Updated: Oct 21, 2020
Does Your Tribe’s Non-Gaming Income Exceed Gaming Revenues?
If it doesn’t, it should!
Most gaming tribes recognize that their business revenues are overly reliant upon gaming. Gaming tribes tend to have all of their eggs in one basket. As such, they are highly at-risk of possibly losing all of their discretionary revenues overnight due to some unforeseen event.
This would be catastrophic for the tribe. They would have to curtail vital health, education and social services for tribal members and lay off untold number of tribal employees. This situation is the worst nightmare for any tribe.
Recent events have underscored this threat to gaming revenues and thus to the ability of tribes to deliver these important services to their tribal members and others who live in their communities.
Gov. Stitt’s bloviating about the gaming compacts expiring at the end of 2019 caused great fear among the tribes. Then the COVID-19 pandemic forced the closure of all of the casinos for several weeks if not months. Finally, the safety net for tribes, in the form of business interruption insurance, was yanked away when the insurance companies refused to pay.
Because of the foregoing, prudent tribes are now doubling down on building their non-gaming revenues with the wise intent of diversifying their sources of income. Indeed, the more visionary tribes have embraced a strategic imperative of their non-gaming income exceeding their gaming income in seven years!
I believe that this strategic imperative is applicable to all gaming tribes and that all gaming tribes should adopt and embark on a plan to achieve a scenario of their non-gaming income exceeding gaming income within seven years. I believe that the realization of this strategic imperative is achievable for all tribes regardless of their current resources, location or size.
In order to greatly augment non-gaming revenues, tribes must first establish the necessary infrastructure and the organizational entity that will spearhead the effort. Many tribes choose to establish a Section 17 corporation under the Indian Reorganization Act (Section 3 in Oklahoma under the Oklahoma Indian Welfare Act). Other tribes may choose to establish a tribal corporation while still others simply create an economic development division within the tribe.
Whatever organizational form a tribe may choose, the most important thing is to establish and promote a salient measure of success for the effort to create additional non-gaming income. This is paramount!
Thus, all individuals involved in the effort, including tribal leadership, the economic development board members and any and all staff of the economic development entity need to fully embrace a singular measure of success. That singular measure of success is simple: Does the Economic Development Entity Write a Check to the Tribe Each Year?
After all, that is the sole purpose of the entire effort! The success of the economic development entity should solely be measured and assessed predicated upon how much money it returns to the tribe each year. That should be the expectation. Our tribal members deserve nothing less.
Accordingly, any and all board members and staff should not accept a role in the economic development entity if they do not agree to and accept this simple measure of success. They should be told, “Time to put on your Big Boy pants. Sally forth and conquer. We expect you to write checks to the tribe. Anything less is unacceptable” The next step is to begin acquiring companies. Acquisitions should be guided by a well thought out Investment Policy Statement (IPS). The IPS should address such matters as favored industries, targeted company size and geography.
Then it is time to implement the IPS via making the targeted company acquisitions. Here is a big secret in acquiring companies; you don’t need much cash to do so! The economic development entity can negotiate 100% financing to buy the company. And such debt financing can be structured in a way where the tribe itself isn’t on the hook!
Management of the company (viz., the prior owners) can be left in place if they have been successful. Then the company will begin to reap the fruits of the unique competitive benefits of tribal ownership. This includes the tribal super 8(a) status under the SBA. Then it is just a matter of making more acquisitions. In a short time, the tribe will own a conglomerate of companies and their non-gaming income will exceed gaming income.
Fortunately tribes can access experienced help and expertise to build a portfolio of companies. I refer you to Sage Business Advisors. The specialty at Sage is to assist tribes in building non-gaming revenues to a point where they exceed gaming income. Sage does this by creating a portfolio of companies owned by the tribe. For more information, check them out at www.sbatribalpartners.com.
NATIVE OKLAHOMA · OCTOBER 2020 11 By Fus Yvhikv