The Big Gamble Have American Indians found their new buffalo?
By Jerry Useem

(FORTUNE Magazine) – Outside Philadelphia, Miss., a wrinkled man drops coins into a slot machine. He's wearing overalls and a Marine Corps cap festooned with pins, and tendrils of smoke rise from the pipe clamped in his jaw. He doesn't look determined, or hopeful, or even disappointed when the machine refuses to disgorge any of his money. He simply spins the reels again--and so the white man makes another contribution to the tribal coffers.

On Indian reservations across America, this scene is reenacted thousands of times nightly, sustaining a $9.6 billion industry in 28 states that's growing three times faster than non-Indian gaming. As a result, the humble slot machine is being hailed as the Native Americans' new buffalo--a single source capable of fulfilling all of a tribe's needs, including jobs, schools, social services, and infrastructure. "Indian gaming is the first--and only--economic-development tool that has ever worked on reservations," the National Indian Gaming Association declares.

But like the real buffalo, the slot machine may also be a symbol of the tribes' vulnerability. The gambling boom has added a new stereotype to an already overstuffed quiver of Indian myths and cliches: the rich Indian. The image has lurked behind various congressional efforts (unsuccessful, so far) to cut federal funds to reservations, to tax gaming revenues, or to curtail tribal gaming outright. Senator Slade Gorton of Washington has used it to attack the very notion of Indian self-government. Most recently casinos have even been cause for questioning Indians' Indianness, as in Connecticut, where a muckraking book challenging the lineage of the Mashantucket Pequot tribe has galvanized opponents of the giant Foxwoods casino.

Yet a trip into Indian country reveals what should come as no revelation at all: that most of America's 1.7 million Indians, and especially those living on reservations, are poor. Native Americans have a poverty rate 2 1/2 times the national average, a suicide rate nearly twice as high, and an alcoholism rate six times greater. And while mega-resorts like billion-dollar-a-year Foxwoods (currently the largest casino on the planet) may be the symbols of Indian gaming, they are also its anomalies. Of the 556 federally recognized tribes, 361 have no gambling operations at all; of the 195 that do, just 23 account for 56% of revenues--mostly very small tribes near very big population centers. Even fewer have made the sort of outsized payouts by which their individual members could truthfully be called "rich."

Indian gambling is, in short, a decidedly complex picture. From the parched mesas of New Mexico to the soggy forests of Washington State, from the garish opulence of Foxwoods to the desolation of Pine Ridge, S.D., FORTUNE explored the four corners of the country to capture the promise, the threat, the runaway success and the disheartening failure, the political battleground and the social force that is the Indian new economy.

River of Dreams

About 500 miles or so from its icy headwaters in the Canadian Rockies, the Columbia River commences the long southerly arc through Washington State known as the Big Bend. Descending through layers of Paleozoic rock and stands of Douglas fir, it first carves the western border of the Spokane tribe's reservation, where it receives the smaller Spokane River. Until the Grand Coulee Dam had a say in the matter, this confluence was the scene of one of the biggest salmon runs in the world. Today it's the scene of the salmon's economic successor. There on the bank squats a low-slung building of corrugated metal, red neon impatiently blinking its purpose: CASINO.

The building's interior thrums with the mad ring of slot machines and the sharp metallic thwack of coin on stainless-steel tray. But it's a Wednesday night. Slow. A ruddy-faced 18-year-old, white, tentatively slides some red chips across the slick felt of the roulette table. "I once saw a guy hit 24 three times in a row," he says, waiting for the little ball to settle in the wheel. "Seventeen black," says the croupier, a bushy-haired Indian named Leroy, pulling the chips his way.

The site may bear the optimistic name Two Rivers Resort & Casino, but Foxwoods it's not. The closest lodging is miles down the unlighted road--where moose and elk are spotted nearly as often as cars--and when the snack bar shuts down at night, there's nothing to eat. Several trailers house the casino offices. "It's a tougher industry when you don't have a couple of million people at your doorstep," says Greg Abrahamson, a member of the tribal council.

Yet as modest as their gains have been--gaming has meant employment for 100 or so tribal members and helped provide basic services like health care and preschool--the Spokane Indians haven't been exempt from a certain backlash. "There's a perception that Indians are getting rich off the casinos," says Gerald Nicodemus, the casino's ponytailed manager. "They feel like we don't pay taxes, we can have casinos, and we get checks from the government."

