Extortion or fair share? State wants cut of casino revenue in exchange for live dealers

To hear many Cherokee leaders on the eve of last week’s tribal elections, the tribe is incredibly close to striking an agreement with Gov. Beverly Perdue that would allow live dealers at the casino, perhaps within weeks.

Two letters from the governor’s office to the tribe in August indicate the truth is murkier than the political message, however.

In return for those live dealers Cherokee maintains would lead to a surge in gaming dollars, North Carolina wants a slice — perhaps more accurately described as a chunk — of the casino-revenue pie.

Exact dollar amounts aren’t detailed. But reading between the lines of a politely worded argument between the tribe’s attorney general and general counsel for the governor, the two parties are clearly at odds over exactly how much the cash-poor state can realistically expect to squeeze out of the Eastern Band of Cherokee Indians.

“They are not close,” said Perdue’s spokesperson, Chris Mackey, when asked Tuesday how near negotiations are to finalizing between the tribe and Perdue.

The state, under federal law, can’t tax casino profits or sales taxes on casino purchases, because the tribe enjoys sovereignty. The state can, however, demand a percentage of gaming revenue in exchange for giving the tribe gambling privileges.

The state initially wanted the tribe to give up a share of all revenue from the entire resort: the existing gaming machines, the new table games, along with hotel, restaurants, spa, concert revenue, retail shops, you name it.

That tack was sidelined, however, by the Department of Interior, which ultimately has to approve any “revenue sharing” arrangement between the state and the tribe. Oversight by the federal agency attempts limit what states demand of tribes to a reasonable amount.

But there’s the rub: What’s reasonable? While the state was forced to back off demands for a cut of all resort revenue, the sides are still at odds over what’s on the table: all gaming revenue, including existing gaming machines, or only revenue from newly introduced table games with live dealers. Another option being debated is a direct, flat payment to the state each year rather than a percentage based cut.

Negotiations with former Gov. Mike Easley several years ago reached an impasse, but were rekindled with Perdue this year. Easley had demanded too great a share of revenue, and neither side was willing to budge.

The tribe can’t play hardball forever, however. Getting live dealers at the casino is critical to the tribe’s financial wellbeing: The Eastern Band has a $633-million expansion to pay for at a time when the recession has taken a toll on casino business.

“If they don’t get table games it is hard to see any of this succeeding,” said Vin Narayanan, Managing Editor of Casino City Press in Atlantic City and an expert on the industry. “That is the first thing.”

The casino can’t diversify its audience, or attract a younger generation of gamblers, without table games and live dealers, according to Narayanan.

“Young players play table games. Young players don’t play the slots,” Narayanan said. “Casinos know they have an aging demographic that is attracted to the slots. If you have 4,000 seats of all slots your demographic isn’t going to get any younger.”

 

Action in Raleigh next week

If the tribe can reach an agreement with the Democratic governor — which state Sen. Tom Apodaca, R-Henderson County, sympathetically described as akin to hitting a rapidly moving target — the Eastern Band does appear to have the votes necessary for passage in the General Assembly, Apodaca said.

The General Assembly is expected Sept. 12 to signoff on allowing the tribe and Gov. Perdue to renegotiate a gaming compact that would allow live dealers. Perdue noted in the proposed legislation that she “desires to amend the compact,” provided the tribe and state can reach an actual agreement.

Despite the blessings of the General Assembly anticipated next week, the letters from the state reveal the critical agreement with the governor might not be easily won anytime soon, however. Cherokee hasn’t exactly gotten the cart before the horse, but this horse sure is proving difficult to saddle and ride.

While the state clamors for a cut of gaming revenue, the tribe has a wish list of its own that includes more than live dealers. The tribe also wants the state to guarantee its gambling monopoly — a promise not to allow any other casinos anywhere in the state for the 30-year duration of the gaming compact, or until 2041.

The state doesn’t appear willing to go that far.

“We believe the area of exclusivity should be focused on Western North Carolina, recognizing that this protects the tribe from an encroaching competitor while at the same time it avoids binding the hands of future governors and legislatures,” read one of the letters from the governor’s office.

In earlier negotiations that allowed the tribe’s existing casino operation, the tribe was made to give up some of its gaming revenues (at least $5 million a year) for the good of the region. The Cherokee Preservation Foundation was formed to award grants to worthy economic development or cultural initiatives across the mountains, not just on the reservation. The state is willing to reduce the amount the tribe has to funnel to the Cherokee Preservation Foundation if that’s what it takes for the state to get the cut it wants for itself.

Ultimately, the negotiations between the tribe and the state are playing out like the ultimate poker game. A cash-strapped state that’s eager to claim a cut of casino revenue; a debt-burdened tribe that needs live dealers. Only time will tell who has the better hand.

No limits

A chandelier over a high-limit gaming table at Harrah’s Cherokee Casino costs $150,000, more than the median selling price of homes in Western North Carolina last year.

Like all the luxury touches found in the casino, it was custom designed. Carpets weren’t picked from swatches. And you won’t find the light fixtures in a catalogue. A team of interior designers invented everything from scratch and had them manufactured to order.

They exude class. On average, the casino’s interior finishes cost $250 a square foot. The tile mosaics on giant columns are real slate. Any paneling is real wood.

“They didn’t skimp on quality at all. When people come in here and play, they look at finishes. They look at décor. If it looks cheap their perception is going to be this was just thrown together,” said Matt Pegg, executive director of the Cherokee Chamber of Commerce.

But in some spaces, such as the posh Asian gaming room — boasting a traditional moon gate over the entrance, thought to bring wealth to those who pass through it — interiors ran as much as $600 a square foot.

If dropped in to Harrah’s blindfolded, the glitz and glam could easily place you in Vegas. But behind the veil, the subtle influence of color and design leave no doubt this casino is in Indian Country.

“In the beginning, we created a story, what I call the backbone, of the entire casino,” said Michelle Espeland, the lead interior designer.

