A Decision to Survive: Trends for Tribal Gaming Navigating Challenges in Indian Country
Roberto Coppola Director of Market Research & Consumer Insights
17 March 2016
YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com CONTENTS
Preserving Traditions by Adapting to Change 3 Greater Pressure Exists on Tribal Gaming Operators to Maintain Healthy Businesses
Demographic & Psychographic Shifts 7 The “Millennial Mindset” Pushes Tribal Operators to Rethink Businesses Models
Tribal Gaming Expansion Opportunities 12 Consideration Prospects: From iGaming to Global Development
2 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Preserving Tradition by Adapting to Change Greater Pressure Exists on Tribal Gaming Operators to Maintain Healthy Businesses
Freezing rain fell as mother and child emerged from a tall pine forest that day – within what is now called Minnesota. The rain fell heavy, like thick tears from an ashen sky-spirit, and crackled with velocity against the glassy plain before them.
They had been in complete solitude, deep in the wilderness, far from their village of Kaposia, for four days. Beneath their feet was a vast frozen lake.
A light breeze kicked up into a galloping wind as mother kneeled into a snowy bank and cleared away an opening into the slush beneath them. After some time, she leaned into her son and dangled him over the gloomy ice water. His heavy eyes slowly closed. She whispered into his ear and with a quick breath dipped him into the frigid water. Though his eyes instantly opened, shock overwhelmed any possible audible reaction from within his little body. She then lifted him out and slowly massaged a handful of snow against his bare chest.
Mother believed this type of training would toughen her son for what was to come, as future chief of the Dakota (Sioux) people, at a time when their way of life was just beginning to slip away.
As she warmed him up, mother whispered into his shivering little ear, “My son, if you are to be a leader of men, you must listen to the mystery, the spirit.” She had named him Thaóyate Dúta (“His Red Nation”), an indication of the great man she knew he would become.
The exhausted child would indeed one day rise to power and lead their people, as his mother (Minnei-okha-da- win or “Musical sound of water running under ice”) had “When men are hungry they foreseen. He would go on to immortalize the name “Chief help themselves.” Little Crow”. Chief Little Crow (1862) From traveling to Washington – where he had held audiences with presidents Pierce (1854) and Buchanan (1858), to playing a lead role in negotiating treaty after painful treaty with the U.S. government, to uniting tribes that
3 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com often disagreed, Little Crow’s leadership was centered on three goals: for his nation to survive, for his culture to be preserved and for his people to “never be poor”. 1
Little Crow’s objectives, from more than 150 years ago, mirror those of Tribal Gaming today. It is vitally important that all stakeholders in Indian Country – both Tribal and Non-Tribal – understand what’s at stake if current business models are not sustainable, as some fear. The issue is about a whole lot more than business: it’s about survivability, conservation and self-reliance. “Tribal operators need to be thinking Every decision we make in Indian Gaming must be about ways in which they can stay ahead rooted in advancing these three things. of marketplace uncertainty. This includes things like: protecting gaming compacts, broadening business models, targeting Prior to the rise of gaming in Indian Country, tribes more diverse customer demographics and were typically reliant on federal grants as their only strategic expansion. With iGaming, for example, don’t just come with a solution, source of capital investment. This was a precarious come with a strategy.” situation, as these grants were typically subject to the whims of indifferent politicians and the political Gene Johnson climate of the day. Tribal governments often could CEO, Gaming Knowledge Partners not raise necessary capital, from federal/state (February 2016) governments or via traditional investment sources, for necessary projects and services on their land. To a large extent they, the first Americans, were stuck within a system where they were an afterthought.
Since a landmark Supreme Court decision (California v. Cabazon Band of Mission Indians) legalized gaming on American Indian Reservations in 1987 and the subsequent The Indian Gaming Regulatory Act of 1988, Tribal Gaming has grown to over 400 operations today.
Revenues generated ($28.5b in 2014 alone)2 have helped tribes significantly improve their communities through a myriad of important Gross Gaming Revenue Trends projects, programs and services. Surrounding, non-Indian, communities have also benefitted greatly in the form of thousands of jobs and investment from tribes, which - from a historical perspective - is not without irony.