Now even the tribe's modest gains seem in jeopardy. The rival Kalispel tribe is poised to open a casino between here and the city of Spokane, and Nicodemus expects to lose 30% of his business. "What do we have to offer that they don't?" he worries. For now, the answer is coin-drop slots, the kind that make that satisfying thwack upon payout. ("People will come all the way from the coast just for that noise," notes one casino employee.) The Kalispel are installing machines that use electronic "tickets"--slot machines without the slots.

Trouble is, that's the only kind the state allows, meaning the Spokane are engaging in what the tribe delicately calls "uncompacted" gaming. The state calls it illegal gaming. At one point federal marshals swooped in to seize the offending machines, though oddly, they left them in place. Since then the tribe has existed in an uneasy legal limbo, by turns negotiating and litigating with the state. "We don't want to see a blood war," says Abrahamson. Agrees Judy Fletts, an administrator at the tribe's new health center: "If we lost gaming, it would devastate our reservation."

All this has made it difficult to realize the tribe's dream: a lavish, $30 million casino hotel overlooking the two rivers. Nicodemus pulls out an artist's rendition of what it would look like but notes that the legal uncertainty makes it hard to get financing. So the casino remains in the little shed that was supposed to have been temporary, dressed up with the sort of multicolored flags favored by used-car lots. "We've been temporary for six years now," says Nicodemus. "We've been waiting and waiting and waiting here."

Choctaw Inc.

Every few hundred yards, it seems, a construction crew is at work on the Choctaw reservation near Philadelphia, Miss. Over here a new fire station is going up. Over there a giant shopping center is taking form.

In the middle of all this throbs the beating heart of the Choctaw economy: the Silver Star Resort & Casino. Its ten stories of purple neon loom up unexpectedly from the countryside's red soil, and inside a clientele of whites and blacks feverishly drain coins into 3,100 slot machines with names like Money to Burn and Swinging in the Green. It is a cash machine that grosses more than $100 million a year.

But there are no rich Indians here. Instead of cashing out, the Choctaw have effectively doubled down, plowing the casino proceeds straight into a series of other ventures in hopes of creating a diversified--and durable--economic base.

The tribe's industrial park is home to a conglomerate in miniature: Choctaw Manufacturing builds switches for customers like Sylvania; Choctaw Electronics, a joint venture with Harman International, makes car stereo systems for Ford and DaimlerChrysler. There are two construction enterprises, a direct-mail printing company, a nursing home, and First American Plastic Injection Molding. It is a bold experiment in communal capitalism, in which the tribe's 8,300 members (three-quarters of whom are full-blooded Choctaw) are effectively both employees and shareholders.

"Anyone who wants a job, they can have two of them, maybe 2 1/2," says tribal councilman Hayward Bell over a plate of gumbo at Dancing Rabbit Golf Club, another tribal enterprise. That's no exaggeration: The 6,700 jobs the tribe has created have far outstripped its work force of 2,600. Last year the Choctaw became the first Indian tribe to move operations offshore when its Chahta Enterprise--an assembler of wiring harnesses for cars--opened a 1,700-worker factory in Mexico. "We're running out of Indians," a tribal official explained at the time.

A handful of the most successful gaming tribes have taken a different route, divvying up profits in what are known as per capita distributions. The Pequots of Connecticut receive annual dividends said to run in the high five figures; in Minnesota the Mille Lacs band of Chippewa voted out their chief executive in favor of a candidate more amenable to bigger payouts. But the Choctaws' longtime chief, Phillip Martin, has taken a hard line against those who'd rather spend tribal revenues on new cars and the like. "They want to fill their pockets," he says dismissively.

The Choctaw people have reaped other rewards, though. College is free to qualifying students (with a free computer to boot). The tribal school system is so flush with cash that non-Indian families want in; an ultramodern elementary school built with casino funds makes the old government-funded school across the street look like a hovel. And the tribe's River Oaks housing development, which resembles a movie version of suburbia, hints at the creation of something new to reservation life: an Indian middle class. "We're just beginning to build things we needed a long time ago," says Chief Martin, 74.