Native American themes had to be present, but not “in your face,” Espeland said. “It has derivatives of Native American influence, but not over the top.”

Cherokee art with highly literal images once decorated the hotel rooms and corridors. The new art package, as they call it, is much more subtle in its native themes.

Espeland was one of nine interior designers at the project’s peak working for The Cunningham Group, the architect firm over the casino expansion.

Common threads run through the casino, from the hotel’s front desk to the shopping concourse. But such a large, sprawling space needed variation, too.

Themes define four blocks within the casino: Mountain Breeze, Woodland Moon, River Valley and Earth Water. The interiors team devoted an entire wall of their office to a creative board, papering it with key words and adjectives that related to each theme.

Set into the ceiling above gaming tables in Woodland Moon, lighting shines through yellow glass set in a tangle of wooden beams, meant to convey dappled light filtering through tree branches. In Earth Water, a light display covers a three-story wall to give the sensation of falling water drops.

Also part of the Earth-Sky zone, the 600-seat buffet has a soaring ceiling bulging with angular rust red boulders. A giant two-story marble slab on one wall is inlaid with jagged, elongated mirrors representing fissures in a rock face.

“It’s the notion of being in a geologic formation,” said Erik Sneed, construction manager of the project. He pointed out the ceiling overhead dotted with constellations.

asiangamingroomThe finer points of design are so imbedded throughout the casino, it’s impossible to discover them all. Even the newly-opened food court, featuring a Dunkin Donuts, Boar’s Head deli counter and the like, is so polished that “food court” is hardly the right name for it.

“Of course, we did it with typical casino flare — spent a fortune on all the fixtures,” Sneed said.

Pegg thinks it was the right call.

“We’ve all been to that place that is supposed to be great but you get there and it is only alright,” Pegg said. “Here, there is going to be that ‘wow’ factor. People will want to come back again and again.”

Hello Bellagio, meet Cherokee

The Mirage has a volcano. There’s the Fountains of Bellagio, and the pyramid-shaped Luxor.

Cherokee will have the Rotunda, the crown jewel of the $633 million expansion to be unveiled next year and serve as the new casino entrance.

“With any casino, the notion of a grand arrival is key to create a sense of excitement,” said Erik Sneed, the tribe’s construction manager over the project. “You want a huge sensomatic, volumetric experience.”

And that’s exactly what Cherokee will have.

rotundaShining five-story trees made of colored glass, like giant Tiffany lamps, ring the Rotunda with a 75-foot waterfall cascading down the middle. A 140-foot screen wraps around the walls where choreographed shows will be projected in concert with visual manipulation of the lighting in the trees and waterfall, along with intense audio effects.

“The lights will go down, you hear thunder rumble, suddenly the trees glow an intense red, the screen comes on, the music start and the show plays,” Sneed described.

One of 15 shows will play on an hourly schedule.

A massive, floating, spiral staircase winds through the trees and wraps around the waterfall. The self-supporting staircase was designed without columns underneath.

“We wanted the effect of a staircase that looked like it was suspended in thin air,” Sneed said.

But it also took an engineering feat to float with 50 tons of twisted steel.

“The only place that could roll steel that big was in Canada. We had to buy the steel, have it fabricated, shipped to Canada and then back to Cherokee,” Sneed said.

Men at work: Behind the veil of Harrah’s $633 million expansion

As Harrah’s Cherokee Casino closes on the final year of a massive $633 million expansion, the hum of construction that’s been a backdrop to life in Cherokee will give way to a luxury resort positioning the Eastern Band of Cherokee Indians for unparalleled economic dominance in the region.

“It is unlike anything else that has ever been attempted,” said Erik Sneed, the tribe’s construction oversight manager for the expansion. “You’ve seen projects like this in Vegas or Atlantic City. Rarely have you ever seen it in Indian Country.”

The project had 1,100 construction workers at its peak and 43 architects and interior designers.

Anecdotes depicting the sheer size of the project are limitless. Sneed traveled to Korea to negotiate directly with Samsung for televisions. Nothing quite says purchasing power like an order for 800, 42-inch flat screens.

The expansion was a monumental attempt to change the face of Cherokee’s casino into a resort destination and draw a new demographic of gamer.

It was pursued at great cost, and perhaps risk. It’s the largest construction project in the Southeast, no small feat in recession times. But the tribe simply could not continue to sit on its laurels, said Darold Londo, general manager of Harrah’s Cherokee.

“There were people who were happy with what they had, the whole ‘one in the hand worth two in the bush thing,’” Londo said. “We don’t have that luxury because our customers play elsewhere. They go to all the other gaming markets in the country. There is an incentive to keep pace with them.”

rotunda_constructionWhen the expansion is finished next year, the casino will have pulled off a five-year construction project while remaining one of the most profitable Harrah’s casino properties in the nation.

“My boss never wanted to hear construction used as an excuse. He said ‘Don’t tell me your revenues are off or your services scores are down because you’re building something new. I just don't want to hear it,’” Londo said.

Londo’s boss at corporate headquarters wasn’t the only one unwilling to give the Cherokee casino a pass on making revenue goals while in the throes of construction.

There were 13,900 other people — the enrolled members of the Eastern Band — counting on profits holding steady. Casino profits flowing to the tribe hovered around $225 million the past two years, with half funding tribal programs and the other half paid out directly to the Cherokee people in the form of twice-annual checks.

The tribe relies on casino money for many of its services, from subsidizing the hospital and the school system to native language programs for children. Families rely on their individual cut to make car payments, buy medicine and put their kids through college.

“One of the primary goals was to not affect the tribe’s distribution,” Sneed said.

The expansion won’t only double the number of games to a total of 4,600, but includes a complete renovation of the existing gaming floor.

The biggest challenge: maintain players’ experience and never, ever, go off line. Keeping the casino’s 3.6 million annual guests isolated from the construction zone around them was a feat in itself. False walls created a bubble around the operable areas of the casino while hundreds of construction workers toiled just on the other side.

