In mid March of this year, all 24 of Michigan’s tribally operated casinos fell silent, their more than 22,280 slot machines spitting out their final paydays for lucky patrons or taking one last injection of cash for the house.
For the first time in three decades, the 12 federally recognized American Indian tribes based in Michigan — each of them an individual sovereign nation — faced an entirely unclear economic reality thanks to the COVID-19 pandemic.
In voluntarily shutting down their casinos, the tribes willingly stalled the economic engines that drive Indian Country, a self-inflicted economic wound explicitly justified to preserve the health and safety of their tribal citizens, their employees and their surrounding communities.
While casinos remain the primary revenue sources that tribal governments use to provide services to their citizens, all Michigan tribes have invested in economic diversification to some degree in the last decade. Even though the dollars from tribal economic development are a trickle compared to the geyser of cash generated by casinos, experts say the pandemic has clearly demonstrated why tribes’ diversification efforts are more important than ever.
“Gaming has done an amazing amount of good for tribes now for decades, but gaming’s history has shown that it is a volatile industry,” said Kurtis Trevan, CEO of Gun Lake Investments, the Grand Rapids-based non-gaming economic investment arm of the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, or Gun Lake Tribe. “You need to have other investments to be able to ensure that you have liquidity for when situations like this strike, because they will strike again.”
Tanya Gibbs, managing partner of the Grand Rapids office of Rosette LLP, a majority Native American-owned law firm, works with tribes across the country specializing in non-gaming economic development. In her experience, the diversified tribes seem to be weathering the pandemic better than the tribes that rely entirely on gaming, which have been “completely devastated because the casino is the only business that they have.”
“I hope this is eye opening for some tribes that maybe need to move in that direction,” said Gibbs, a descendant of the Little Traverse Bay Bands of Odawa Indians. “This situation really brings to light the need for tribes to diversify their economies and not be so dependent on gaming revenue. There are just lots of other businesses and ways to make money for the tribal government to continue to support services outside of gaming. It’s hard, though, because with a casino, you open it and it just makes money. It’s hard to replace that type of revenue.”
However, as the pandemic has proved, even a sure economic bet like a casino is “not the end all be all” for tribal governments, she said.
Growth despite ‘mixed results’
Gun Lake Investments to date has focused on a three-pronged investment strategy in real estate, operating companies and direct credit. Most recently, the company in January partnered with Waséyabek Development Co., the investment arm of the Nottawaseppi Huron Band of the Potawatomi, to acquire the iconic McKay Tower in downtown Grand Rapids for $17.5 million.
Gun Lake Investments has also previously invested in the retail portion of Rockford Construction Co. Inc.’s mixed-use Stockbridge redevelopment in Grand Rapids’ up-and-coming west side neighborhood.
Gun Lake Investments’ holdings also include Commercial Sanitation Management LLC (CSM), a Hudsonville-based commercial custodial services provider, as well as the Noonday Market convenience store across from the tribe’s Gun Lake Casino complex in Bradley.
“On the direct credit side, we continue to find opportunity to loan money to firms and create relationships we think are strategic to Gun Lake Investments,” Trevan said. “It continues to be our opportunity to be able to partner with organizations where there’s not an obvious equity need, but using this to build those relationships where there still may be a financial need where we can assist.”
Trevan said Gun Lake Investments has been able to grow its portfolio even during the pandemic, although some of the individual results have been mixed and the organization’s prospect pipeline has “hit a wall for various reasons.”
“Our main opportunities that we had been working on for nearly a year prior to COVID, they all just stopped,” he said. “That part has been challenging because we built the organization to support future growth, but that growth obviously has been paused. I don’t know whether that’s good or bad, or just maybe it has created some of the new opportunities that we’re working on today that are really exciting. But definitely, our growth has been pushed out probably six months because of COVID.”
Deidra Mitchell, president and CEO at Waséyabek Development Co., also credited her organization’s diversified portfolio for weathering the pandemic thus far with minimal adverse effects.
“For us, we are continuing to look for companies that we want to purchase and acquire and own; we have not halted that,” she said. “I think COVID will precipitate the sale of some companies as businesses consider where they’re at, where they’re going and what their capacity is, so there will be some opportunities there.”
Last month, Mitchell told MiBiz that Waséyabek had expanded its investment strategy into the middle market and had started prospecting for operating company acquisitions in the $10 million to $30 million revenue range.
Like other tribal non-gaming investment arms across the country, Waséyabek also has leaned into the government contracting business in recent years to take advantage of federal set-asides for minority owned companies.
On April 1, its Waséyabek Federal Services LLC division started work on its largest award to date, a five-year, $161 million contract with the Department of Energy to provide site operations and support services at three National Energy Technology Laboratory locations.
Waséyabek’s goal for the federal contracting group is to generate $20 million in annual revenue by the end of 2022, according to Mitchell.
If anything, the pandemic has forced Waséyabek to reevaluate its past business practices and adjust to the new operating realites. For example, the company now looks at business travel through a different lens to consider whether it’s essential because of the various travel restrictions and safety protocols.
“By stopping to make that decision rather than just doing what you’ve always done, we can make better choices not only for our business and our costs, but also for the environment and our work-life balance,” Mitchell said.
Diversify for sustainability
Mitchell also coordinated a new study released this month that examined the effects on the state’s economy by non-gaming businesses owned by Michigan tribes.
Using data from nine of the 12 federally recognized tribes, the study’s authors determined that the 38 business entities created nearly $288.8 million in economic spin off in the state in 2019. The companies also resulted in the creation of 1,847 jobs at other businesses across the state, including at suppliers and vendors to the tribal entities.
The tribally owned businesses had a combined asset value of more than $343.5 million and generated in excess of $228.4 million in revenues last year. The firms also span 11 different industry sectors, ranging from manufacturing, real estate, construction, professional services and utilities, to retail, finance and insurance, administrative support, waste management, arts and entertainment, and hospitality.
“These are tribally owned businesses and they’re part of the Michigan economy as well. A job on the reservation is a job for the region,” said Eric Trevan, Ph.D., a faculty member of The Evergreen State College in Olympia, Wash. and a member of the Gun Lake Tribe.
He said the study represents an “at least” figure for the economic contributions of tribal non-gaming businesses in the state because three Michigan-based tribes did not participate in the study. Likewise, the study did not incorporate Michigan-based businesses owned by Alaska Native Corporations.
While tribally owned entities generally do not pay state and federal taxes, the economic activity generated by them doing business with suppliers and vendors and the workforce at those firms created $7.6 million in state taxes and $16.6 million in federal taxes, according to the study.
Tribes participating in the study were: Hannahville Indian Community, Lac Vieux Desert Band of Lake Superior Chippewa Indians, Little River Band of Ottawa Indians, Little Traverse Bay Bands of Odawa Indians, the Gun Lake Tribe, Nottawaseppi Huron Band of the Potawatomi Indians, Pokagon Band of Potawatomi, Saginaw Chippewa Indian Tribe and the Sault Ste. Marie Tribe of Chippewa Indians.
“It’s wonderful to see that tribes are continuing to diversify beyond gaming and looking at other revenue sources,” said Jon Panamaroff, a co-author of the study and chief compliance officer and senior vice president of business integration at Alaska Native-owned Koniag Government Services. “Diversification is a cornerstone of all business. As we think about seven generations out, business diversification is key when we’re thinking about the sustainability of these tribes and their communities.
For Kurtis Trevan at Gun Lake Investments, the study shows “how tribes are such an important piece of the Michigan economy that goes way beyond just gaming.”
“The cash flows that tribes are receiving from gaming are, in a large part, just being reinvested back into the community,” he said. “It helps everyone prosper.”
Across the board, tribal leaders contacted by MiBiz say the pandemic and resulting casino closures have caused them to rethink how their tribes approach economic development with an even greater focus on diversification.
Matthew Wesaw, tribal council chairman of the Dowagiac-based Pokagon Band of Potawatomi, said the tribe has been “headed down the right track” toward diversifying its economy with Mno-Bmadsen, its non-gaming economic development corporation with a buy-and-hold investment strategy.
“When you look at how COVID virtually shut down everything, I don’t know what industry we could have been in that would not have been impacted by the virus,” Wesaw said when asked if the pandemic further pushes the tribe to diversify. “The point is well taken, and I think this will cause us to even look in additional areas, but I don’t know what industry we could have been in that would have been safe from everything that has happened.”
Frank Cloutier, public relations director for the government of the Saginaw Chippewa Indian Tribe, said the tribe’s non-gaming company, Migizi, currently is trying to identify opportunities arising from the pandemic, particularly around health care capacity.
“Sure, there’s a pandemic, but is there a startup or something we could build that would raise capacity within our region? Or is there an opportunity for us to support an effort like that and build a partnership? There are some real — and I mean real — opportunities and possibilities out there,” Cloutier said. “Our economic development department, they certainly don’t sit on their laurels and wait around.”
With all the opportunities out there, Trevan said Gun Lake Investments has benefited from the flexibility of having a balance sheet and governance structure that is separate from the Gun Lake Tribe’s government. The structure is modeled after best practices identified by the Harvard Project on American Indian Economic Development.
“There are challenges that exist with how tribes are structured, with election cycles every two to four years. We’ve seen in Michigan with a number of tribes, including the Gun Lake Tribe through Gun Lake Investments, the importance of creating separate governance to help manage your business and investments because these efforts take a long time to mature,” he said. “You can’t just start it today and hope that you’re going to be protected tomorrow. It really is a years-long effort to be able to get to a point where you can really create sustainability in your cash flows.”
As well, the irony of tribes facing economic uncertainty and budgetary shortfalls from the casino closures now beginning to think about spending money on non-gaming investments is not lost on Trevan. “Without a doubt” some tribes will be reckoning with large holes in their budgets for essential services at the very time they should be prioritizing sustainable investment strategies for future generations.
“There’s a catch-22 right now,” Trevan said. “At a time that tribes understand more than ever the importance of diversification, they also lack the funds to do so today.”