Before their forced removal to Oklahoma in the 1830s, the Choctaw were perhaps the most prosperous tribe in America, their language the lingua franca of traders in the Southeast. But the 1,000 or so who evaded removal and remained in Mississippi lost everything, becoming, in the words of a local newspaper, "the worst poverty pocket in the poorest state of the union." That's where things stood when Martin, a former G.I. who'd watched a devastated Europe rebuild itself after World War II, joined the tribal council in 1957 with the goal of implementing his own Marshall Plan.

Pragmatic and persevering (he sent out 500 letters before landing a tenant in the tribe's industrial park in 1978), Martin has insisted that the casino serve as a vehicle to self-sufficiency and political self-determination. It's not enough that the tribe's ventures already produce $2 to $3 for every $1 in federal funds the tribe receives; now the tribe wants to amass an endowment whose interest alone could sustain the tribal government should federal or gaming funds dry up. And in preparation for a massive expansion of its casino, the tribe recently bought out the contract of its outside management company for $72 million.

Most exceptional in a town notorious for the 1964 slaying of three civil-rights workers, Martin has won a fan base in the non-Indian community. "Our best industry by far is the Choctaw Nation," the mayor of Philadelphia once boasted. "If the tribe went bankrupt, we'd go into a depression."

Rebirth of a Nation

In 1954, within a few months of his 27th birthday, Russ Leno officially ceased to be an Indian. True, he was still a full-blooded descendent of the five tribes near the Oregon coast that made up the Grand Ronde Confederation. But the federal government, pursuant to its policy of assimilating Indians into mainstream culture, had decided the Grand Ronde Indians were now, for all practical purposes, white people.

The tribe was terminated, its 69,000-acre reservation was sold off, and its members were scattered in relocation programs. By the 1960s all that remained were seven acres around the tribal cemetery, overgrown with wild Scotch broom. Locals began referring to the tribe in the past tense. "Who'd dream that we'd be where we are nowadays?" marvels Leno, standing in the now carefully manicured cemetery where his parents lie. "The elders that have gone on, I just wish they'd been here to see this."

All around him are signs of a dramatically revivified tribe. It's a comeback that began in 1983, when Congress agreed to restore the Grand Ronde's tribal status, but kicked into high gear when the tribe's Spirit Mountain Casino--an oval structure with adjacent lodge--opened in 1995. Initially projected to pull in $12 million a year and generate 600 jobs, Spirit Mountain generated $53 million last year and employs 1,500. The tribe has used the money to repurchase lost land, reclaim cultural artifacts, start classes in its near-extinct language, and build housing for the tribal members who, lured by jobs, are slowly but steadily returning from their diaspora. "The casino has allowed us to re-create the homelands," says a spokesman for the tribe.

The renaissance has been especially gratifying for long-suffering tribal elders like Verna Larsen, 84. Like everyone over 55, she receives a monthly pension check of $600 from the gaming proceeds. "The older I get, the richer I get!" Verna beams in the living room of her best friend, 91-year-old Ila Dowd, who was a cannery worker until age 70. "With all this money I get, we've got to spend it real fast." Verna's son, Ed, hastens to clarify that his mother is speaking in relative terms; technically she's still living below the poverty line. But Verna adds that she has enough to play the slots three days a week.

"Wik-lili nasayka mukmuk," Ila interjects. That's Chinook for "almost time to eat." Three days a week elders are served free meals at the gleaming tribal community center. Yet on the way out the door, Ed sounds a note of insecurity. "We don't know how long gaming is going to be around," he says. "We don't know if they're going to abolish it, like they did us."

Another Bad Treaty

Driving down a rutted dirt road in the New Mexico desert, Lawrence Montoya offers an impromptu tour of his tribe's attempts at economic development. "Our first company was a sand and gravel company," says the governor of the Pueblo of Santa Ana, pointing to a shuttered building on the left. "That didn't go too well. Over here was our second business, a mobile-home-park company. That didn't go too well either." At the end of the road is the tribe's latest venture: a massive resort hotel and conference center.