“I call it the ticking dominoes,” Sneed said. “We’re cascading through a construction sequence.”

Matt Pegg, executive director of the Cherokee Chamber of Commerce, has been a doting spectator of the expansion.

“It has been impressive just to watch it,” Pegg said. “One day you walk around the corner and there is a big wall. The next day they have taken that wall away and there are 500 more machines or a food court.”

One work-around to keep the casino running amidst the construction — quite literally — stemmed from the unfortunate location of the main electrical room. It sat smack dab in the middle of the old motor coach lounge, destined for demolition to make way for an upscale steak house.

Contractors ruled out moving the main electrical room, which houses all the power panels that run the casino. Instead, they decided to demolish the building around it. Crews couldn’t mess up. Knock out the casino’s electrical power, and the lost revenue per minute was unthinkable.

“They were nervous as cats,” Sneed said of the demo crews.

Electrical crews couldn’t exactly kill the power either when it came time to move or add circuits, so specialized teams donning full-body rubber suits and helmets to work with the high-voltage live circuits.

While the guests are oblivious to the construction zone surrounding them, it’s hard to miss once you’re back-of-house.

Drill-slinging construction workers clad in blue jeans and work boots, tool belts clanging about their waists, scurry up and down the employee corridors. Drafting tables, spilling over with blueprints, are tucked into every corner of the hallways. The noise of saws and sledgehammers, somehow imperceptible on the gaming floor, is pervasive.

Even in the administrative wing, hardhats are never far from reach, looped over coat racks and stowed on bookshelves behind nearly everyone’s desk.

 

Taskmaster of great proportions

On a construction tour of the casino last week, Sneed made a stop over in the new 600-seat buffet, stepping around paint buckets and drop cloths, dodging men on ladders and weaving through a mine field of flying sawdust from table saws.

He excitedly started talking about the grand opening of the buffet just two weeks away without a hint of hesitation or flicker of doubt. It would all come together quite quickly, he said, not at all bothered that the flooring still wasn’t down, dining room tables were no where in sight, let alone finishing touches like napkin dispensers.

“We haven’t delivered anything late so far,” Sneed said.

Execution of the construction project was critical, and the tribe wasn’t leaving it to chance. True to form, the tribe once again proved its capacity for foresight by hiring two of its own contractor liaisons. Their job: ride herd on the construction crews, make punch lists, double check work against blueprints, even scout for the best pricing on interior fixtures.

Harrah’s corporate, with a lot riding on the expansion as well, sent two of its own experts in construction oversight.

“Because of the size and the scale, we wanted to make sure the interest of the tribe was represented in the performance of the work,” Sneed said.

There were 50 to 60 subcontractors working on the job at any given time. Sneed set up shop smack in the middle of the contractor’s encampment, a field of 20 trailers across the street from the casino that served as the central nervous system of the expansion.

As Sneed strolled through the buffet still under construction last week, he pointed to newly installed light fixtures that were the wrong kind and need replacing.

“We saw those and thought, ‘Those don’t blend very well with the architecture. Is that right?’” Sneed said. “So we had to go back and compare it to the drawings.”

The tribe switched contractors part way into the project, parting ways with the crew initially hired for the job over what Sneed referred to as “some mix-ups along the way.” Turner Construction, a century-old company and one of the largest in the country, was brought on. It was a good move, Sneed said.

“You are hiring that company because of their resources, but also their credibility. They have a reputation to protect in the industry and so they aren’t going to screw something up and leave it,” Sneed said.

 

A maze of construction

Most people would need a road map, if not a handheld GPS, to find their way through the maze of construction corridors and work zones, accessed to those in the know by slipping behind black curtains or ducking through the many “no-entry” doors pocking false walls on the gaming floor.

“It’s confusing. You could easily get lost on this project,” Sneed said.

But not Sneed. He knows the project like the back of his hand, a three-dimensional map of the blueprints seared into his mind.

For the directionally challenged, the casino has maps for hotel guests. Navigating the gaming floors, eateries and retail concourse is tricky enough without adding in the complexity of trekking there from one of the hotel towers and back.

But to steer the majority of guests, way-finding signs are mounted overhead, designed by an expert in such signage brought in a consultant.

“When you have a building this size, you have to make sure way finding is clear cut,” said Sneed. “It is so enormous, people have to understand clearly how to get out of this building in case something ever happened.”

At regular intervals on the casino floor, there are large interactive signboards, akin to a digital version of a shopping mall key, for resort guests to find what they are looking for and how to get there.

Getting lost isn’t the only problem. Getting around is too, especially for the older population of gamblers who make up the large part of Harrah’s customer base. They don’t have the mobility to make long treks.

“If you’re staying in hotel tower one and your favorite game is in Mountain Breeze, you are going to walk about a mile,” Sneed said. “It is a challenge.”

The solution: layover points to stop and rest and visually pleasing elements along the way.

“We designed it with a sense of journey so that as people make their way through, you have this or that to catch your eye and look at,” Sneed said.

It might be a group of sofas by a fireplace, artwork inlayed into the tile floor or balconies overlooking the gaming floor. A collection of sky bridges means players never have to go outdoors.

Londo said the casino is breaking industry norms with the lounging areas. For years, consumer psychology experts preached against places to loiter, warning that it is best to keep people on their feet browsing and shopping.

But Darold Londo, Harrah’s Cherokee general manager didn’t subscribe to that school. The casino was just too big for older guests not to stop and rest.

“It’s a haul for anybody, but if you are challenged getting around ...” Londo said.

Londo also cited insight from his current bedside reading, Why We Buy: The Science of Shopping. The author’s studies of consumer habits found lounging areas are not, in fact, detrimental to sales.

In coming weeks, the casino plans to deploy a fleet of golf carts to shuttle people back and forth to the hotel towers similar to those used in an airport. It also rents electric scooters.

