By: Michelle Seaton
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MAX OSCEOLA, a tribal council member of the Florida Seminoles, has a sharp sense of humor. He calls himself a “high-tech redskin,” as he casually shuts off his cell phone and sets his Blackberry on vibrate.
Osceola is sitting outside the Seminole corporate headquarters in Hollywood, Fla., under an open-air, thatch—-oof chikee, a traditional Seminole structure. He’s almost ready to talk about his tribe’s $1 billion purchase of the Hard Rock hotel and casino brand a few months ago, but first he wants to reminisce about where he’s come from.
Osceola remembers his childhood on the reservation. His mother would take him to the lot where his father parked cars, and there they would wait until his father had earned enough tips to buy food, their first meal of the day.
He laughs when he recalls the “corn-mods” or commodities that the welfare office would deliver to the reservation during the 1 960s when Osceola was a teenager. “The best were the big blocks of cheese from Wisconsin that would come every month.’ he says. They made grilled cheese sandwiches and macaroni and cheese that they lived on for weeks.
Osceola still has the thick shoulders of a University of Miami lineman—class of 1974—and they shake when he chuckles . “Every day is good,” he says, “but some days are better than others.”
Indeed. Last winter, investment bankers from Merrill Lynch invited Osceola to ride with them in their Gulfstream IV while they traveled the country to launch a $500 million bond offering to leverage part of the tribe’s bid to by Hard Rock International from its London-based parent, Rank Group. The purchase would include
the entire Hard Rock organization, including 26 restaurants, three casinos and three hotels, plus several licensing agreements already in the works to build casinos in Macau and Biloxi, Mississippi ,.The offering was oversubscribed by a factor of six, and the Seminoles turned away many hungry investors before the road show ended.
F OR SOME TRIBES, THE DAYS OF WELFARE AND GOVERNMENT CHEESE ARE GONE FOREVER.
AS INDIAN GAMING EXPLODES, THOSE TRIBES WITH THE RIGHT PROPERTIES IN THE RIGHT LOCATIONS, GUIDED BY SEASONED CASINO EXECUTIVES, FIND THEMSELVES IN A DIZZYING FINANCIAL ASCENT.
“We want Wall Street to understand that you can do business with a Native American tribe and make money, Osceola says.
He’s no longer laughing. And neither is anybody else. Tribes in Connecticut, Wisconsin, Arizona, Washington, California and Minnesota are transforming themselves into successful enterprises.
Like the Seminoles, they pursue aggressive expansion of their gaming interests and diversification into new businesses outside of gambling, all while working with other tribes to mutual benefit.
But this newfound wealth brings to the surface the lingering hostility of nonnatives, along with saber—rattling by politicians eager for a cut of the profits. It also inspires lawsuits from estranged business partners and opportunistic competitors.
“When we sold trinkets by the roadside, nobody cared if we made a hundred dollars or a thousand dollars,” Osceola says. “All of a sudden they see the profits that come in from gaining; and the local and federal governments, they’re all here with their hands out, saying, “OK, how much do I get?”’
BETWEEN A HARD ROCK
F IVE YEARS AGO, THE SEMINOLE TRIBE WAS IN NO POSITION TO BUY A $1 BILLION COMPANY LIKE HARD ROCK.
The tribe ran five bingo parlors in warehouses on reservation land and bused in players from neighboring communities. Enter Baltimore-based real estate developer David Cordish and his Cordish Co. He approached the Seminoles with a plan to build casino complexes in Tampa and Hollywood and set up a licensing agreement with Hard Rock to open the only Hard Roek—theme hotels and casinos outside of Las Vegas.
Cordish’s plan seemed promising, but a huge obstacle stood in the way:
Traditional slot machines are illegal in Florida. According to the Indian Gaming Regulatory Act of 1988, tribes cannot engage in table games or offer slot machines —also known as Class III gaming in any state where that type of gambling is not already legal.
To create an exception, a tribe must negotiate a compact with the state, which allows the state to demand a revenue—sharing agreement.
