Red Hawk Casino rewrites deal with state to stay afloat
By Dale Kasler, Sacramento Bee
The Indian tribe that owns struggling Red Hawk Casino in Shingle Springs struck a new deal with the state Friday that could bring the tribe some desperately needed financial relief.
Gov. Jerry Brown announced a new gambling compact that significantly reduces the amount of money the state gets from Red Hawk’s owners, the Shingle Springs Band of Miwok Indians.
The deal acknowledges how badly the casino has performed – and what a financial disappointment it’s been to the tribe, which was counting on Red Hawk to lift it out of poverty.
“The compact is designed to address fiscal challenges the tribe has faced and to meet the requirements of federal law that the tribe be the primary beneficiary of its gaming operation,” said an announcement from the governor’s office.
Nick Fonseca, the tribe’s chairman, said in a press release that the compact “ensures the long-term financial prosperity of the tribe and its casino.”
The agreement is far from a done deal. It must be ratified by the Legislature – and it requires the tribe to restructure its debts with bondholders and Lakes Entertainment Inc., the Minnesota company that manages Red Hawk.
The governor will have final say on whether the restructurings go far enough to ease the tribe’s debt burden, which is around $500 million.
As part of the deal, the maximum number of slot machines allowed at Red Hawk is cut from 5,000 to 3,000. Red Hawk now has 2,200 slots.
The new deal suggests that without help, the casino is headed toward disaster.
Red Hawk “cannot currently or in the coming years generate enough revenue for the tribe to cover its financial obligations,” the compact says.
The biggest change involves the state’s takeaway. The tribe now pays the state up to 25 percent of its slot-machine winnings – believed to be the highest percentage of any tribal casino in California. Under the new deal, that would fall to 15 percent.
The new compact may be unprecedented. I. Nelson Rose, a gambling-law expert at Whittier College, said he’s never heard of a state rewriting a tribal compact to ease the financial terms.
“It’s innovative,” Rose said. “It’s better to get … a lesser amount, 15 percent, than to get zero.”
The casino is doing so poorly that when an El Dorado Superior Court jury ordered the tribe last winter to pay its former casino partner $30 million in a contract dispute, the tribe said it didn’t have the money and warned Red Hawk might close.
The case is on appeal.
AmyAnn Taylor, the tribe’s general counsel, said the Shingle Springs band hasn’t yet spoken to bondholders or Lakes Entertainment about restructuring the debts. The tribe has two years to complete the restructurings, according to the new compact.
Lakes executives couldn’t be reached for comment. The company already agreed a year ago to let the tribe defer principal payments on a $66 million start-up loan.
Taylor said the tribe recently amended the deal under which it pays $5.2 million a year to El Dorado County – another requirement of the new compact. She said the tribe will pay the county the same amount, but will get reimbursed $2.6 million a year to help run its medical clinic, which serves the community at large.
“The county saw an opportunity to help them out,” said county Supervisor Ron Briggs. “They’re here, they’re our partner.” Red Hawk employs 1,350 workers.
Federal law says Indian casinos are mainly supposed to benefit their tribal owners. Yet Taylor said the casino has been generating far more income for the state than for tribal members.
The tribe has earned just $6 million a year from Red Hawk – the bare minimum guaranteed under the management contract with Lakes. Fonseca, in an interview last year, said individual tribal members were getting just $800 a month from the casino.
By contrast, Taylor said the tribe has been paying the state $30 million a year.
The casino opened in December 2008, during the worst of the recession, and has never performed up to the tribe’s expectations. In 2010, its gambling revenue fell $100 million short of projections, according to testimony in the Superior Court case.
Red Hawk Casino made a bet on itself and lost. Why should taxpayers now bail them out? Those campaign contributions are certainly paying off.
Bad deal for the taxpayers. Again. Let ’em go bankrupt. They want to be a “sovreign nation”? Let them bail themselves out.
The state’s taxpayers are still benefitting from Red Hawk’s business despite the Miwok’s not meeting projections. Most of the country is still slowly recovering from the brink of disaster in 2008 and the tribal casinos are no different. I think it was a good move to keep the 1,350 people working and keep the revenue flow to the state coming in even though it’s less than expected. I’m sure all those families and the small local businesses where they spend their money are happy with the deal. No sense having a wrong, knee-Jerk reaction to every article.
Dick Fox, speaking of knee-Jerk reactions. . . I never would have expected yours. /sarc
I recently stopped in their to check it out and was blown away. It’s extremely nice, and on a weekday at noon it had a level of business that would match a weekend night here at a South Shore casinos. I asked the bartender on duty if this was a normal midweek, midday level of business and he said yes. If they’re not making money hand over fist so far, they will soon.
What about the $10 mil per yr (?) for El Dorado County? What happen to that deal?
Dick Fox, speaking of knee-Jerk reactions. . . I never would have expected yours. /sarc
Their response had substance than yours, which was a statement of ideology. How is a response with substance, tailored to the issue, a knee-jerk reaction? Perhaps you should look up the colloquialism. Revenue flowing to the state is still positive and over 1000 people have jobs.
What, besides hollow ideology, do you have to offer as reason for why the state should give up all of the revenue and the local area lose over 1000 jobs? Why is the loss of revenue and jobs the best option?
And Gov. Brown has already approved 2 more casinos for NorCal??? The market is obviously too saturated for the amount of casinos that already exist today.