 

Going vertical

Harrah’s hotel towers are the only structures west of Asheville in the state that are equipped with seismograph detectors. Hemmed in by mountains on a landlocked reservation, Cherokee had little choice but to build up.

“We shoehorned it all in,” Sneed said. “We couldn’t take a horizontal site and expand out. We had to think vertical.”

It’s obvious from the outside — with the soaring hotel towers and parking decks. But it also influenced the basic layout inside. A giant 600-seat buffet overlooks the gaming floor from a mezzanine, while a large 3,000-seat concert venue sits above it on the second floor. The stacked layout called for dozens of elevators and escalators.

The site limitations came at a price.

“We spent millions developing the site to accommodate an expansion this large,” Sneed said. “We went through literally months of blasting everyday getting through solid rock.”

Ultimately, construction called for nine retaining walls, including a 75-foot “soil nail” wall, the largest in the South. There was $1 million on a dewatering system for the parking garage. Another $2 million for federal stream mitigation to work around a creek that courses through the middle of the sprawling casino property.

Site work was the only portion of the construction that faced delays or cost overruns, a nasty side-effect when dealing in the unknowns of what lies below ground.

The project, once finished, will undoubtedly be a towering symbol of the tribe’s progress, a fitting monument to how a once persecuted people have bootstrapped themselves into the single largest player in the region’s economy through foresight and vision.

“It is going to attract an entirely different clientele. This isn’t just a daytrip casino any more,” Sneed said. “There’s a legacy in this also. We want to build something the community is proud of.”

Being the middleman for bulk liquor sales at Harrah’s not as lucrative as it seems

Harrah’s Cherokee casino bought nearly half a million dollars of liquor over the past year, netting almost $50,000 in profits each for the ABC stores in Sylva and Bryson City — which had the privileges of being the casino’s suppliers.

But despite the numbers on paper, it is hasn’t proved quite the windfall the two towns hoped.

“It was nothing like they said it was going to be,” said Monty Clampitt, chairman of the Bryson City ABC board.

“People thought there would be a world of money flowing in all of a sudden if we did this,” said Kevin Pennington, chairman of the Sylva ABC board. “I think it was a little surprising that there was not near as much money coming in.”

The casino began serving alcohol to customers last year. The Cherokee reservation was — and still mostly is — dry. The tribe made an exception for the casino, but lacked an ABC store of its own. So it turned to the ABC stores in neighboring Sylva and Bryson City to buy from.

Since the reservation lies partly in Jackson and partly in Swain counties, figuring out which store had dibs on being the casino’s alcohol supplier got complicated. Ultimately, the stores in Bryson and Sylva launched a joint venture with the sole mission of filling bulk liquor orders for Harrah’s and decided to split any profits 50-50.

Both towns hoped it would be a lucrative deal for them, since profits from the ABC stores go straight to town coffers.

But neither town has seen a penny yet, despite being more than a year into the operation.

“We haven’t gotten any of it yet. None,” said Pennington.

The joint venture has cleared $100,000 in profit so far, so at first blush it’s not clear why that money hasn’t been meted out to the towns along with the regular ABC dividends.

But Clampitt and Pennington said the profits to date have been used to build up working capital and inventory.

Roughly half the profits are tied up in inventory — $50,000 in liquor is stacked on pallets and shelves in the back storeroom of the Bryson City ABC store, ready and waiting to fill the weekly orders coming from Harrah’s.

Another $50,000 is sitting in the checking account, a cushion to ensure smooth cash flow, Clampitt said.

Since the state warehouse will only ship to local ABC stores once a month, they have to buy the liquor up front.

Harrah’s makes out a shopping list of what it will probably need, but its actual order may vary, so it could be weeks before the inventory moves off the shelves.

“You can’t tell a customer what to buy,” Clampitt said.

But with inventory and reserves now built up, profits made from here on out will be paid out quarterly. Sylva and Bryson City can each expect checks for $11,600 to arrive any day, a payout from the second quarter, Clampitt said.

 

Cherokee forays into ABC store of its own

No sooner than Bryson and Sylva’s joint venture has started paying off, however, and the end is in sight. Cherokee is well on its way to an ABC enterprise of its own and within the year will stop buying from its neighbors.

From the beginning, Cherokee has wanted to setup its own ABC store, selling the liquor to Harrah’s itself and keeping the profits for the tribe rather than sending them down the road to Bryson and Sylva.

The logistics of starting one haven’t been easy. The tribe ultimately needed a special bill passed by the General Assembly allowing it to start its own ABC venture, so it can order directly from the state warehouse without going through the Sylva or Bryson stores as middlemen.

The Sylva and Bryson stores weren’t planning on riding the casino’s liquor gravy train forever.

“I figured it wouldn’t be long before the tribe got it worked out,” said Larry Callicut, town manager of Bryson City.

“I was not at all surprised when the Cherokee said they can just buy stuff directly from the state,” Pennington added.

 

Delayed gratification

It will be several more months, and possibly even a year, before the new Cherokee ABC board is up and running, however. There’s a complicated computer system to set up, a staff to hire and a place needed to hold all those waiting pallets of liquor.

“They’ve got some organizing planning and what not to do,” Clampitt said.

Once that’s done the Sylva and Bryson joint venture will become obsolete. It would make sense to shut down the operation and close out the books, liquidating all that inventory and cashing out the checking account.

At that point, the two towns could expect a final payout of $50,000 each.

That’s a good chunk of change for small, cash-strapped, recession-burdened towns to clear. It’s better than nothing, Clampitt supposed, but it wasn’t exactly free money.

“It’s been a whole lot of work,” Clampitt said.

The Bryson ABC store lends its staff to the joint venture serving the casino. It takes labor to manage the inventory: keep up with what’s running low, place monthly orders with the state, parcel out weekly shipments to the casino and all the related bookkeeping.

They also personally deliver weekly orders to the casino — a perk afforded to their special customer. (Run-of-the-mill bars and restaurants have to do their own pick-up.)

