River Rock Casino woes mount as revenue is cut in half

Losses at River Rock, Sonoma County’s first Indian casino, are even greater than anticipated, with revenues down 50 percent since the opening of Graton Resort and Casino next to Rohnert Park, according to tribal leaders.

The Dry Creek Rancheria Band of Pomo, which owns River Rock, blames competition from the bigger, glitzier casino to the south for cutting business in half at the older, more remote facility near Geyserville. Tribal leaders say the Graton casino has caused them to default on payments to investors and miss a $3.5 million payment to Sonoma County.

“We’re right around 50 percent, maybe. Sometimes we fluctuate a little less (or) a little more,” Dry Creek Chairman Harvey Hopkins said of the drop in revenue at River Rock since the Graton tribal casino opened in November.

He acknowledged there is no plan or timetable to make good on a missed interest payment to bondholders that was due in May, nor on the overdue $3.5 million annual payment owed Sonoma County since July, which mostly goes to pay for law enforcement costs associated with River Rock.

“The casino is still trying to market to attract the customer base again,” Hopkins said last week. “We still haven’t recovered. It’s probably going to take a little longer for us to really find the balance.”

The missed interest payments on the more than $140 million owed to River Rock bond holders have frustrated investors who have been left in the dark and watched the value of their bonds plummet with no assurance they will be repaid and a possibility they will end up with a fraction of what they are owed.

County officials expect to meet with tribal leaders in the next two weeks to discuss the delinquent payment to the county, which was part of a negotiated $100 million, 20-year agreement the tribe made six years ago to offset the impacts of the casino.

The total payment was later reduced to $75 million, but the county still is expecting the tribe to honor the agreement, said north county Supervisor Mike McGuire.

“The tribe back in 2008 committed itself to pay for off-reservation impacts, and the county expectation is that the casino is going to live up to that promise,” McGuire said.

He said the vast majority of the tribe’s payment goes to law enforcement patrols for the community that surrounds the 12-year-old casino, located about 4 miles from Geyserville on a hillside overlooking the Russian River and Alexander Valley, on the tribe’s historic rancheria.

Two years ago, casino officials said River Rock was attracting 1.3 million visitors annually.

Hopkins said the number of clients at his tribe’s casino may be down 40 to 50 percent, a drop that has sharpened since the opening of the Graton Resort and Casino on Nov. 5.

Greg Sarris, chairman of the Federated Indians of Graton Rancheria, did not return a call requesting comment. Lori Nelson, a spokeswoman for Las Vegas-based Station Casinos, the Graton tribe’s business partner, declined to comment.

McGuire said that despite the drop in visitors to River Rock, “It’s still more than Alexander Valley and Geyserville ever saw prior to the casino being constructed. Casino operations continue today, which is why the impacts of that gaming facility need to be mitigated.”

He said the number of deputies assigned to the area remains the same, despite the tribe’s “nonpayment.”

Hopkins’ position is that the tribe committed itself to paying the county contingent on an expanded casino and resort hotel being built. The project was shelved indefinitely when the recession hit.

He said he suggested a lower payment to the county recently, but “they probably didn’t like my suggestion.”

“I think the tribe has the ability to pay. It may take a little longer, especially when we don’t have the revenue from that big, giant resort we were going to build,” Hopkins said.

Hopkins also would like something else from the county - approval for a lit “casino” sign that can be seen from Highway 101, as well as loosening of alcohol restrictions that would allow the casino to serve patrons on the gambling floor and not just at the bar. He also wants to serve alcoholic beverages later than 11 p.m.

Hopkins said Graton has “a nice, big old sign that says ‘casino’ on it,” as well as the less-stringent alcohol restrictions, and it’s only fair that River Rock should have the same.

“Both of those items are nonstarters,” McGuire said. “Unfortunately, at this time, the county is unable to compromise on any additional issues.”

Hopkins said when it comes to the money owed bondholders, the tribe has a team of consultants and lawyers prepared to meet with a majority of the investors to discuss a resolution for the late payments.

“There’s money available to make a payment, some payment, but we have to wait until we can get them in the room so we can figure out what payments they’ll want and what we can do,” Hopkins said.

The last full year River Rock’s casino revenue was publicly reported was in 2010, when it was $124 million.

The tribe has faltered before on its debts. In 2011, it restructured $200 million it owed bondholders after two ratings agencies warned that the business otherwise faced a high risk of default.

Hopkins blamed the previous tribal administration for hobbling the casino with a $200 million debt that allowed only interest payments the first 10 years. Since restructuring the loan three years ago, he said the tribe has managed to pay down some of the principal, but $140 million to $145 million remains. The notes - essentially the full payment of that debt - are due in 2018.

Hopkins would not reveal either the amount of the interest payment to bondholders that the casino missed in May or the amount of another interest payment due before the end of the year.