Gov. Brown and other politicians need to read from Joseph Schumpeter about “creative destruction”. Failure is useful in life. You learn from it, or you are doomed to repeat it. Instead what we have are politicians who use taxpayer $$$ to prevent the natural failure of these too-big-to-fail businesses.
To Fox & Fish…
I’ll tell you why the state should give up Red Hawk revenue. Your job is only as good as the firm you work for. If your employer is bankrupt, your job is not secure. That is why we have unemployement insurance. So if you are laid off, you have 50 or 100 weeks to find a new, better one. If this current ownership group can’t afford to pay 25% of their profits, they probably can’t afford to pay 15%. Bailing them out is only postponing the inevitable. By searching for a new employer, these temporarily displaced workers hopefully find a new one managed by a higher quality of ownership in better finanical condition. Thunder Valley, for example.
By losing a bad job, and thus creating a better job, the state preserves the tax revenue they are currently receiving from the new firm, since Gov. Brown doesn’t have to work out tax deals reducing the new firm’s tax burden.
I suggest you 2 enroll in ECON 334 at University of Nevada – Reno. It studies the economic history of capitalism. You might pick up a few helpful hints as to how this system works. Bailing out the failures doesn’t work.
J.Schumpeter is a lunatic fringe Randian quack and the imaginary objectivist “history of capitalism” you espouse has how many successful societal examples? I suggest you enroll in Reality 101 to pick up a few helpful hints on how America really works.
White man screws indians,indians screw white man.
How hard is it to figure out?
Someone making doe regarless,it’s the way american heros work!
Who was better,Custer or Sitting Bull?
Gee, If I make a bad business decision I can expect the State to help me. Right?
Advocate: Only if you are of a protected class and/or a union. Oh, you also qualify if you donate generously to the right political party.
Hmm, the feds bailout Chrysler and GM, helped the auto industry to retool and be successful while saving over 1 million jobs in the auto industry and supply chain, at a time that banks were not lending money (why Romney’s argument let them go bankrupt was simply wrong). The loss of jobs or hugely reduced pay/benefits would have depressed those state economies substantially. The role of gov is to work to moderate economic downturns to allow recovery and economic growth. BTW Dogula, your comment about protected class makes not sense, but hey you rarely do. Enjoy Rick
Good grief creditors have been negotiating terms with debtors since the dark ages. Now everything is a bailout. There are a lot of good books about business out there….read one.
Yeah, I should go read up on Econ, while you call it a bailout. It isn’t a bailout, you are a joke. I am not taking your advice, you don’t seem to really know what you are talking about. The casino is making money, less than expected. Which is makes sense. Was the revenue agreement worked out before the recession? Probably, the casino opened during the recession.
How much do other casinos pay the state? They were paying 25%, more than anyone. If everyone else is paying 15%, then what is the big deal?
You are Right, Old Blue Dolphin!
RICK- YOU ARE THE ONE THAT IS WRONG…
For people to think that Obama saved a million jobs by not letting the auto industry follow the bankruptcy process is just downright ignorance. That is not how the bankruptcy process works.
Instead in fact what happened is Obama usurped our laws in favor of benefiting the unions and it has cost the American Tax payer over $28 billion dollars (So far) and more importantly created this false of accomplishment, success and profitability. Anyone that is looking at the facts knows that it is false. Unfortunately the ignorant masses go along with being duped and are placated by the lies from the left.
America crumbles as ignorance thrives.
The above post should read
“false sense of accomplishment, success and profit”
… the nest thing you know people will want to bail out TWINKIES.
The once great and noble America now crumbles…
From here it will get MUCH worse and we have liberalism and its ally mass ignorance to blame…
Ask the former non-union employees of the auto industry if they think obama’s bailout was a success. Oh, and the people who owned stock in those companies.
Nope. obama just took it over and handed all the benefit to the unions. Which is why you’ve got strikers starting rumble all over the country. He said he wanted to do for the rest of American industry what he did for the auto industry.
Then look up fascism.
Hey Ron, how about the county helping me out. Like my teeth need afixin and my still is abroken. Ma needs some new teeth too.
They are going broke trying to just pay the bond interest of over 800,000.00 a week. They issued around 450 million in junk bonds at around 9%. Now the bonds are ultra junk.
The more casinos that go in the less the ones in existence will make. There are too many of them around the state now. Haven’t they seen similar trends with businesses that have oversaturated the market just to slowly die because none of the franchises could make money. Maybe the Indian tribes should find a better way out of poverty. Casino’s just seem like another form of Welfare. They take our money and support their tribes. Funny, nobody seemed as concerned about all the people that lost their jobs at the Nevada casino’s because of the losses they suffered from lost revenue due to all the California casinos that went in.
John,
Interesting reference to the dark ages…
More on point to the issue is the idea that creditors are negotiating payments,
WHY IS CALIFORNIA A CREDITOR TO THIS RACE BASED SPECIAL INTEREST GROUP?
THAT is what is wrong here. The idea of the government being overly involved in private business is at the core of our countries problems. Yet many liberals in California think it is the right structure, government control… – THEY ARE WRONG. They are in fact down right un=American, America was founded on the opposite principle. California and our country will continue to decline as long as left wing radicals and their failed socialist ideas are looked up to by the sheeple.
GBA
Is the State of California a creditor? for the casino? Nothing in the article leads me to believe that they are.