The Bryson ABC store gets compensated for some of those hours. In June, for example, the store billed the joint operation for $607 worth of its employees’ time.

But the Bryson board also donates some of the labor and overhead to the joint venture. It doesn’t pro-rate a portion of its utilities to the Cherokee operation, for example. Nor does it bill for the labor of unloading the truckload of orders coming from the Raleigh warehouse each month.

The two stores have finally paid themselves back for start-up loans taken from their own bank accounts to get things up and running — namely building up the necessary inventory.

The stores also had to purchase a $15,000 computer system for the joint Cherokee venture. The state ABC system is particular about the software used by all the stores, requiring a certain type of program that interfaces directly to the state warehouse, not only for placing orders but also allowing the state to track the whereabouts of every bottle of liquor.

The state wouldn’t let Bryson’s ABC store use its existing computer system, since the Cherokee venture was technically considered a new standalone enterprise, Clampitt said. So both stores dipped into their own funds to buy the computer system, cutting into profits they would have made otherwise.

Pennington said he was skeptical from the start.

“It was such shall we say a unique situation to start that combined store, I personally never felt like it was done for the best interest of the people of Jackson County to begin with,” Pennington said.

Pennington said he actually advocated against it, but the state ABC people made them do it.

“It wasn’t our idea at all,” Pennington said.

As for the $15,000 computer system? Bryson and Sylva ABC boards have already written that off and deducted it from the Harrah’s profits. But it would be nice to get a little something back for it when the joint venture is shut down,  Clampitt said. He hopes they could sell it to the new Cherokee ABC board.

Coincidentally, a countywide alcohol referendum on the ballot in Jackson County next year could lead to a new ABC store in Cashiers, which if passed, might just need a computer system as well.

 

Why so complicated?

Liquor sales in North Carolina are a tightly regimented affair. All liquor coming in to the state makes its first stop at warehouse in Raleigh. Local ABC stores in turn order from the state warehouse, a means of controlling the sale and distribution of liquor to the public.

Local stores act as middlemen. They get the liquor at wholesale prices, then mark it up to resell to customers, both to the general public and to bar and restaurant owners. The state dictates how much of a markup is allowed, about 25 percent.

After covering overhead and salaries, local ABC stores turn the remaining profits over to the local government, either the town or county, or in some cases both.

Cherokee election politics fixed on looming casino debt

In the current political debate, the word ‘debt’ has become ubiquitous. Cherokee is no exception, where discussion of the debt of the Eastern Band of Cherokee Indians — and how, precisely, to dispose of it — has dominated the election season since it began this spring.

With one month to go until the election for chief, vice chief and tribal council, voters are standing up at every public forum to ask questions about the debt while candidates are touting their plans to eradicate it.

Meanwhile, the finance department for the tribe has gone on a massive public information campaign: opening a forum on the tribe’s website, starting a hotline where people can e-mail questions and get an answer back from a finance officer and leafleting the reservation with brochures entitled things like “A Closer Look at Tribal Debt.”

One question seems to underlie the whole discussion: how much, exactly, is the debt?

Answers from different sources have been many and varied, and depend very much on where you stand politically. The incumbent chief and vice chief claim the tribe’s debt is manageable. The challengers claim it has ballooned out of control.

It’s often said that numbers don’t lie, and with tribal debt, these are the raw numbers as of June 30, the end of the last fiscal year.

The tribal government has two debts it’s paying off directly: $57.2 million is still owed on the $107 million school complex and $10.8 million is still owed on the Sequoyah National Golf Club.

There’s also an $8.9 million series of loan guarantees that the tribe backs for the Cherokee Historical Association’s line of credit, the Tribal Bingo Enterprise and Balsam West, a broadband enterprise the tribe has a stake in.

If you take the position of the tribe’s finance department and Principal Chief Michell Hicks, that’s all the debt the tribe has — $76.9 million.

But then, of course, there’s the casino debt.

The casino is undergoing a massive expansion project, for which the tribe’s casino enterprise has secured a $650 million line of credit. So far, the enterprise has tapped $494.3 million of it.

Deputy Financial Officer Kim Peone expects that not all of it will be spent when the expansion is complete, and she doesn’t consider that tribal debt at all.

The casino is an entity of the tribe, but is run by a separate group called the Tribal Casino Gaming Enterprise. The gaming enterprise, not the tribe itself, is responsible for the casino’s half billion in debt.

But here’s where politics comes into play. The current administration running for re-election is adamant that tribal debt shouldn’t include casino loans.

And it’s true that, if the casino defaulted, the bank wouldn’t come looking for the tribal government’s assets.

“We’re not ignoring the impact that a default would have on this tribal government and the services that we provide to this community,” said Peone. “But the casino debt is not guaranteed by the tribe, it’s guaranteed by TCGE.”

From that perspective, there’s $76.9 million in debt. Meanwhile, the tribe’s designated account it makes debt payments from has just over $134 million in it.

Simple math tells you that the tribe could pay the debt off today, but according to Peone, choose not to because that money is earning more interest than the debt is costing.

“Currently, the interest rate on that loan is less than the funds that we’ve invested in,” said Peone. “From year-to-date, that fund has earned 4.5 percent as opposed to 2 percent in a loan.”

On the current schedule, she plans to have both the school and golf course loans paid in full by 2014.

 

Casino debt part of bigger picture

But opponents say you can’t remove the tribe from the casino; they’re inextricably linked.

For starters, profits from Harrah’s Cherokee Casino accounts for roughly 90 percent of the tribe’s operating budget. If more of those profits were diverted to making debt payments, the tribe’s budget for providing services to enrolled members — such as schools and medical care — would be impacted.  

Patrick Lambert, a challenger for the position of principal chief, said he thinks it’s impossible to separate casino debt from the tribe.

“It’s all tribal debt,” said Lambert, pointing out that the tribe’s operating budget would plummet precipitously were anything to happen to the casino debt.

