.”
Pico said Viejas’ success couldn’t have been possible without San Diego’s support.
“I hope the public knows how grateful we are for their support,” he said.
“I thought when Proposition 5 was passed two years ago that all my prayers had been answered,” he said. “At last, I could tell my grandchildren about the time the Indians finally won.
“Now, thanks to the voters of California, the story is even better. I can tell my heirs that the Indians won, not just once, but twice. For me, it’s a great time , a historic time , to be alive.”
Proposition 1A received 64.6 percent of the majority vote statewide, with a 71 percent majority vote in San Diego County.
Proposition 5, the Indian gaming measure approved by California voters in 1998, received a 63 percent majority vote. That measure was overturned by the California Supreme Court on the basis that the state constitution does not allow Las Vegas-style casino gambling in California.
Tribes spent about $21 million promoting Proposition 1A, while opponents spent less than $50,000. More than $100 million was spent during the Proposition 5 campaign.
The Barona Band of Mission Indians near Lakeside spent nearly $1 million on the tribe’s own Proposition 1A campaign, which included billboards and direct mailings.
The tribe had thousands of responses from the direct mailings, which offered free tours of the Barona reservation.
“People really need to come out and see all the nice things that we’ve done through the industry that we’re in,” Barona Chairman Clifford LaChappa said.
Mario Rodriguez, a 37-year-old San Diego construction worker, went on the first Barona tour with his parents.
“They’ve been poor for a long time,” Rodriguez said about the tribe. “More and more doors are opening up for them.”
Mary Lou Ruane, who’s retired from the San Diego Unified School District, went on one of the tours because she was curious about the tribe’s schools, which include a Head Start program and a K-12 school.
“They want a better future for their youth,” she said. “It helps us because they are a part of our community. Now they come into our world with education.”
Ruane and the other visitors not only learned about Barona’s schools, but they also got a chance to visit the new Barona Museum and see $1 million worth of new homes on the reservation.
Barona, originally a cattle ranch, began offering gaming in the early ’80s with a small bingo hall. Now the tribe is working on a new $150 million casino.
The casino will include a 200-room hotel, pool and a wedding chapel. The tribe recently received $18 million in municipal bond financing for its 18-hole championship golf course, slated to open in August.
LaChappa had some advice for tribes who plan to enter the gaming/entertainment industry.
“I just hope the tribes that are getting into this business are cautious and take all the necessary steps to ensure the integrity of whom they’re dealing with,” he said. “You’re talking millions and millions of dollars.”
The California Indian casino market, which is worth $1 billion, is expected to be worth $4.7 billion by 2004, according to Bear, Stearns & Co., a New York-based investment banking firm.
Marc Falcone, vice president of Bear, Stearns, predicted more big financing deals for California Indian casinos due to the passage of Proposition 1A.
Just last week, New York-based Trump Hotels & Casino Resorts, Inc., announced it had igned a letter of intent with the Twenty-Nine Palms Band of Mission Indians for the development and management of a casino on the tribe’s reservation, located off Interstate 10, 20 minutes from Palm Springs in the Coachella Valley.
The plans call for a $60 million expansion of the tribe’s existing Spotlight 39 Casino.
Earlier this year, Harrah’s Entertainment, Inc., announced plans to build a $100 million casino/resort for the Rincon Band of San Luise & #324;o Mission Indians in San Diego County.
A recent Bear, Stearns report predicts certain parts of Nevada , Laughlin, Reno and Las Vegas , will lose casino business due to growing Indian casinos in California.
California card clubs also stand to lose significant business, said Bob Moyer, partner and general manager of Ocean’s Eleven Casino in Oceanside.
Moyer voted yes on Proposition 1A, but he has some serious business concerns over the measure.
He believes the measure creates a monopoly for tribes since Las Vegas-style games will only be allowed on Indian reservations.
Moyer said the state’s card club owners are talking to state legislators, as well as the governor’s office, about possible legislation that will allow card clubs to offer the same games that are in Indian casinos.
“We’re not looking to have 2,000 slot machines,” said Moyer, former manager of the Viejas casino. “We’re just looking to get a piece of the action.
“If the governor doesn’t come to bat for us, we won’t have a choice but to file a lawsuit against Proposition 1A because it creates a monopoly.”
A governor’s representative could not be reached for comment.
A Quick Look at Prop. 1A
Under Proposition 1A, tribes will operate casinos under compacts signed with Gov. Gray Davis last fall.
Under the terms of the Davis compact, the current 19,500 video slot machines in Indian casinos will be grandfathered in. Tribes will then choose from a new pool of machines.
Each tribe is limited to 2,000 machines. First pick of the new pool of machines will go to tribes who signed the Davis compact that have less than 300 machines, and to those that don’t have any games at all but want to get into gaming.
Under Proposition 1A, the number of slot machines in California could double to 44,000. Tribes will pay a licensing fee of $1,300 per machine to create a revenue sharing fund, which will go to tribes that have less than 300 machines or to those who have a compact.
The compact also calls for the tribes’ revenue sharing with the state to jump from 6 percent to 13 percent per machine.
A yet-to-be determined allocation from Indian gaming revenue will be used for a statewide gambling addiction program. A 10 percent impact fee will also be created for local government.