1 Little Crow: Spokesman for the Sioux by Gary Clayton Anderson, January 1986 2 National Indian Gaming Commission statistic; up 1.5% from 2013 ($28b)
4 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com While Indian Gaming is by most accounts still a very profitable business, it is also at an important crossroads.
Many trendsetting tribal gaming properties are seeing shifts in how revenues are coming in, with non-gaming amenities gradually accounting for a larger piece of the business.
Direct competition now comes from an increasing volume of gaming operators (both brick –and-mortar and online/mobile). This, coupled with indirect competition from a huge mix of sophisticated hospitality industry players competing for the same customer wallet – and broad changes in consumer psychographics, mean the traditional “box of slots” approach, still prevalent in parts of Tribal Country is on a collision course with disaster.
At a time when some states are attempting to infringe upon tribal sovereignty in the form of tax and regulatory threats, Tribal Gaming must prioritize innovation and diversification as a means to future-proof its businesses.
Tribal Country has long been a testing ground for new ideas in the gaming industry.
TITO3 and server-based gaming are testaments to that. Class II improvements, to the point where it is basically indistinguishable from Class III from the customer perspective, is another example of Tribal Gaming on the cutting edge of technology.
Case studies outside our industry abound; we should listen and learn from the missteps of “There are all kinds of changes going on in others. Take once dominant cell phone maker every industry, all the time. Look at Fortune Nokia for example. 100 businesses from the 1950s. Their business models today are significantly different, or they aren’t around anymore. A primary factor In 2000 alone, Nokia sold a whopping 128 million now is technology, which is accelerating the mobile phones – a staggering figure 15 years ago. pace of change in business like never before.” It accounted for more than one-out-of-every-four Knute Knudson cell phones sold on earth that year. From one Vice President of Business Development perspective, they were dominant market leaders; and Tribal Government Relations, IGT the business was a cash cow and all of the senior (March 2016) executives were busy patting themselves on the back.
3 “Ticket-in, Ticket-out”; a technology used in modern slot machines that prints out a barcoded slip of paper which can then be redeemed for cash or inserted for play into other TITO machines.
5 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com From the right perspective however, they were missing the forest for the trees and viewing their market and customers in a static vacuum.
Investors, who are far more interested in where businesses are going than where they are today, took note. On the day Nokia announced their huge sales numbers for the year 2000, the stock plunged – in part because Wall Street didn’t get the sense the business was adequately future-proofing itself.
There were signs the market was changing and that new types of devices (smartphones) were on the horizon. People would always want to talk and text on their phones but increasingly they wanted to do more. The company seemed dismissive of what the outside world viewed as inevitable: their business model was not sustainable and they urgently needed to listen to the market and adapt accordingly.
Nokia grossly underestimated consumers’ desire to Nokia phone transition to smartphone technology and do more things on their phones than just talk and text. As a result, they were very late to develop a strategy.4 They were also incredibly arrogant (and naïve) about the perceived strength of their brand as a competitive advantage. Apple and Android would go on to crush them. Nokia folded in 2013. In all fairness, Nokia was not alone.
Blackberry too was slow to recognize that even business people want to have fun and socialize on their phones. Being great at corporate email was no longer enough for them to rest their laurels upon. The company’s reluctance to respond to what the market was saying has them on the ropes today.
Nokia and Blackberry, along with other examples such as Blockbuster (vs Netflix) and Borders Bookstores (vs Amazon) represent important lessons for Tribal Country to be aware of at a time when gaming revenue has not had a significant year-to-year increase in a decade.
The time to prepare for winter is in the summer.
4 Daily Mail, Mobile phone market slipping out of its hands, but is Nokia getting the message?, July 2011
6 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Demographic & Psychographic Shifts The Millennial Mindset Pushes Tribal Operators to Rethink Businesses Models
There has been a lot of talk over the past 18 months about the impact of millennials5 on the gaming industry. Much of it has been oversimplified and miscommunicated.
A disconnect persists, between two opposing camps on this topic, that needs to be expelled. It largely has to do with confusing the issue of “desire to gamble” with appeal of traditional casino games like slot machines, in their current form – as relates to a younger demographic (the oldest of whom turn 36 in 2016).
Millennials, almost certainly, will “age-in” to gambling.
The desire to place wagers on uncertain outcomes is too hard wired into the DNA of human existence for it to just disappear because a younger generation comes of age with a different value set than their ancestors.