This is Lambert’s second time going for the chief’s seat, and though he lost by a slim margin in the 2007 election, he defeated Hicks in the July primary. He is a lawyer for the Tribal Gaming Commission.

Lambert said he is concerned, too, about just where the tribe is investing its money to get such good returns, asking if such investments are too risky.

“I think it’s pretty clear on debt. I come from a background of small business, and so I understand about debt and borrowing and those type of issues,” said Lambert. “Debt is a necessity, but it’s also something you can’t let get out of control. We need to control the spending so we can start applying more of the revenues we do have to overall debt.’

Right now, said Peone, the tribe puts 8 percent of every dollar it spends to paying off its non-casino debts.

The casino pays $20 million a year on its debt, plus more on interest.

Both principal chief candidates have promised to pay down the debt if they are elected, though that could be plus or minus a few hundred million depending on what you consider “the debt.”

The current administration is out to prove that the tribe is on sound financial footing, especially compared to other municipal governments.

The opposition is calling for a check on spending and reigning in the debt.

And when voters visit the polls September 1, it may be the best numbers that win.

Cherokee chief candidates debate tribe’s dependency on Harrah’s

Diversify is the buzzword in Cherokee, where candidates in the upcoming primary are facing off over how to move away from Harrah’s Cherokee Hotel and Casino as the tribe’s sole breadwinner.

With the primary just a month away, five candidates for principal chief and four for vice chief have been making the campaign circuit to local community clubs and other candidates’ forums. They’ve been pitching all manner of alternative revenue streams, from tribal stores to eco-tourism, to reduce the tribe’s dependence on revenue from Harrah’s. Currently, the casino is responsible for 87 percent of what the tribe takes in annually.

Patrick Lambert, who narrowly lost the chief’s seat in 2007 by a mere 13 votes, said that it was time for Cherokee to move on not only from sole reliance on Harrah’s, but also from the business model that sustained them in the decades before the casino’s arrival.

“We need to get away from these rubber tomahawk type shops,” said Lambert at a candidates’ forum last week, hosted by the Junaluska Leadership Council, a youth leadership program for Cherokee high school students.

He pointed to towns such as Asheville, Waynesville and even nearby Bryson City, where strip malls and kitsch shacks have given way to more upscale boutique and artisanal shops, attracting a wealthier and more modern clientele. This, he said, should also be the way of the future for Cherokee.

Sitting Principal Chief Michell Hicks suggested a similar path to diversified revenue, but proposed that Cherokee play to its strengths, namely their long history of producing unique, high-quality arts and crafts. It would be impossible to compete with tourist havens Gatlinburg, Tenn., and Pigeon Forge, Tenn., both just over the mountain, said Hicks, so the wise path is to focus on what other tourist towns don’t have.

“We don’t have the land base to compete with these places across the mountain, so we have got to create a specific market. We have to display in the right way our abilities. That’s how we market Cherokee, that’s how we recreate who we are as a people,” said Hicks. “I think the arts and the crafts is where this town is going.”

Newcomers Gary Ledford and Juanita Wilson both advocated strongly for putting the local economy back into local — and even tribal — hands, stopping the influx of outside business onto the reservation.

“It’s time to stop trying to bring in retail businesses and people who don’t care about us. Why not invest into our people here?” asked Wilson.

Ledford echoed those sentiments, suggesting a tribal alternative to Wal-Mart, so shoppers could pump their money back into the reservation instead of away from it, or tribally run waterparks, zoos and other tourist attractions.

Though there are a multitude of answers to the diversification question, there’s no doubt that it will continue to be a central theme of this year’s election. On some level, all of the principal chief candidates have included it as part of their platform.

Nearly everyone advocated for bumping up the tribe’s participation in Section 8 contracting, a federal program that helps bring a range of contracts to Native American tribes.

And then there’s the debt.

The Eastern Band of Cherokee are in the hole for nearly a billion, and about 60 percent of that is tied up in the massive new expansion under way at Harrah’s.

Of course, a chunk of the debt was laid out on the new, state-of-the-art school complex opened last year, but it’s the casino that’s gotten the lion’s share of the money.

And so far in the campaign, the question has been asked more than once, how and when will the tribe get rid of it?

Most of that grilling, of course, goes to the current chief, Hicks. He’s a two-term leader, so much of the debt has been racked up in the eight years since he took office.

And when asked about his plans in the candidates’ forum, he laid out the bold claim that he would eradicate the debt entirely in the next four years, leaving the tribe debt free when he left office.

Though he didn’t get into specifics about how he planned to dispatch the debt, he did note that part of the plan included diverting more of the casino’s cash to pay its own and other debts.

“As we roll through and increase the expansion, addressing the debt is going to be done through the cash flow,” said Hicks.

But when asked why he didn’t put large-scale projects such as the casino expansion and school complex to a referendum, Hicks didn’t directly answer the question.

“If you look at the things that we put on the ground, in my mind, that’s not spending money, it’s investing in our future. We’re making the services better, we’re making sure that jobs say intact,” said Hicks.

Meanwhile, challenger Lambert said that the way out of debt was fiscal conservatism, avoiding debt increases, softening the regulatory environment to entice in new businesses and possibly even creating tribal utilities like wind and solar power to offset the debt.

The primary election, which will whittle the field to two for both principal and vice chief, is set for July 8. And in a still-troubled economy, it may be the two heralding the best financial future that make the cut.

Cherokee hopes for dealers as casino expansion debt looms

Principal Chief Michell Hicks hinted last week at a renewed effort to bring live dealers to Harrah’s Cherokee Hotel and Casino, in a ceremony renewing the management contract between the Eastern Band of Cherokee and Ceasars Entertainment.

At an event christening the first phase of the casino’s $650 million expansion project, Hicks said the tribe continues to lobby Gov. Bev Perdue to allow live card dealers at Harrah’s. Currently, the state limits the tribe to electronic gambling only.