Analysts who follow the Indian gaming market have said that creditors of tribal casinos can’t seize assets as might be done under a normal loan default. Instead, they suggested that River Rock may once more seek to restructure its debt, possibly by winning concessions from creditors in regard to the repayment of both principal and interest.

“There’s no bankruptcy for tribes,” said Alex Bumazhny, a director with Fitch Ratings in New York who analyzes the gambling market. “You can’t use foreclosure, so you really need the two parties to negotiate with goodwill. That’s basically it.”

He said the incentive for a tribe is essentially to protect its credit rating. “Tribes want to preserve the option to come back to the market at some point. They don’t want to alienate the capital market altogether,” he said.

Hopkins said River Rock is not the only casino impacted by Graton.

“Other tribes north of us are doing the same thing. All the tribes that are up on the I-80 and (Highway) 50 corridor, everyone is kind of affected by Graton,” he asserted. “Everyone is going to recover a little bit at a time.”

A gaming consultant for other tribes said Graton has definitely had an impact on casinos along Highway 101, including River Rock, and some to the north in Mendocino and Lake counties, where the market is local residents and people from the Bay Area.

“There’s no question that Graton has eviscerated those casinos, and the sad truth is, it’s not likely to get any better for them,” said Doug Elmets, who represents five tribes, including those that operate the Thunder Valley and Jackson Rancheria casinos closer to Sacramento.

He disputed the claim that Graton has taken business from big casinos closer to Sacramento, but he said the ones closer to Graton, such as River Rock, are “hemorrhaging.”

Elmets said it’s similar to the effect a new Wal-Mart can have when it captures business from grocery stores and other small retail outlets, or when a Home Depot opens in a community and it results in the closing of smaller hardware stores.

“I think it’s sadly safe to assume that the small casinos don’t have the wherewithal to compete with an 800-pound gorilla,” he said.

“Graton put a dent in us,” Gus Pina, a former member of Dry Creek’s board of directors, said this week. “It’s closer to the Bay Area, in a big, shining building with a ton of machines and tables and restaurants.”

He said even though it had a “terrible effect” on River Rock, the gaming facility will be able to keep going.

“We are going to have to restructure the debt,” he said.

Indian casinos in other parts of the country, from Foxwoods in Connecticut to Buffalo Thunder in New Mexico, have done the same, he said.

As a result of River Rock’s recent loan default, the casino’s finances are now being handled by a third party, essentially a trustee that oversees the payment of bills and spending, according to Hopkins.

He said the casino wants to demonstrate to investors that marketing and promotions continue, along with expense reductions.

For example, with the smaller number of patrons at River Rock, the number of slot machines was reduced by 150 to avoid the monthly licensing fees. Hopkins said about 1,275 machines remain.

Hopkins said the 500 or so casino employees - down from approximately 600 - still are being paid, along with casino vendors.

“After we pay all of them, what’s left over is smaller than it’s ever been,” Hopkins said.

The tribe itself has taken a number of cost-reduction measures, such as cutting in half the per capita payments to its 650 adult members and significantly reducing the number of employees in the tribal administration office.

The tribe also curtailed or discontinued programs that provided books and clothes to its schoolchildren and assistance for college tuition and housing programs.

The Dry Creek Pomos also relocated their headquarters from a modern, 20,000-square-foot office building on Airport Boulevard, north of Santa Rosa. The reduced staff - down to 10 employees - now works out of three modest modular units at the base of the hill leading to River Rock.

During a two-hour interview inside the small, prefabricated structure that now serves as the meeting room for the tribe’s five-member board of directors, Hopkins touched on a number of topics, including the 277 acres the tribe owns south of Petaluma along Highway 101.

He said the tribe is pursuing plans for a wetlands mitigation bank there, in which developers purchase credits to offset the loss of habitat caused by their projects in other locations. Vineyards and olive trees also are being considered for planting there. He said the tribe also wants to build as many as 45 homes there for tribal members, along with the possibility of sports fields and a fire house. Plans for a hotel have been dropped.

Hopkins said the tribe has not yet formally applied to the Bureau of Indian Affairs to have the land taken into federal trust, but said it will be for “nongaming.”

Hopkins downplayed the possibility of the tribe building a more conveniently located casino there, as it once considered.

Essentially, he said the expense would be prohibitive and surmounting opposition from Petaluma and other communities too daunting.

“Right now, they’ve said ‘no’ to it, and I think every politician this side of San Francisco and even further down are going to say they agree with the community,” he said.

While revenues may be down at River Rock, Hopkins insists it will stay open.

“River Rock won’t close. There’s no reason to close. We still have income. We still have a lot of guests. A lot of people enjoy coming up here,” he said.

You can reach Staff Writer Clark Mason at 521-5214 or clark.mason@pressdemocrat.com.