FARMINGTON — An unemployment level topping 50 percent and very few business opportunities on the Navajo Nation were among the deciding factors pushing the tribe to embrace the gaming industry.

Yet the tribe was late in joining the game, a delay that some thought would cost the Nation patrons and dollars. When the Nation opened its first casino near Church Rock, other New Mexico tribes already were operating 24 gaming facilities.

Since opening Fire Rock Navajo Casino on the historic Route 66, the tribe has opened a casino in Hogback and has plans for two more facilities, one in Upper Fruitland and the other near Flagstaff, Ariz. When finished, the tribe hopes to have six casinos operating on its 27,000-square-mile reservation.

But to succeed in a market already saturated with gaming facilities, the tribe must maintain a competitive edge, and this in the face of looming tribal, state and federal regulations.


The tribe also is building casinos on a financial foundation rocky with recent failures and in the face of pointed criticism from some of its own members.

Saturated market

Ten miles separate the Upper Fruitland site from SunRay Park & Casino.

The new casino also is located approximately 70 miles from both Sky Ute Casino, in Ignacio, Colo., and Ute Mountain Casino in Towaoc, Colo.

Upper Fruitland plans to break ground within 30 days on a casino, gaming CEO Robert Winter said.

"We have retained a construction management firm, completed the architectural design and contracted with a construction manager," he said. "We are preparing a construction budget, which is expected to be complete within a month, then we will break ground."

The casino is expected to be complete within a year, with a grand opening scheduled before Christmas 2011, Winter said.

The casino will be the fifth operating within 65 miles of Farmington, but a competitive edge relies largely on state laws.

The Upper Fruitland Chapter in August voted in favor of allowing alcohol sales in the restaurant of the new casino, a move that put the unbuilt casino on par with SunRay Park & Casino. SunRay already sells beer and wine with food.

Restaurant sales of beer and wine with food is the only legal way to serve alcohol in casinos, said Teala Kail, spokeswoman for the New Mexico Regulation and Licensing Department, which oversees liquor licenses and other permits.

Neither SunRay nor Upper Fruitland will be allowed to serve alcohol on the gaming floor, despite differing jurisdiction and state regulations, Kail said.

"In no situation would (either) be able to apply for a liquor license to allow floor sales," she said. "There is no liquor on the gambling floor. It would take a change in the liquor control act to change that."

SunRay operates 510 gaming machines, live horse racing, simulcast horse racing and a restaurant, Sportz Arena Bar & Grill.

The Navajo Nation also plans to open a major casino and resort near Flagstaff, Ariz., in the coming year. Gaming is prohibited by Utah law, so the tribe will not seek facilities in the Utah portion of the reservation.

"In a competitive market, I think we'll do more than hold our own," Winter said.

Financial accountability

The Navajo tribe jumped into the gaming industry amid several controversial failed business attempts that ultimately cost the Nation millions of dollars in investments.

As the tribe was opening the doors to the Fire Rock Navajo Casino in late 2008, it was closing doors on other endeavors, including Biochemical Decontamination Systems Manufacturing Inc., in Shiprock, and Diné Poultry Products, which was to be located in the Eastern Navajo Agency, but never broke ground.

JP Morgan Chase and Native American Bank in Denver collected in December 2008 nearly $3.5 million in loans on the businesses after they failed to make payments. Both businesses were secured with collateral from the Navajo Dam Escrow Account, a fund established through a settlement between the Nation and the city of Farmington.

The combined losses from the two businesses comprised more than half of the estimated $6 million in the Navajo Dam Escrow Account. The Tribal Council established the account to be used solely for the purpose of collateralizing loans to Navajo entities within San Juan County or chapters within the Northern Navajo Agency for economic development projects.

At the same time, the Nation was considering going with JP Morgan to finance the first casino, raising valid questions of the tribe's ability to be financially accountable.

But American Indian gaming is touted as the most regulated form of gaming in the United States, leaving little room for mismanagement or disappearing dollars.

Tribal gaming operations are regulated at three levels: tribal, state and federal. Federal oversight includes the National Indian Gaming Commission, the Department of Justice, the treasury department, the Department of the Interior, the FBI, the IRS and the Bureau of Indian Affairs.

Tribes pay more than $212 million annually to regulate their gaming operations and pay for state and federal regulatory costs, according to National Indian Gaming Association data. Indian nations also pay another $8 million annually to fund federal regulation through the National Indian Gaming Commission.

Tribal governments employ more than 2,800 gaming commissioners, attorneys, auditors and regulatory staff — more regulatory personnel than used to oversee commercial casinos.

On a tribal level, the gaming industry must disclose revenues and expenditures on a quarterly and annual basis, as regulated by the state.

All Navajo owned

Wary of taking out another loan from JP Morgan Chase, the Navajo Nation instead turned to its Land Acquisition Trust Fund to pay for its gaming enterprise.

The original loan, approved in March 2008, used $35 million from the fund, which is reserved for land purchases, to construct the Fire Rock Navajo Casino. When Fire Rock opened, the tribe became the 14th tribe or pueblo in the state to operate casinos.

The tribe this year approved an additional $300 million in construction projects to fund the remaining five casinos.

