Council votes to purchase Indiana casino operation
Tribal Council decided by a razor-thin margin last week to pursue a $280 million deal to purchase the gaming operation at Caesars Southern Indiana Casino, which would mark the tribe’s first foray into the commercial gaming industry. During the same meeting, Council voted to set up a new LLC to oversee the venture.
The vote, held Dec. 17, came following months of internal discussions and hours of public and semi-public meetings, including a three-hour special session Dec. 15 and a five-hour discussion Dec. 17 that was held via Microsoft Teams and open only to tribal members. Following the discussion, Council came into open session for a vote. While the vote and discussion were both broadcast on Cherokee cable, neither streamed online as is typical for Tribal Council meetings.
The Smoky Mountain News did not have access to any of the discussions or votes that took place Dec. 17, but three different council members interviewed afterward said the resolutions passed with identical 49-44 votes. Tribal Council votes use a weighted scale based on the population of each township as of the last tribal census.
All three council members reported that Chairman Adam Wachacha, Snowbird Representative Bucky Brown, Birdtown Representative Boyd Owle, Big Cove Representative Perry Shell, Painttown Representative Tommye Saunooke and Wolfetown Representative Chelsea Saunooke voted in favor of the measure. Opposed were Wolfetown Representative Bo Crowe, Birdtown Representative Albert Rose, Big Cove Representative Richard French, Yellowhill Representative Tom Wahnetah and Painttown Representative Dike Sneed. Vice Chairman David Wolfe and his seven votes were absent due to quarantine restrictions. The Smoky Mountain News has requested official voting records but had not received them as of press time.
The resolutions require Principal Chief Richard Sneed’s signature to become effective, but that will not likely be a hurdle as Sneed has been a vocal proponent of the move. A purchasing agreement will be signed later this month with closing expected toward the end of June.
According to a Facebook post from The Cherokee One Feather, the resolution to purchase the casino operation states that the tribe will contribute up to $120 million in cash and secure up to $160 million in financing. The resolution does not specify the source of funding for the down payment, the newspaper reported, simply stating that “the tribe will identify the most advantageous funding mechanism to make the equity contribution.”
The tribe’s plan is to pay back the loan in five years at 5 percent interest, though it would be the newly created LLC, not the tribal government, that would be responsible for servicing the debt.
During the Dec. 15 meeting, some Tribal Council members were bothered that the resolution proposed for passage did not specifically state where the $120 million would come from, instead listing five different funds that would be used “in coordination or combination.” Chelsea Saunooke was perhaps the most outspoken member in that regard — she said she would have liked to see the allocation amounts broken down and was reticent about draining the Debt Service Sinking Fund as suggested. Saunooke said that off-air conversations ultimately made her feel comfortable with voting yes.
“I had some questions about different scenarios for the investment accounts, and there were three scenarios that we didn’t go over on air, but those scenarios plus another loan setup really helped me,” she said in a follow-up interview. “We’re not going to dive too far into our revenue streams, particularly our investment streams. That’s what helped change my mind about it.”
The Southern Indiana Casino, located just across the river from Louisville, Kentucky, is up for sale as the result of a July merger between Eldorado Resorts and Caesars Entertainment — the same company that owns Harrah’s, the tribe’s casino management company. The merger created the nation’s largest casino and entertainment company, and in some states the union put them afoul of market share laws, meaning that the company had to sell off some of its operations in those jurisdictions. The casino in Elizabeth, Indiana, is one of those properties. Sneed said that 20 other firms put in bids to buy it. The tribe currently has a signed letter of intent with Caesars.
Under the agreement approved last week, the tribe would purchase the casino’s business operations, not the real estate it’s on — the annual lease payment for the 238-acre property totals $32.5 million. That fact took some Tribal Council members aback, and while Secretary of Finance Cory Blankenship said Dec. 15 that it initially gave him pause as well, now he thinks it’s a positive. The initial risky investment of time and money to get the casino up and running has already been made, and the tribe will have an easier time getting out of the enterprise should it so desire in the future.
“In my opinion that lessens the risk to the tribe in operating this particular business, because we don’t own the bricks and mortar,” said Blankenship.
The venture is expected to bring in $40 million annually in earnings before interest, taxes, depreciation and amortization. Casino taxes in Indiana are hefty — according to the Casino Association of Indiana, casinos with between $150 million and $600 million in gross revenue must pay 35 percent.
