Dan Morain: Wall Street firms spend to block competing casino
08/28/2013 3:27 PM
08/28/2013 3:43 PM
Backers of a referendum to halt an Indian casino from opening on Highway 99 north of Fresno are earnest people whose simple goal is to protect their quaint lifestyle, or so their campaign’s name would suggest.
It’s called Keep Vegas-style Casinos Out of Neighborhoods, and it’s fronted by Cheryl Schmit, an anti-gambling activist who operates a one-woman nonprofit, Stand Up for California, from her home-office in rural Penryn.
Schmit seeks to gather 504,000 signatures of registered voters to place the referendum on the 2014 ballot so she can overturn a compact authorizing the North Fork band of Mono Indians to open what would be a lucrative casino in Madera.
It appears to be the sort of underdog undertaking that would warm Hiram Johnson’s heart, except it’s not. Wall Street, hardly a bastion of direct democracy, is financing the campaign, along with a rich tribe that owns a nearby casino and could lose market share if the North Fork band opens a casino.
Brigade Capital Management, a secretive investment house, dumped $261,100 into the campaign to qualify the referendum earlier this month. Two other New York investment firms chipped in $89,000. Table Mountain casino, a 30-minute drive from Madera, gave $350,000, the start of a campaign that will cost millions.
The campaign’s name notwithstanding, the funders care nothing about protecting neighborhoods against vice, and even less about tribal sovereignty. They do, however, care deeply about their investments, which would be placed at risk by competition from the North Fork casino.
The 1,900-member North Fork band had been relegated to steep land in eastern Madera County that was unsuitable for a casino. The Obama administration authorized a new reservation that would be near San Joaquin Valley population centers. Gov. Jerry Brown negotiated a compact and legislators ratified it in June, prompting Brigade and the others to fund the referendum campaign.
Brigade contends that North Fork’s success would come at the expense of another Fresno-area casino, the Chukchansi Gold Resort and Casino, and that would threaten Brigade’s bottom line.
Brigade manages $14 billion in other people’s money, much of it in university endowments, pension plans and retirement funds, and Brigade specializes in what it calls non-investment grade bonds, also known as junk bonds. Brigade also is a large investor in Indian casinos, especially in California, home to more than 60 of them.
“The market near Fresno, a city hard hit by the recession and facing the risk of bankruptcy, is not large enough to support an additional casino,” Brigade said in a letter to the Legislature in April opposing the North Fork compact. “North Fork’s success would cannibalize Chukchansi Gold’s revenue, forcing worker layoffs.”
With Brigade’s aid, Chukchansi borrowed $310 million to finance the expansion shortly before the recession hit. Brigade has reason to worry about its investment. Torn by an internal power struggle, the tribe has kicked hundreds of members off its rolls and missed an $11.93 million bond payment earlier this year.
Struggling to make its payments, the tribe last year restructured its debt. But in May, Moody’s Investors Service downgraded Chukchansi’s probability of default on its debt, then pegged at $244 million.
Brigade attorney Aaron Daniels would not discuss the New York firm’s role in the California campaign and referred questions to Schmit.
Schmit has been a critic of Indian casinos dating back to the 1990s, opposing what she calls off-reservation gambling, and occasionally aligning herself with card rooms, horse tracks and Nevada interests, and now Wall Street.
“Certainly, they have their own interests,” Schmit said of the referendum funders. “Those concerns are not the concerns of the citizens I work for. We have an opportunity to put this on the ballot. The citizens are grateful about the funding that is coming in.”
If the referendum gets on the ballot, North Fork won’t stand alone in its campaign to defend its right to open a casino. Las Vegas-based Station Casinos LLC has the contract to manage the North Fork casino, and would spend heavily to protect its North Fork investment. Organized labor also supported the North Fork compact.
Oakland attorney John Maier has been representing the North Fork Indians since 1999 when they began their quest for a casino. He said “there is something perverse” about spending 14 years going through state and federal hoops only to face a referendum on the final compact.
“At the end of the day, voters shouldn’t be expected to understand what’s in the compact,” Maier said.
The same could have been said in 2000 when voters authorized Indians to operate Vegas-style casinos. Few people could have imagined the industry that would be created, or that a handful of tribes would amass great wealth and fight other tribes’ efforts to get their piece of the action. But you wouldn’t need much prescience to guess that if there were money to be made, Wall Street would take its skim.
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