“We’ll continue to push her to do the right thing,” said Hicks, who is running for a third term for office this year. Hicks said he hoped the governor would wake up and “smell the roses” on the issue, but later said that such negotiations were an ongoing process rather than specific haggling with the state.

“The Eastern Band of Cherokee is continually trying to impress upon all elected officials and state leaders the importance and value of an expanded gaming enterprise,” Hicks said in a later statement. “We maintain a cordial and productive relationship with the Governor’s office and the state legislature officials and look forward to continuing that relationship.”

Negotiations for live dealers and table games — slot machines, craps, roulette and other Las-Vegas style games in addition to live card dealers — stalled last year when a video poker company brought suit against the state. The suit claimed the governor had no legal right to negotiate with the tribe for increased gaming freedom. The same company hamstrung talks in 2009 with a separate suit, which charged that allowing video gambling in Cherokee, but nowhere else in the state, was illegal and unfair.

Harrah’s General Manager Darold Londo said that while the casino wasn’t involved in talks to bring the stepped-up gaming to Cherokee — that’s between the tribe and the state — it would certainly be a boon to the business if it came.

“I’d like to think that we would offer a full-service casino experience,” said Londo. “With our proximity to Atlanta and Charlotte and Knoxville, where you have people that fly to other places to play those games, if we offered those things they could come to Cherokee instead.”

The tribe’s renewed interest in negotiating comes at a time when casino distributions are down — 16 percent according to Hicks — though he and Londo both said they’re hopeful the new expansion, which includes expansive luxury suites for high rollers and is the largest construction project in the Southeast, will crank up revenues again.

As the primary election for principal chief draws closer, however, many in Cherokee are asking how the tribe can pull its focus away from Harrah’s and diversify its revenue portfolio.

Currently, 87 percent of the tribe’s income is generated by Harrah’s. The proceeds are split evenly, with half being divvied up among tribe members and the other half funding tribal operations and programs.

Hicks himself has said that the tribe needs to move away from the casino-as-cash-cow model, and a central tenet of his platform is eradicating the debt.

The Eastern Band now hold almost a billion dollars in debt — $650 million of that is from the major expansion underway at the casino, an endeavor approved by tribal council in 2007.

Critics, including opponents running against Hicks for chief, have questioned whether it was wise to take on so much debt.

Hicks said he has a plan to eradicate the debt completely within the next four years, though he hasn’t spelled out the details of how he’ll do it.

Moving forward, he said, the tribe should look less to gaming and more to its historical traditions, especially arts and crafts.

“To generate gross receipts you’ve got to create business, and we’ve got to change our view of what Cherokee is about,” said Hicks. “We’ve got to get creative by using the thing that we’re better at than anybody else.”

While he conceded that Cherokee couldn’t compete with tourist Meccas of Gatlinburg and Pigeon Forge — they just have less real estate to work with — their selling point is the deep cultural heritage and quality craftsmanship the Cherokee bring to their crafts. This, he said, should be the basis of the new, diversified Cherokee economy.

But even as the call for fiscal diversity is made on all sides this election season, Hicks is still behind the push for live dealers, saying it would bring more jobs and dollars into the economy and help decrease the debt he’s promised to demolish.  


New suites cater to the high rollers

The crowning touch of Harrah’s new hotel tower is its range of newly opened luxury suites, reserved for casino high-rollers and VIPs.

The suites feature expansive mountain views, designer furnishings and subtle touches of opulence, like TVs in mirrors, marble logless fireplaces, 5-person Jacuzzis and wrap-around porches. Some even sport names like Crisp Hydration

The 21-story Creek Tower, the third hotel tower on campus, is part of a larger $650 million expansion of the casino.

The expansion includes a 3,000-seat entertainment venue that opened last fall, an 18,000-square-foot spa, Asian gaming room and additional poker room and will double the footprint of the casino floor.

New restaurants and retail stores will bulk out the space, too; Southern kitchen queen Paula Deen installed one of her renowned restaurants there earlier this year, while Italian chain Brio and the Ruth’s Chris steakhouse franchise are scheduled to move in by the end of 2012.

It’s currently the largest hospitality expansion project in the Southeast and, when finished, it will boast the most hotel rooms in the Carolinas.

The Eastern Band of Cherokee contract the casino’s management to Caesars Entertainment, which runs more than 50 casinos and seven golf courses across the globe. Harrah’s Cherokee has been in business since 1997 and opens its doors 24 hours a day.

Big Stakes at Harrah’s Cherokee Casino

Of the many games that grace the floors at Harrah’s Cherokee Casino, poker might be the most universal. From casino floors to living room floors, the World Poker Tournament estimates that nearly 60 million Americans play the game. Even the president plays poker.

And now, any one of those 60 million will have their own chance at the game’s holy grail, the World Series of Poker.

This month, the casino will be hosting its first-ever World Series of Poker event, a 10-day poker extravaganza that culminates in two large tournaments and a 10-player final. The lucky winner of that game will go home not only with winnings, but a coveted slot at the prestigious World Series of Poker main event in Las Vegas. They’ll even be flown to Nevada, courtesy of their winning hand.

Ron Hager, director of table games for the casino, said that in the two years they’ve been offering the game, popularity among patrons has soared.

“They’re always asking, ‘Why don’t you have the big tournaments?’” said Hager. “Then there’s the added appeal of the World Series of Poker. It’s like every poker player’s dream.”

Indeed, that’s the appeal of this event: any player can become a Cinderella story. They just need the skills and, of course, that vital measure of luck that makes a good player a winner.

Although the poker at Harrah’s Cherokee isn’t exactly like the real-deal main event the WSP puts on in Vegas — it’s an electronic set-up, sans live dealers, thanks to some legal agreements the casino has with the state — Hager said that the players aren’t fazed. Some, claims Hager, even purport to like the electronic version better than the real deal. There are fewer errors.

“The players that play it, they all say it’s a heck of a lot better than you ever think it would be. People really like it,” said Hager.

