Gov. Jerry Brown signed a new deal today with the tribal owners of Red Hawk Casino that could give the struggling Shingle Springs facility much-needed financial breathing room.
But the new gaming compact, which significantly reduces the payout from the casino to the state, is dependent on the casino's owners cutting separate debt-restructuring deals with bondholders and Red Hawk's management company. The plan also requires approval of the Legislature.
In announcing the agreement with the Shingle Springs Band of Miwok Indians, the governor noted that Red Hawk, which opened in late 2008, has not done well and generated very little income for the tribe.
The new compact "is designed to address fiscal challenges the tribe has faced and to meet the requirements of federal law that the tribe be the primary beneficiary of its gaming operation," according to an announcement from the governor's office.
Nelson Rose, a gaming law expert at Whittier College, said he's never heard of a state rewriting a tribal gaming compact to ease a tribe's financial burdens. "It's innovative," he said.
Red Hawk has done so poorly, it sometimes struggles to generate the $500,000 a month minimum guaranteed to tribal members. When the tribe was ordered by a jury last winter to pay $30 million to a former business partner in a breach of contract dispute, tribal attorneys warned that Red Hawk might have to shut down. The case is on appeal.
"The casino opened at the worst possible time financially; it's had a lot of hardship," said the tribe's general counsel AmyAnn Taylor.
The tribe currently pays the state up to 25 percent of its slot machine winnings. That would fall to 15 percent.
But the new deal depends on the tribe restructuring its financial obligations to its bondholders and Lakes Entertainment Inc., the Minnesota company that operates Red Hawk. Earlier this week, Taylor said the tribe amended its agreement to pay $5.2 million a year to El Dorado County. As part of the new agreement, the county will pay the tribe $2.6 million a year to support a tribal medical clinic that serves non-tribal members as well, she said.
The tribe's debts are considerable. It borrowed $450 million to build the casino, and revenues haven't come close to projections.
As part of the deal, the maximum number of slot machines at Red Hawk will fall from 5,000 to 3,000. The casino currently operates about 2,000.