The operation is expected to yield a return on investment of 19 to 23 percent. However, the tribe would not receive that profit directly or immediately. State laws in Indiana mean that the LLC overseeing the operation can remit only 25 percent of the profits directly back to the tribe each year. The tribe’s 25 percent annual share of cash flowing back to the LLC is expected to fall between $3 and $5 million and would be used to fund tribal programs jeopardized by looming threats to Cherokee’s current monopoly on the local casino market.
The 25 percent rule will limit when the tribe can use the profits, but the EBCI will be the 100 percent owner of the new LLC. Should it choose to sell the operation or dissolve the LLC, the tribe would take ownership of the assets.
Tribal leaders have been discussing the potential purchase publicly since Nov. 5, when Chief Sneed first posted about it on his Facebook page. The purchase is part of the tribe’s ongoing effort to diversify its income streams in the face of looming competition for its extremely lucrative casinos in Cherokee and Murphy.
Since 1997, the tribe’s casino enterprise has enjoyed a complete monopoly over the region’s gaming industry, but now that monopoly is facing threats on multiple fronts. The Catawba Nation has broken ground on a casino in Kings Mountain, though the EBCI hopes to stop that project through an ongoing legal battle. However, there are solid plans to build a new casino just 130 miles away in Bristol, Virginia. Kentucky, Mississippi, Louisiana and Florida already allow some form of commercial gaming, and Georgia, Tennessee and North Carolina are all considering doing likewise. In a few years, there could be casinos all over the Southeast.
Unlike tribal gaming enterprises, which are regulated by the Bureau of Indian Affairs, commercial gaming enterprises are regulated by the states where they are located. Getting into the commercial gaming business now would diversify the geographic markets the tribe relies on for its income and get its foot in the door to be considered for future state-regulated projects, proponents say. Sneed said the tribe would need to make at least three or four more purchases like that underway in Indiana to replace the income that would likely be lost if the Catawba Nation is allowed to complete its casino.
The newly formed LLC will be key to the gaming operation’s success. According to the resolution passed Dec. 17, EBCI Holdings LLC will be responsible for managing and supervising the operations and business affairs of the commercial gaming enterprise — that is, of casino gaming endeavors organized under state laws rather than through federal laws directed at gaming on tribal lands.
The LLC, to be formed in Delaware, will have a five-member board of managers, two of whom must be enrolled members of the EBCI. Members will serve five-year terms, though those terms will be varied lengths initially to create staggered terms.
While the resolution setting up the board gives the tribe the responsibility of appointing initial members, the board itself will make future appointments, Owle said. Though owned by the tribe, the LLC will be wholly independent from it in terms of managing the business and the proceeds flowing from it.
During the Dec. 15 meeting, the resolution read into the record named Blankenship and Edwin Gray Rose as the board’s enrolled members, with initial terms of four and five years, respectively. The same resolution also named tribal member Adele Jacobs Madden, currently vice president of finance at Harrah’s Cherokee, as the board’s CFO and Scott Barber, regional president for Caesars, as its CEO. SMN has requested a copy of the adopted version of this resolution to verify the board’s final approved membership. The resolution directed the board to hold its first meeting in January 2021.
Reflections from council
The decision to approve the purchase has elicited celebration from some and trepidation from others.
“I’m glad it passed and being part of its passing,” said Owle in response to a request for comment. “The Tribe has been rather stagnant on other forms of diversification since the inception of gaming and with imminent threats that could be all around us in the near future, this is the first step into the commercial gaming atmosphere and is a great start to help change that.”
Dike Sneed, meanwhile, said that he’s uncomfortable with numerous aspects of both the purchase agreement and the board formation. He doesn’t like the fact that the adopted resolution doesn’t specify where the money will come from.
“Where is this money coming from? How is it going to be paid back?” he said in a follow-up call. “None of it is going to be dispersed to the tribal members. The only way they’re going to see the benefit is through programs.”
He said his “fingers are crossed” and that he hopes the venture takes off. However, he has reservations about the board not having to answer to the tribe, even when it comes to future appointments.
“The amount of non-Indians on it outweighing the enrolled members that are on it, why would we want our children to go and get educations if we’re not going to give them these good jobs?” he said.
Saunooke, meanwhile, said she sees her decision as a vote to invest in the long-term health of the tribe and to listen to her younger constituents who will be the ones living with the fallout of today’s decisions. Overwhelmingly, she said, members of the younger generations have reached out to her in favor of the deal.
“The younger generation is finally taking a stand and speaking up,” she said. “That’s been something that’s been brought up to me is maybe we’ll get the younger people talking, and this opportunity did. I think for a change they felt like they had a voice.”
Chief Sneed’s office declined to comment on the vote but said a formal press release would be released in the coming weeks.