And, he said, that claim is proven by the multitudes who are flocking to Harrah’s tables.

“We started with four tables, went up to seven tables after about two months, and increased to the 10 tables we have now. On weekends and holidays, 10 tables isn’t nearly enough,” said Hager.

In recent years, the game has seen a surge in popularity, thanks to events like the World Series of Poker and other televised matchups that bring the quiet drama of poker out of smoky back rooms and casinos and into America’s living rooms.

The game has the hushed, measured qualities of golf — patience, shrewdness, strategic calculations and a certain amount of bravado and luck are what make winners. But poker, unlike golf, offers everyday players the same shot at glory as the big-name players, no preternatural athletic prowess required.

As Hager said, it’s every poker player’s dream, and as the game gains a following, it gains a lot more hopefuls, too.

The World Series of Poker started in 1971. The headliner that year — the $10,000 Texas Hold-‘em tournament that’s become the star-studded spectacle of the poker world — had six participants. The numbers languished around the lower end of the size spectrum until 2003, when the event hosted 839 players. That was the year Chris Moneymaker won. He was a 27-year-old comptroller/restaurant worker who won the big pot by qualifying through an online poker site. He was young and fairly portly. He wore baseball caps. He was everyman. And he walked away with $2.5 million.

And that’s also when poker’s star began to ascend.

By 2006, the WSP had more than 8,000 hopefuls playing hands, an increase of more than 1,000 percent in just three years.

Last year, the tournament was down slightly to around 7,000 players, but interest in the game is clearly still blooming, even with the federal indictment handed down earlier this month against the three largest online poker sites on the Internet.

Moneymaker was proof that poker, unlike many other sports, doesn’t need extensive training from childhood, wealthy parents, the right build or the right coaches. It just needs the right hand in the right hands.

Moneymaker is set to appear at the Harrah’s event, which will, in itself, be a draw. Since his watershed win in 2003, he’s played in a plethora of tournaments, but he’s also parlayed his unique rise to stardom into a business opportunity with appearances at poker events worldwide.

Hager and his team are hoping that Moneymaker, and the ethos he represents, will bring in players to their event that might not otherwise frequent the tables. Though their pre-registration isn’t high, Hager said that’s normal and not something they’re particularly worried about.

“Amazingly enough, 60 percent of the people that register for a tournament do it in the last 30 minutes before the tournament starts,” said Hager.

So if you’re still honing your online skills getting ready for the big day, you’ve still got time. And if watching is more your speed than playing, there will be large screens and special coverage set up inside the casino for spectators.

And who knows? You might just be watching another Moneymaker in the making.

 

The schedule throughout the 10 days of WSOP includes live action tournaments and events for poker players of all types. Highlights include:

• Friday, May 6- May 8 — $550 buy-in multi-day tournament and final on Sunday, May 8

• Monday, May 9 — Omaha PL Hi/Lo $120 tournament

• Wednesday, May 11— $225 Carnival PokerPro Challenge Cruise Event

• Thursday, May 12 — $60 No Limit Turbo Hold’em event

• Friday, May 13-Sunday, May 15 — $1,075 buy-in tournament, winner receiving $10,000 seat at the 2011 WSOP in Las Vegas and a cash prize.

Legislation would give Tribal ABC Board more authority

Legislation that would bring alcohol regulation in Cherokee completely under tribal control is now working its way through the General Assembly.

The Eastern Band of Cherokee Indians established its own Alcoholic Beverage Commission in 2009 following a resolution to allow alcohol sales at Harrah’s Cherokee Casino, and now the tribe is lobbying for recognition by the state.

The Tribal ABC Board controls the permits it gives to Harrah’s as well as the sale and distribution of alcohol at the casino. Now, Harrah’s must get a permit from the state, in addition to the tribal permit. With these bills, the tribe is trying to change that.

“Right now, they don’t recognize any of the ordinances other than their own. They only recognize towns, counties and townships,” said Bob Blankenship, chairman of the Tribal ABC Board. “We want them to acknowledge our authority, and we want to eliminate dual permits.”

And the issue is not just permitting, but enforcement. The Eastern Band has its own task force for alcohol enforcement, with two full-time officers on duty.

Because Cherokee is a sovereign nation, the state can’t enforce its permits there; they don’t have the jurisdiction. So the tribe is already doing it for them.

Now, they’re asking for full control of it, legally, instead of just operating on an ad hoc basis.

For Sen. Jim Davis (R-Franklin), who introduced the bill, it’s a local issue.

“I signed onto it because I believe in local control,” said Davis.

Principal Chief Michell Hicks said that he’s on board with the bill for the same reason.

Currently, there is nothing in the North Carolina alcohol statutes which specifically addresses tribal sovereignty and this bill will correct that deficiency.”

The measure has the backing of the Tribal Council, as well. In reality, the law will do little more than formalize the procedures already in place, and get rid of redundant permits.

What it won’t do is expand alcohol sales on the reservation.

Currently, Tribal ABC can legally issue sale permits to one place: Harrah’s. They can give one-time permission to serve alcohol at special events and issue brown-bag permits that allow patrons to bring their own — the Holiday Inn in Cherokee has had one since 1984 — but they still can’t let anyone on the reservation sell alcohol outside Harrah’s.

This means that, not only can other restaurants and shops in Cherokee not sell to customers looking to buy, Harrah’s itself has to take its money elsewhere, too. So ABC stores in neighboring counties are raking in revenue keeping the casino well stocked.

To change that, said Blankenship, another referendum would be needed to broaden the scope of his board’s authority.  

The idea of sales elsewhere on the Qualla Boundary, however, has been bandied about before and it has recently resurfaced. The Cherokee Chamber of Commerce sent out an informal survey, asking members to weigh in on the issue, and Chamber Executive Matt Pegg said that many seemed to be in favor of letting other local businesses get in on the alcohol game.

For now, though, said Blankenship, his board will be happy just to be recognized by the state for what they already do, without raising the question of whether they should do more.

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