Local casinos feeling recession's squeeze
Traffic and revenue are down at Minnesota’s American Indian casinos — a trend that’s expected to continue.
That’s worrisome to band leaders at reservations such as Fond du Lac, where slot machine and blackjack profits pay for most programs and projects.
“Ninety-nine percent of our income is through the casino,” said Ferdinand Martineau, treasurer of the Fond du Lac Reservation Business Committee. When those revenues decline, there isn’t much a band can do to make up the money.
Recent months have proven that casinos aren’t recession-proof, said Karen Diver, chairwoman of the Fond du Lac Band of Lake Superior Chippewa.
Casinos across Minnesota are reporting a 3 percent to 6 percent drop in foot traffic and revenue, said John McCarthy, executive director of the Minnesota Indian Gaming Association. That’s a cakewalk compared to the 25 percent drop in profits hitting Las Vegas casinos, but most Minnesota casinos have small profit margins and depend on a lot of customers sitting at machines.
Today, people are going to casinos less, spending less cash, or taking in a show and a buffet dinner and skipping the slot machines altogether, McCarthy said. Ultimately, that loss of revenue will trickle down and affect reservation programs.
“If we could just legislate that everybody gambles $200 more a week, that would be great,” Martineau joked.
The band also is recovering from nearly two years of disruption during construction of the Black Bear Resort and Casino.
“Revenues went down quite a bit because of that,” Martineau said. “We didn’t become unprofitable, but it was less than we were accustomed to.”
But a well-timed bit of financial dealing this fall saved the band from sliding toward bankruptcy, Diver and Martineau said. In September, the band liquidated much of its stock portfolio to pay off the $112 million debt on the Black Bear Casino expansion — two years ahead of schedule, and just weeks before the stock market took a nose-dive.
Payments on the debt, running nearly $850,000 a month, were eating up most of the band’s monthly cash flow, forcing it to dip into cash reserves. The band also had to keep $140 million in collateral to cover the loan.
Now, Martineau said, the challenge is to build back the band’s reserves in uncertain times.
The band doesn’t release revenue information from either Black Bear or Fond-du-Luth casinos. But Duluth’s share of profits from Fond-du-Luth slot machines were down $210,911, or 12 percent, in the third quarter of 2008 compared to the same period in 2007, according to figures from the Duluth auditor’s office.
slowing at Bois Forte,
Mille Lacs
While the Bois Forte Band of Chippewa saw a 5 percent revenue increase in 2008 for its Fortune Bay Resort Casino, things started to slow down in December and are expected to stay that way through 2009, said Kevin Leecy, chairman of the band.
He doesn’t anticipate layoffs other than typical seasonal ones, but he said some vacant positions might go unfilled. Leecy said he doesn’t expect that services to band members will be interrupted. Improvements to the casino in recent years are helping the band through the recession, along with hotel and casino deals to draw visitors in, he said.
Leecy, also vice chairman of the National Indian Gaming Association, said American Indian casinos across the U.S. are experiencing between 3 percent and 7 percent decreases in volume.
The Mille Lacs Band of Ojibwe is feeling similar effects at its Grand Casino Hinckley and Grand Casino Mille Lacs.
“The numbers of visitors are about the same but they are spending less,” said Tadd Johnson, special counsel to the band.
The band is hoping to avoid layoffs and cutting into band member services by being fiscally responsible, he said.
Destination casinos were hit by high gas prices starting about a year ago, McCarthy said. And just about the time gas prices were falling, the recession was setting in.
McCarthy hasn’t heard of any casinos laying off employees, though some have hiring freezes and others are leaving vacant positions open.
Fond du Lac is “at zero growth” now, said Diver, and the goal is to stay there, rather than sliding backward.
“We haven’t cut back on services,” Martineau said. “We want to maintain what we have.”
That means continuing to spend $17 million a year on health insurance for 1,600 employees, spending $1 million a year on law enforcement, and millions more on clinical, educational and community programs. Most of that programming depends at least partly on casino profits.
The Fond du Lac RBC has taken some steps toward streamlining its finances.
For the first time, departments had to present and justify their proposed budgets, Diver said, and the RBC red-lined some purchases for the first time ever. The band also renegotiated local banking services, saving about $250,000 in fees, Diver said.
Diver and Martineau said the band will continue taking a hard look at its budget as the economic downturn drags on.
“Who knows?” Martineau said about when gambling profits might bounce back. “I don’t know if anyone knows. But people do tend to keep gambling.”