Today’s 25 year old will also likely “age-in” to a Millennials standard behaviors-and-beliefs archetype, over time, that is less social – as they take on the additional responsibilities, experiences and burdens that come with getting older, starting families and advancing careers.
They will also have more discretionary money, as they age, to spend on things like gambling. Their “desire to gamble”, especially as they grow older, is not what should be in question or a focal point. That attribute, though not the same as their parents and grandparents, is not what is so strikingly different about them.
“A lot of it is on the manufacturers to figure Rather, it is how they want to consume a out; slots may be ok but the cabinets clearly gambling experience. Simply put, it is not a via are a problem, it needs to be more social” slot machine in its current form. Lacy Applegate Marketing Director, Cherokee Casino & But it might be a slot machine of tomorrow Hotel West Siloam Springs -- if we can shift focus, from “are they going to (March 2016) gamble”, to “how are they going to gamble” and what types of gaming environments should those innovations be consumed in.
5 Someone born roughly between 1980-2000; also known as “Generation Y”;
7 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Consider our innate desire to be entertained, juxtaposed with how our consumption behavior has changed over time. The 1930s and 1940s were known as the Golden Age of Radio, in large part due to the explosive popularity of radio shows with high production values that were listened to by millions of people on huge devices in their living rooms.
Families would gather around at specific times each week to listen to their favorite shows. Over time, mostly because of advancements in technology, how we consumed entertainment changed. But our desire to be entertained has not gone away and never will.
Another important aspect of the millennials topic is psychographics6. How consumers, across the spectrum of age, are viewing ideal leisure and Radio from the 1930s entertainment experiences is rapidly changing. The ways in which people over age 50 are interacting with technologies such as social media are influencing their perceptions and behavior; they are acting younger, despite the fact that they do not technically qualify as “millennials”.
Nearly ¼ of all Yelp users today are over age 55. The largest growth sector for Facebook the last few years in the United States has been Baby Boomers. The largest consumer segment of the mobile/casual games industry (worth billions) is women aged 35-50 – by far. Nearly 80% of those who play games on Facebook are women with the 30-45 age range being the largest block of frequent players.7
Technology has redefined the psychographics of older cohorts in such a way that it is not at all uncommon to “The social mode of operation for encounter a 50 year old with “millennial tendencies”. millennials is through technology. Over time you will see casinos evolve into a completely different experience.” Clearly, it is not just one’s age that gives one a “millennial mindset” – at least in the ways that matter. Knute Knudson Far more important than demographic category, Vice President of Business Development and Tribal is how one wants to engage with technology, peer Government Relations, IGT socialization, leisure activities and experiential (March 2016) entertainment.
6 Information, statistics, research that classifies populations by attitudes, behaviors and values 7 DataGenetics, Casual Game Demographics
8 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Baby boomers have created entire industries that never existed before in their attempts to “stay young”. Their desire to look, feel and, increasingly, to behave like younger people has never been higher. A testament to this shift: the “anti-aging” products market is expected to top $200 billion annually by 2019.
The mobile/social games revolution is a great example worth repeating. The largest single demographic for mobile/social games is women, women-with-children specifically. The incredible success of wildly popular games like “Hay Day” and “Candy Crush” among women in their 30s and 40s is largely a result of smart approaches by and game manufacturers to tap into what the market told them it wanted: easy accessibility (games that can be played on a social media platform or on a smartphone), simplicity (they are very intuitive with no complex learning curve) and they are economical (free or with highly digestible micro-transactions).
There are certainly takeaways for the casino industry as we look ahead to broadening our appeal with demographics like this (younger Interblock’s Pulse Arena women), which has traditionally “aged in” to become the most important sect of gambling business in many instances. We just have to shift our perception of them, just as we need to help them shift their perception of our industry.
Tribal gaming, with its established track record of fostering innovation, has an important role to play in determining which approaches should be pursued.
As so often is true in life, a good place to look for “We feel having a large presence something new is to start with something old. Bingo in of Interblock’s games will appeal to everybody quite frankly but to the 1980s was a highly social affair. Players faced each millennials in particular. Millennials other. It was gambling as a live event, an environment love the social element of gaming; where conversation and social collisions were organically they love skill-based games, they’re less inclined to just hit a slot machine part of the experience. that’s purely random and controlled by a computer chip. But if they can It seems plausible that a bingo player from that era is a exercise an element of skill and thought into the process and have slot player today. fun with their friends, that’s exciting.”