The tribe entered the industry at the right time, despite concerns that it was behind the game, Navajo Gaming Enterprise CEO Robert Winter said. Other concerns included the sagging economy and projections that casinos would do poorly when money was tight.

By seeking internal funding, the Nation avoided the banking market and secured a much higher return rate on its own money, which ultimately benefits residents, Winter said.

"When you go out for bank financing, you have to deal with the market in general," he said. "Right now, the market is generally depressed, and gaming investment is considered by banks — and always has been considered — risky. Given the fact that banks aren't financing much at all, it's very difficult to get outside funding."

Winter called the Nation's interior investment a "triple win," citing three ways the gaming industry helps pump up the economy.

"The fact that the Navajo Nation is investing in itself is a very good thing," he said. "It's basically a win-win-win thing."

The Gaming Enterprise borrowed money from the Nation at 16 percent interest, Winter said. Although a bank loan likely would have come with 4 percent interest, the enterprise returns the money directly to the Nation.

Gaming also creates jobs, both for permanent workers at the casinos and for temporary construction workers, Winter said. Because Fire Rock Navajo Casino employs a 92 percent Navajo staff, the majority of its $10 million payroll, which includes wages and benefits, stays within Navajo homes.

Further, the construction work force for the Fire Rock Navajo Casino was 65 percent Navajo, he said.

Winter projects the Upper Fruitland casino will yield 400-450 permanent jobs, with a $12 million payroll and a construction workforce comprising mostly Navajo employees.

"That's money going back to Navajo families," he said. "The work force in Upper Fruitland is even more Navajo, so that will enhance the economy of the Navajo Nation because the jobs will funnel money into their pockets."

Unlike other gaming tribes, the Navajo Nation will not issue checks to residents, Winter said.

"Individual members will not get a direct payment," he said. "Navajo is so large, that is not happening. It all goes back and is shared by the Navajo Nation."

Instead of sending checks to the estimated 225,000 Navajo citizens, the enterprise, as required by the Indian Gaming Regulatory Act, gives the money back to the Nation for use specifically for infrastructure and government programs, Winter said.

"If this were a bank-financed deal, most of that would go away," Winter said.

Move to the future

Although accused of flooding the San Juan County market with slot machines, the tribe maintains its right to operate casinos.

Most tribes enter the industry to offer a better quality of life for citizens. Gaming has improved the lives of millions of American Indians, funding homes, schools, hospitals and clinics, according to National Indian Gaming Association data.

Gaming money also has funded infrastructure to tribes that went without basic modern services such as water, sewer, electricity, paved roads and emergency personnel.

Some of the push locally to build casinos on Navajoland comes from outside pressure, said LoRenzo Bates, Upper Fruitland delegate to the Tribal Council and a member of the Council's Budget and Finance Committee.

"We hear all the time that Indian nations need to do something to be independent, to not be dependent on the country," he said. "So here we are, doing something for ourselves, using our own money to create employment so we're not so dependent on the nation or the county or the neighboring cities."

The small casino in Hogback, which offers 120 gaming machines and a small snack bar, is expected to help jump-start an economy that has struggled, Ervin Keeswood, outgoing delegate representing the Hogback Chapter, said at the grand opening for the Flowing Water Navajo Casino in October.

The Hogback Chapter, located in the shadow of the larger Shiprock Chapter, planned for a casino for 10 years, Keeswood said.

"This is a dream for this little community," he said of the casino. "We will build a foundation here, be in operation for one year, five years to know the revenues, then eventually create opportunities for small business."

Too good to be true?

Indian gaming promises jobs, growth and unsurpassed wealth to members of the 564 federally recognized tribes.

Proponents of Indian gaming applaud the industry, claiming it is the best tool available for building self-reliant native communities.

"Without question, tribal gaming is the most productive economic tool tribes have had for 200 years," states a promotional pamphlet published by the Nation Indian Gaming Association. "It holds the potential for a self-reliant future for Indian communities. For those who truly care about justice for Indian people, that should be the bottom line."

Not all Navajo citizens believe gaming will be the salvation it promises. A vote went before the people twice before they approved gaming on the reservation.

"The Nation might be winning the bulk of the money, but someone in the middle of the reservation is getting poor," said state Rep. Ray Begaye, D-Shiprock.

Begaye, who has served as a state representative since 1999, is one of most vocal critics of Indian gaming. He has spoken out against what he calls "front-end" development of gaming on the reservation and has faulted the Nation for poor financial oversight and accountability, even as it moved rapidly forward in the industry.

"My main concern and my oppositions to starting these casinos was a lack of preparation and laws incorporated to provide transparency," he said. "It seems to me that the Navajo Nation tribal government has been creating laws as the casinos are being developed."

Begaye compared the tribe's gaming industry to a game of baseball with no rules.

"You don't have a simple home run," he said. "If you trip someone coming into first base, you create a law in the process of playing the game. It's haphazard. It's questionable."

Begaye also has spoken out against the social impacts of gambling.

"That is my chief concern," he said. "No studies are being conducted yet, and the Navajo Nation is reluctant to do those studies. The Nation doesn't want to see the bleak reports in terms of addiction, poverty, alcohol abuse, divorce and all the other negative influences of going to casinos."

Coming Wednesday: Casino industry strives to balance social issues with economic benefits

Alysa Landry: