Casino project near Madera faces setback

06/16/2010 9:33 AM

06/16/2010 9:34 AM

A local American Indian tribe's troubled quest to build a casino near Madera is facing yet another challenge: The proposed site is about to be auctioned off, creating more complications for the $350 million project.

The North Fork Rancheria of Mono Indians has long sought to build a massive hotel-casino on 55 acres of off-reservation land about four miles north of Madera by Highway 99.

The land belongs to Las Vegas-based Station Casinos, which also owns an adjacent 250 acres where it could expand with restaurants and shopping malls, turning Madera into an entertainment hub.

But because Station Casinos, which has a contract with the tribe to build the casino, is in bankruptcy court, a judge has ordered most of its properties -- including all the land in Madera -- to be auctioned off this summer to satisfy creditors.

A new owner would likely mean that the development contract with the tribe would have to be renegotiated and the entire project reassessed.

"It would almost be like going back to ground zero," said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada at Reno.

But the tribe's Oakland-based attorney, John Maier, said that a change in ownership of the Madera property would have "minimal impact." He is confident that any new property owner also would want to build a casino there.

And there is a possibility that a new owner could look a lot like the current bankrupt owner.

Several Station Casinos insiders have formed a new company and already have placed a bid on the properties that are on the auction block. If that company wins, it's likely not much would change.

But that doesn't mean the casino would be built anytime soon. The project still faces a host of other hurdles:

* Because the casino would be built about 35 miles from the North Fork Rancheria, it first needs approval from the Bureau of Indian Affairs. But such "reservation shopping" projects are politically tricky.

So far, the Obama administration has not indicated how it will handle requests for off-reservation casinos, Eadington said.

* Any new casino would first need a compact between the tribe and the state. The California Legislature has indicated that it won't vote on a compact until the project is approved by the Bureau of Indian Affairs. Debate on the compact would likely be contentious.

* After the Great Recession brought the gaming industry to its knees, few companies are looking to expand and many are struggling with debt.

Banks used to be willing to finance a new casino as long as developers paid 10% of the costs up front -- but now it's closer to 50%, said Richard Wells, a Reno-based gaming consultant.

Even if the Station Casinos insiders win the auction, it's unlikely they would have the cash to fund the project in the near future, he said.

* Before the casino is built, the National Indian Gaming Commission would have to approve a management contract between the tribe and the developer, adding yet another unknown to the process.

With the project caught in political limbo, the Chukchansi Gold Resort & Casino near Coarsegold has seized the opportunity to try to quash the Madera casino, which would directly compete for Chukchansi's customers.

This year, the Picayune Rancheria of the Chukchansi Indians bankrolled tribal member Joe Alberta's unsuccessful bid for Madera County supervisor. Alberta said he opposed the North Fork casino.

Earlier this month, Chukchansi also ran an independent ad criticizing Republican candidate Jim Patterson in the closing days of the primary race for the 19th Congressional District.

Patterson was running against state Sen. Jeff Denham, who won the primary and is opposed to off-reservation casinos.

Despite the project's repeated delays over the years, tribal officials have consistently remained optimistic. In late 2008, for example, as Station Casinos faced probable bankruptcy, tribal leaders said they believed construction would start by early 2010.

Last week, Elaine Bethel-Fink, the tribe's chairwoman, said she could not comment on the project's status.

Maier, the tribe's attorney, said construction wouldn't begin until about 18 months after approval from the Bureau of Indian Affairs -- but he said it's impossible to know when, or if, that will happen.

Station Casinos filed for bankruptcy protection in July 2009 while buckling under $5.7 billion in debt. A Reno judge approved a plan on May 28 to auction off 11 of the company's properties and a handful of land holdings and tribal gaming contracts, including the Madera project. Most of the company's other casinos would be foreclosed on by lenders.

The new company made up of Station Casino insiders made a $772 million bid for the properties up for auction.

Other gaming companies have until the end of this month to indicate whether they will bid on all or some of those properties.

The auction is scheduled for Aug. 6.

It's likely there will only be a few bidders because most gaming companies are struggling just to survive.

Companies that weathered the economic storm, however, have expressed some interest -- though they may decide to bid on some of the properties but not the Madera site, which is considered a risky project, Eadington said.

"Tribal gaming is complicated and dealing with tribes is complicated," he said. "So that really creates a degree of skepticism among potential candidates."

One potential candidate is Silver State Capital Advisors. Its managing director, Jay Fennel, said Silver State is considering a bid on seven of the properties on the auction block. The company isn't interested in the Madera land, he said, because the project still lacks the federal government's approval.

"That could be tens of millions of dollars down the road," Fennel said.

Even if the North Fork tribe jumps over the political hurdles and ends up with a good business partner, the casino's fate may come down to simple economics.

"Prior to 2007, there was still a lot of optimism that if you build it, they will come," Eadington said. "But my suspicion is that there is now much less optimism than two or three years ago. It comes down to supply and demand -- is there enough room for another casino there and how profitable would it be?"

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