Could it be that the answer to the gaming floor of the Felix Rappaport future might have its roots within environments that CEO, Foxwoods Resort Casino (February 2016)
9 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com date back to the very beginning of Indian Gaming? “Each of our casinos is built with a specific time-period from our history. My Suppliers like Interblock, with their gambling-as-an- property’s time period is before removal (1800s, North Carolina) and the Trail of event style table game configurations, are in good Tears.” position to bridge the gap, via proven gambling propositions, while the industry at large experiments Lacy Applegate with different solutions. Marketing Director, Cherokee Casino & Hotel West Siloam Springs (March 2016) Though it remains to be seen what will work and which manufacturers and what types of gaming spaces will prevail, it is highly likely that the first success stories will come from Indian Country. This is because Tribal Gaming, made up of hundreds of family businesses, historically, has been the preferred path for innovation in our industry.
In the meantime, modernization of non-gaming amenities continues. Critically important here is to focus on unique elements that can serve as important points of differentiation while creating defensible competitive barriers.
Some tribes may wish to go deeper in celebrating their culture and history with an audience that is in many cases increasingly eager to learn and admire Indian heritage. Integrating more tribal elements into gaming and hospitality buildings is worth considering as it also serves another purpose: to continue to raise awareness among tribal members themselves, especially younger individuals who may be losing touch with their own cultural identity.
Farm-to-table (locally sourced) cuisine, craft beer, regional wine and food truck concepts have proven wildly successful in attracting more diverse and desirable customers. As has a smartly programmed live (ticketed) entertainment program and retail strategy. Eco-tourism, a $600 billion industry8, also represents opportunities for tribes to create more revenue streams and give consumers reasons to visit more often and spend more time and money on Indian Farm-to-table concept lands.
8 Treehugger, How much is ecotourism worth worldwide? February 2015.
10 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com These trends will continue for the “There are demographics that have been foreseeable future. As millennials age, new underserved by our industry and represent types of casino environments and gambling significant revenue opportunities. The LGBT games that better leverage technology, community is a perfect example. Another obvious demographic to target are Latinos, particularly decision-making and socialization gain here in California. You can’t grow your business market acceptance. The casino floor, largely in a highly competitive market without trying to unchanged over the past several decades, appeal to a broader audience and doing it before your competitors figure it out.” will also play an important role in the industry’s evolution. Doug Elmets Spokesperson, Thunder Valley With this shift toward businesses that are Casino Resort more holistic, it is equally important for (February 2016) operators to step out of an old school way of viewing consumer spend and rewards.
Although the margins on gaming spend are not the same as on dining or retail, today’s consumer has an expectation of accruing points – somehow / someway – on practically every dollar they spend, everywhere. It is important we figure out how to give it to them throughout their spending experience in Tribal Country.
In the music business, record sales are no longer the lead indicator of accomplishment; as that paradigm has shifted more toward things like concert ticket sales, so too must we shift our way of thinking to metrics such as micro-transactions, bounce rates and user engagement.
Every customer is important. I think If product diversification is one side of the coin, then the future is rewarding customers for surely customer diversification is the other. multiple channels of spend.”
Felix Rappaport Outreach to traditionally neglected, yet highly CEO, Foxwoods Resort Casino desirable, customer groups is another important (February 2016) strategy for Tribal Casinos to incorporate in 2016. Instead of being one offering for a specific type of consumer, forward thinking operators are increasingly viewing their properties as segmented businesses that often comprise several distinct casinos or zones (casinos within casinos).
It is incumbent upon all stakeholders in Tribal Gaming to challenge their own beliefs about what defines a desired customer experience – and how we value it. Different benchmarks need to be established.
11 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Tribal Gaming Expansion Opportunities Consideration Prospects: From iGaming to Global Development
As Indian Gaming operators continue to seek out additional revenue streams and business opportunities, the prospect of online gaming has been met with both excitement and caution. At NIGA’s 2015 show in San Diego, tribal leaders and gaming executives were looking to better understand iGaming and what the implementation thereof could mean for their businesses.
