FARMINGTON — The Navajo tribe, still young in the gaming industry, plans to open a third casino in New Mexico next year, and its first major casino and resort near Flagstaff, Ariz., shortly afterward.

The leap into the industry, for many supportive Navajo, promises solutions to decades-old challenges of poverty and neglect on the sprawling 27,000-square-mile reservation, yet the speed at which casinos are being erected is a source of anxiety for competing tribes and private enterprises.

A large, Class 3 casino planned for an 86-acre plot in Upper Fruitland is scheduled to open next December. It follows a smaller, Class 2 facility, Flowing Water Navajo Casino, in Hogback that opened in October and another Class 3 casino near Church Rock that launched the tribe into gaming in November 2008.

The Upper Fruitland and Hogback casinos will draw patrons from the Farmington area, including those who frequent SunRay Park & Casino, which is a private enterprise, and two casinos operated by Ute tribes in southern Colorado.

A competitive edge

The success of SunRay's facilities, which comprise a racetrack and accompanying slot machines, was considered during a feasibility study on the Upper Fruitland area, said Robert Winter, CEO of the Navajo Nation Gaming Enterprise.

The newest casino in San Juan County will capitalize on a population already familiar with gambling.

"We will be located less than a mile from Farmington," Winter said. "The closer you are to the market, the better off you're going to be."

Studies on the tribe's first facility, Fire Rock Navajo Casino, reveal most of the business comes from local communities, with fewer patrons passing by on roadways or visiting as tourists, said Raymond Etcitty, general counsel for the Navajo Nation Gaming Enterprise.

The new facilities will try to lure patrons from existing casinos, Etcitty said, including those loyal to SunRay; Ute Mountain Casino, in Towoac, Colo.; and Sky Ute Resort, in Ignacio, Colo.

SunRay staff for the past month have worked to install new video gaming machines on its casino floor.

It is not known what other upgrades or strategies SunRay is planning to maintain a competitive edge as Navajo casinos move into the county.

Horses race at the Sunray Casino horse racing track last year.
Horses race at the Sunray Casino horse racing track last year. (The Daily Times File Photo)
SunRay CEO Byron Campbell denied multiple requests for interviews this month.

County officials, however, are worried about losing revenue at SunRay, especially once the Upper Fruitland casino is in operation. SunRay pays the county $2 million in lease per year, plus gross receipts taxes.

The Upper Fruitland casino eventually will include a restaurant, hotel and other amenities.

"We're concerned that they're going to flood the market," county CEO Keith Johns said of the additional casinos. "It doesn't quite seem wise to put two more casinos there (in the county). There are many concerns that more casinos will put pressure on the market."

Another blow to SunRay is the different rules governing casinos on American Indian land, Johns said. Non-Indian gaming facilities pay more in taxes and state fees than Indian-operated casinos.

"We're just going to watch and see," Johns said. "That's all we can do."

State gaming regulations

American Indian-operated casinos and bingo facilities grossed more than $25 billion in 2006 for the 225 tribes that participate in gaming, according to data from the National Indian Gaming Association. The industry has created more than 670,000 jobs, and in areas of high unemployment, American Indians make up more than 75 percent of employees.

Unemployment on the Navajo Nation hovers near 50 percent, and the new casinos hire almost exclusively from the tribe.

The Nation is late in joining the gaming industry, entering more than 20 years after the first tribes gained success and popularity with casinos.

New Mexico also was late to legalize gaming, passing legislation allowing the practice in 1997.

The Navajo tribe entered a gaming compact with the state of New Mexico in November 2003 and approved gaming through a referendum vote the following year. The compact was the same as the one signed by the state and other New Mexico tribes in 2001.

Under the compact, the Nation agreed to pay the state 8 percent of its net win as long as the net win in a calendar year is more than $12 million.

Net win is defined as total amount wagered on all gaming machines, minus the amount paid out in prizes, to the state and in regulatory costs.

If net win is less than $12 million, the tribe pays the state 3 percent for the first $4 million of net win and 8 percent for the rest of the net win for the year.

Those revenue-sharing payments are made on a quarterly basis and are deposited into the state's general fund.

Also under the 2001 compact, the Nation did not face limits on establishing Class 3 gaming facilities, said LoRenzo Bates, Upper Fruitland delegate to the Navajo Tribal Council and a member of the Council's Budget and Finance Committee. Class 3 casinos are those with more than 700 slot machines and other amenities, including hotels and full-scale restaurants selling beer and wine with food.

