The Economic and Social Impact of Indian Gaming in the U.S. Gary C. Anders School of Global Management and Leadership Arizona State University

Transcription

1 The Economic and Social Impact of Indian Gaming in the U.S. Gary C. Anders School of Global Management and Leadership Arizona State University

2 Objectives I examine the potential for sustainable economic development when economic diversification is undertaken by tribal governments and financed by gaming. This presentation applies Value Chain Analysis (VCA) to tribal casinos. Such an approach will help direct investments to activities that can increase profits and employment while creating opportunities for diversification.

3 An Overview Since the passage of the Indian Gaming Regulatory Act in 1988 Indian gaming has grown from a few high stakes bingo parlors and slot machine operations to a multibillion dollar industry. According to the NIGA in 2006 gaming tribes earned: $25.7 billion in gross gaming revenue $3.2 billion in related entertainment and service revenue (12.45% of gaming revenue)

4 Background There is a wide range of Indian gaming enterprises. Casinos near urban areas, or an interstate highway are the most profitable. Perhaps casinos generate the majority of gaming revenues. Foxwoods alone earns over $1 billion annually.

5 The Evolution of Indian Gaming Since the 1980s Indian casino gaming has gone through three different stages of development. First, early gambling establishments had few amenities. They attracted patrons seeking slot machines and high stakes bingo. Second, came enlargements and renovations of existing casinos, and the construction of new casinos. Third, there is a move to build casinos that include upscale hotels with conference facilities and golf courses.

6 The Evolution of Indian Gaming The success of the initial gambling operation has provided tribes with the resources to support other types on non-gambling activities.

7 Some Questions What types of investments have take place so far? How are decisions made and what are the investment criteria? What can we expect to see from the current efforts at development and diversification? What does the academic world have offer to tribes?

8 How have gaming profits been used? According to the various gaming compacts tribes can use gaming revenues for a variety of projects: Per capita payments to tribal members Education Housing and infrastructure Health care Police, fire and emergency services

9 New Economic Opportunities For successful gaming tribes the revenues that casinos generate have provided the means to go beyond the fulfillment of basic community needs. Job creation is a high priority on many reservations, and tribes are seeking new business ventures that are profitable and create jobs for tribal members.

10 Tribal Economic Diversification Examples The Hard Rock Café Hotels & Restaurants Tobacco stores Gas stations Convenience stores Shopping malls Casino management Contracts with the federal government Alternative energy Real estate Call centers Mail-order prescriptions Cattle ranching

11 Advantages and Disadvantages Native American tribes qualify for a minority preference in government solicitations. Native Americans qualify for low interest loans for minority business development. Native Americans tribes have sovereign immunity. Tribes have the capital to diversify.

12 Advantages and Disadvantages The level of poverty and unemployment is often high. There are major health and social problems on many reservations. There are few resources and reservations are often in rural locations. The level of education and experience with enterprise development below average.

13 Business Development Most often successful business investments are made on the basis of market based criteria. The nature of tribes as political entities combined with the lack of past experience with new ventures makes it difficult for some tribes to select from the range of different possibilities.

14 Business Development Extrapolating from SBA data would suggest that 50% of non-casino based businesses will fail within 4 years (Headd, 2003). While there are less risky investments in financial instruments such as CDs and mutual funds tribes are under pressure to generate employment. The issue is how to undertake a development approach that has the greatest chance of success.

15 What Academics can contribute My research applies strategic management concepts to casinos. Using Value Chain Analysis I postulate a model for economic diversification. This approach will support new business development, and help tribal governments identify strategic performance based investments.

16 A VCA Approach to Casino Diversification

17 Value Chain Application According to Michael Porter the value chain has two distinctive types of activities: primary and support activities. The five primary stages are inbound logistics, operations, outbound logistics, marketing and sales, and service. These are supported by the firm s infrastructure, human resource management, technology and information management, and procurement.

18 Value Chain Analysis The primary activities have to do with creating the product, marketing and delivering the product to buyers, and providing service to the customers. Support activities are the functions that allow the primary activities to function efficiently.

19 Primary Activities of Casinos Inbound logistics-getting the customers to the tables. Operations-providing the games, food and entertainment. Outbound logistics-having a smooth traffic flow and orderly succession of customers. Marketing & Sales-promotion, advertising, and arranging for special events to attract customers. Service-all the activities that help maintain and enhance the customers satisfaction.

20 Supporting Activities Procurement-purchasing the food, beverages, and equipment for the casino. Research and Development-includes the information management systems, game selection, and other technologies that support casino activities. Human Resource Management-the functions associated with staffing, monitoring and compensating employees. Firm Infrastructure-includes all other necessary activities such as finance, legal, housekeeping, security, etc. Adapted from:

21 Value Chain Application The success of firms often depends not on only the cost of the goods or services they sell, but also on their core competencies (internal skills that differentiate them from competitors). Core competencies enable the firm to create value and to achieve customer satisfaction.

22 VCA as an Entrepreneurial Tool Tribes can use this model to focus investments toward each value creating activity given their own unique economic, political, and cultural conditions. The point it to strategically invest in activities that are most conducive to the performance of their overall operation.

23 Investment Strategy Applying this concept leads to making investments to expand vertical integration by focusing on different parts of the value chain. This approach will facilitate a performance based investment policy where each activity can be benchmarked against peers.

24 Using Casino Revenues as Internal Capital VCA identifies critical areas of gaming operations and minimizes the potential for investment in non-core businesses. Using VCA allows Tribal Officials to: 1. make investment decisions based on reliable information and market research 2. redirect investments from low performing areas unassociated with core business activities.

25 VCA Based Investments Help build technical expertise that is transferable to other relevant businesses Provide opportunities to develop extensive networks Support the development of core competencies Further enhance the gaming infrastructure and management

26 Implementation Identify what areas are currently outsourced. Establish an investment fund to build subcontractors from within the tribe Recruit more Native American students to work as interns. Scale investments to particular needs. The goal should be to create and launch one successful demonstration project.

27 THANK YOU

28 References Bryton, Anna. (March 9, 2007). Nebraska tribe leads diversification away from casinos, Native American Times, 13(10), 1-2. Duffy, Diane and Stubben, Jerry. (1998). An assessment of Native American economic development: Putting culture and sovereignty back in the models. Studies in Comparative International Development, 32(4), Headd, Brian. (2003). Redefining Business Success: Distinguishing between closure and failure. Small Business Economics, 21, Galbraith, Craig and Stiles, Curt. (2003) Expectations of Indian reservation gaming: Entrepreneurial activity within a context of traditional land tenure and wealth acquisition. Journal of Developmental Entrepreneurship, 8(2), /NIGA_econ_impact_2006.pdf

29 References Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, New York, Stinson, Duane. (January, 2007). The Seminole Tribe buys Hard Rock: Hard Rock Café, The Circle, 28 (1),