In Connecticut, a compact ensures that the state collects $20 million or more per month from gaming tribes. California renegotiated with the Pechanga Band of Luiseño Indians in 2006 to garner an additional $3 billion payable over the life of its agreement, which ends in 2030. Florida, however, has no such compact. Governors have steadfastly refused to negotiate one in the hopes that their obstinacy will keep Vegas—style gambling out of the state.
As any gambling executive knows, casinos are incomplete without rows of twittering, flashing slot machines. Jim Allen, an executive at Cordish who later became the CEO of Seminole Gaming, offered a solution. He asked gaming manufacturers to create a bank of slot machines controlled by a central computer, otherwise known as a bingo—based machine.
The computer assigns a winner from among all the machines playing within a set time. So, in theory, players win in the same way they do at bingo—by chance and they play against other gamblers, not the house. These games technically fit into Florida’s gaming laws, but seem like regular slot machines to players.
The cost to build the two hotel—casino operations totaled $455 million, much of which originally came from tax—exempt bonds; a later IRS ruling, however, forced the tribe to refinance with taxable bonds. Cordish estimated first—year revenues at $430 million, of which it would take $130 million, or 30 percent, as a fee. Under the terms of the deal, Cordish would continue to receive this cut for 10 years.
With bingo—based slot machines in place, the Tampa casino opened in the spring of 2003. The Hollywood casino followed a year later. Although tribes do not disclose financial information, several published sources claim that these properties now generate roughly $1 billion in revenue annually, far inure than expected—which meant Cordish’s share also rose substantially too.
The Seminoles terminated their agreement with Cordish last year, and filed suit alleging that the company violated Indian gaming law with unfair contracts. Cordish claimed that the agreement was viable, and countersued, claiming that Rank, which was working with the Seminoles, gave Cordish own bid to buy the Hard Rock short shrift. Cordish and the tribe dropped their suits against each other in April. Settlement details were not released, but it has been reported that the tribe will pay $756 million to Cordish over 22 years.
This type of aggressive growth and diversification is now common among the successful gaming tribes. “They’re becoming ever—more business savvy, says Robert Jarvis, professor at Nova Southeastern University Law Center in Fort Lauderdale. The Foxwoods Pequot tribe reached an agreement in 2006 to lease the MGM brand name from MGM Mirage . It will create a new themed hotel—casino that will be built next to the existing casino. The new resort will include a ballroom would have required all 53 gambling tribes to pay 25 percent of their net slot machine revenue to the state.
Even though the tribes annually paid $130 million to the state, the saber—rattling worked . It forced the l’echanga tribe back to the table to renegotiate a better deal for the state. For years, Minnesota governor Tim Pawlenty has insisted that the Indians in Minnesota should open their books to public scrutiny.”
Rumors have been circulating that the state might allow a competitor to build a casino near Minneapolis and St. Paul, which would cut deeply into the revenues of casinos built by natives in morc remote locations.
For 28 years, the Seminole tribe, with some 3,000 members, had been in the bingo business. For four years it has had its licensed Hard Rock hotel-casinos . Now, as Hard Rock owner, it ventures into the broader hotel and restaurant business, which doesn’t rely on the easy profits of gaining. But Oseola doesn’t seem concerned. He loves the attention the Hard Rock purchase garnered and the pride it brought to the Seminoles. Osceola recently took a phone call from his cousin, who works as a manager of a chain restaurant in Memphis . This cousin wanted to become manager of the Hard Rock Café in Memphis. ‘My goal is to become vice president of the café division,” he told Osceola, who replied, “That’s great! It’s good to have a goal.” Ultimately, the Seminoles aim for more tribal representation among senior managers of the gaming division and Hard Rock, hut that will take time.
To speed the process, Allen created a mentoring program for young Scminoles with a high school education who want to learn the gaining business. Participamts work in various areas of the hotel and casino business for three years. So far, only 22 young people have taken advantage of the program; five excelled enough to land on a managcmcnt track. I tell them, “ You’ve got the best family business in the world. You want to be an accountant? “We count more money than any bank. You want to be a chef? We got restaurants. You want to be in the music business? We’re in the music business,’” Allen says . It’s a shame how few of them work here.”
July 2007. Volume 16 , Number 7. (Pgs. 50-55)
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