The Nation did not enter into an amended compact nine other tribes signed in 2007, Bates said. The amended compact increased revenue sharing percentages and the length of the compact to the year 2037.

The Navajo compact with the state expires in 2015.

"We chose not to sign the 2007 amendments, so we're still operating under the 2001 compact," Bates said. "The bottom line is that the Navajo Nation is in compliance with federal law and the compact with the state."

The Nation launched its enterprise with a temporary, 64,000-square-foot facility near Church Rock. The Fire Rock Navajo Casino, located on the historic Route 66, brings in more than $40 million in net win per year and employs 352 workers with hiring preference given to Navajo and other American Indians.

Quarterly net win at Navajo casinos consistently was reported between $10.6 million and $11.7 million last year, and the net win during the third quarter of 2010 was $10.6 million. The net win during the final quarter of 2010 is expected to be higher because of the added revenues from Flowing Water Navajo Casino.

Non-Indian gaming

The state of New Mexico hosts three types of gambling, said Greg Saunders, executive director of the state Gaming Control Board. These are tribal, nonprofit and racetrack casinos.

Tribal gaming comprises a minority of those facilities, at 24 casinos.

Nonprofit casinos, or those operated by veteran or fraternal organizations, make up the majority of gambling venues, at 58 locations, while racetrack casinos like the local SunRay Park & Casino are the least common. Only five racetrack casinos operate in the state.

Racetrack casinos face the steepest costs, however, Saunders said. They pay 26 percent of net win into the state's general fund, plus an additional 20 percent into the purse for the New Mexico Horsemen's Association, a nonprofit organization that watches out for the welfare of horse owners, trainers and groomers.

SunRay, on top of those costs, pays $2 million per year to the San Juan County to lease the facility located east of Farmington on U.S. 64. It also contributes to gross receipts taxes on anything it sells, Saunders said.

Gaming tribes are required to pay revenue-sharing dollars back to the state. Depending on the compact signed, tribes pay between 8 and 9.5 percent of net win.

Nonprofit casinos, limited to 15 machines hosted by veteran or fraternal organizations, pay 10 percent of net win, Saunders said.

The state also imposes stricter laws on non-Indian gaming. For example, the state limits the operating hours at non-Indian facilities, while Indian gaming can be open to customers for longer stretches of time, Saunders said.

The state also limits the number of slot machines in non-Indian casinos. The limit for racetrack casinos is 600 machines. Indian-operated casinos do not face such a limit.

The positive side to non-Indian gaming is that it answers only to state regulators, Saunders said.

By contrast, Indian gaming operations face regulation from the tribe, the state and federal entities.

All gaming tribes are required to sign compacts with the state, but compacted tribes then regulate their own industries under their own gaming commissions.

"As a compact holder, we review the casinos and make sure they're adhering to the letter of the compact," Saunders said of Indian gaming. "Non-Indian gaming is subject to direct and specific regulation."

State regulation of non-Indian gaming machines allows the state to monitor all activities and fine the owner if regulations are not followed, Saunders said.

"The biggest way we do this is with a central monitoring system that physically connects to every slot machine out there to make sure the software is compliant," he said. "It sees how much gameplay is done every day and how. It doesn't totally control the machine, but they can't do anything with the machine without us knowing about it."

Indian-operated slot machines are not subject to the same scrutiny.

Added costs

to new gaming

Indian gaming is not without hidden costs, Etcitty said. Although Navajo casinos operate without steep costs to the state like those paid by racetrack casinos, the tribe has start-up expenses.

"We have start-up costs, loan payments," he said. "Our money pretty much goes to the Navajo Nation. SunRay started in an operational building, but we had to start from scratch."

The tribe, once gaming was approved, hired an experienced gaming CEO at $190,000 per year, then began dishing out money required for environmental, archeological and feasibility studies to determine prime locations for six casinos.

Tribal casinos also are subject to tribal taxes, Etcitty said.

The Navajo tribe, unlike other gaming tribes, does not pay individual tribal members a portion of casino revenues.

Instead, it makes payments on the loan borrowed from the tribe's Land Acquisition Fund, and it pays revenue sharing and taxes to the state and Nation. All remaining revenue is deposited into an account set aside specifically to fund charitable, government or economic development programs, as mandated by state law.

Coming Tuesday: Navajo Nation bolts into gambling after previous ventures failed

Alysa Landry: alandry@daily-times.com