Much of the focus then was on addressing issues “With tribes in places like Southern California pursuing their own social gaming platforms, such as real-money vs social, understanding the this home-grown solution approach is going competitive landscape and regulatory issues. to spread in Indian Country. But not all Today, iGaming remains a hot topic in Tribal solutions are created equal, there needs to be education on what to look for in an iGaming Country. Much of the dialogue has transitioned platform and it needs to be integrated within from definition to implementation strategies. a tribe’s overall strategy, which also should include how to engage with guests both on and off property.” One issue that needs more examination is bridging the gap between virtual and land based Jason “Wolf” Rosenberg gaming experiences. It goes back to the critical CEO, American iGaming Solutions importance of smart design that reacts to where (March 2016) markets are and where they are going.
The eSports market is a good example. In just the past couple of years, eSports has become a global phenomenon. The global market is valued at $612 million and boasts 35 million fans in the U.S. alone. Viewership rates for eSports tournaments among the coveted young male demographic are higher than traditional sports.
The desire for more live events has spawned a new industry of tournaments that take place eSports Arena in sold out arenas like Madison Square garden, which hosted a two day League of Legends tournament recently. A similar event in Berlin’s Mercedes-Benz Arena sold out within three minutes of tickets being available for purchase. Corporations are lining up to participate in this trend which is sweeping the globe.9
9 Superdata, Report on growing eSports market, July 2015
12 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Within the next year, it is very likely that custom mini-arenas will sprout up across the
American gaming industry, from the Las Vegas strip to tribal casinos. When properly regulated, the potential gambling revenue generated by eSports could be massive. These unique environments will need to be carefully thought out so as to enhance an operator’s offerings in the right way, without disturbing the current core business.
Flexibility is key.
Globally, the gaming industry continues to expand. Commercial operators like Las Vegas Sands, Wynn Resorts, and MGM Resorts have aggressively pursued investments in emerging Asian markets. The Seminoles have shown their abilities to successfully plant their flag in places like the Dominican Republic. Mohegan Sun recently announced their successful acquisition of a highly coveted gaming license in South Korea.
“We are open for business and actively At the ICE Totally Gaming 2016 conference in seeking business opportunities. The world London, a contingency of Tribal Gaming leaders needs to understand that Tribal Gaming is an integral part of the global gaming landscape.” from NIGA, AIGA and OIGA were in attendance.
Ernie Stevens Tribal gaming’s expansion into Europe in the near Chairman, NIGA future seems to be a very real possibility.
With the notable exception of the Seminoles, Latin America remains a largely untapped market for U.S. based casino operators. Misconceptions of the region may partially explain why this remains the case. Language and culture barriers, which have not impeded explosive growth in Asia, seem to still tug at those who consider the prospects for their companies in Latin America.
The reality is that from Mexico to Argentina and practically everywhere in between, established gaming markets exist. The vast majority of these operations consist of high Mohegan Sun to enter South Korea frequency locals players and operationally are essentially a “box of slots” that will badly need professional guidance into a new era.
There is pent up demand, both locally and among tourists to the region, for more integrated casino resorts in Latin America. Perhaps a lack of sufficient market knowledge and vision partially explains why so little movement in the region among
13 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com U.S. based gaming operators exists today. “We are poised to expand; I am making it one of my strategic objectives and hopefully within the When one studies the culture and history of people next year we’ll have one or two in Latin America, themes that recur and resonate in more places where the Foxwoods Tribal Country become apparent. The influence of the flag can fly.” Maya, the Aztecs and the Incas is everywhere in Latin Felix Rappaport America. In countries up and down the region, Indian CEO, Foxwoods Resort Casino people and customs are revered and recognized as an (February 2016) important core element of their culture to this day.
The traditions and histories of those indigenous people have shaped the way the region looks, feels and thinks. Specific opportunities abound in hot markets like Mexico, Peru and Colombia, each of which looks to tourism as a pillar of their GDP and would greatly benefit from the expertise of a tribal partner.
As tribes look at development prospects for the future, particularly in foreign markets, it would be wise to study Latin America: a sleeping jaguar of opportunity for Tribal Country.
14 YWS Design & Architecture 5005 West Patrick Lane, Las Vegas, NV 89118 | 1.702.243.5670 | ywsinternational.com Thank You.
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