The half-finished complex, built in the classic pueblo style of stucco and wooden beams, will include three swimming pools, an 18-hole golf course, and a room shaped like an ancient prayer kiva. Though Hyatt Corp. will manage it, financing came courtesy of the pueblo's thriving little casino, located just 20 minutes north of Albuquerque. It's a coup for the 700-member community best known for its traditional blue corn, and Montoya, a bluff and muscular 46-year-old who fought fires in Albuquerque before his election as governor, exudes a confidence that seems at once physical and economic as he strides about the construction site.

Yet not all is well. Since April the Santa Ana and 11 other gaming tribes have refused to share their casino revenues with the state, putting them in violation of a 1997 agreement. Now the state is suing in federal court. "They signed it and then reneged," New Mexico attorney general Patricia Madrid says of the tribes. "You don't sign something and then immediately repudiate it."

The Sturm und Drang is over something even dearer than money: sovereignty. Under the Indian Reorganization Act of 1934, reservations were set up as nations unto themselves, answerable only to Congress and exempt from state interference (and taxes) except in criminal matters--a wedge the tribes used to pry open the gaming floodgates. In its landmark 1987 decision, California v. Cabazon Band of Mission Indians, the U.S. Supreme Court ruled that if a state allowed any sort of wagering--even, say, at one-night charity functions--gambling became allowable on reservations too. To impose some control on the subsequent flood tide, Congress passed the 1988 Indian Gaming Regulatory Act (IGRA), which required would-be gaming tribes to first negotiate a compact with their state. The states, for their part, were instructed to negotiate in "good faith," and if they didn't, the tribes could sue them.

But when many tribes did just that, the states howled that the lawsuits violated their sovereign immunity under the 11th Amendment, an argument the Supreme Court upheld in 1996. That effectively rendered IGRA unenforceable and, according to Interior Secretary Bruce Babbitt, put tribes like the Santa Ana in an "untenable position": in need of a compact to continue gaming, yet without recourse if a state refused to grant them one or attached extortionate conditions. So when the New Mexico legislature demanded a fat piece of the pie in 1997--16% of slot proceeds plus regulatory fees, take it or leave it--the tribes registered a protest but signed. "[The compacts] haven't been negotiated," complained Frank Chaves, co-chairman of the New Mexico Indian Gaming Association. "They were dictated."

To the Indians, all this smacks of yet another bad treaty. "I'm not going to sit here and say gaming doesn't create a social ill. It does," says Montoya, sunglasses perched high on his spiky hair as he leans against a blackjack table. "[But] this 16% is basically a tax. It's so they don't have to tax their constituents." His lieutenants rattle off a list of what they'd like to build with that money, which is being held in escrow: a medical facility, day care, and so on. "It's really hard to swallow the state making money off Native Americans and then not letting us help our tribal members," says one tribal official. "We feel like we're getting pretty screwed."

But by ceasing payments, the tribe is risking an outcome potentially worse than the status quo. If the court rules the 16% revenue sharing illegal, attorney general Madrid says she'll demand that the compacts be thrown out altogether. "We could potentially shut gaming down," she says. Chaves dismisses that as idle brinkmanship. "It would be just unconscionable," he says. "There are thousands of jobs at stake." Yet for every study he cites about gambling's positive spillover into the off-reservation economy (according to NIGA, 73% of the people employed at Indian casinos are non-Indian), Madrid cites one concerning the tendency of casinos to absorb money citizens would otherwise spend on taxable things. "It's been damaging to the state," she insists.

Montoya seems primed for a fight. "We've learned two things: You've got to have money, and you've got to know how to play the political game," he says. "We're learning, but we're not there yet."

Bury My Heart at White Clay

The modest, white-tented casino produces about $3 million a year in profits, but Gerald Fallis is convinced that the tribal treasurer has been pocketing much of it. "When he first got here, he had nothing but a little silver trailer," says Fallis. "Now he's got several vehicles and three ranches. You know that boy's been stealing."

Ever since Jan. 16, Fallis and a group of Oglala Sioux calling themselves the Grass Roots Oyate have occupied the tribal headquarters on South Dakota's Pine Ridge Reservation. They say the 17-member tribal council is corrupt. "Millions of dollars come into this reservation every year, and look how we're living," says Fallis. "You'd think you've driven into a Third World country." (The treasurer's attorney, Jane Colhoff, says it's "ludicrous" to blame him for corruption that "has been going on for 100 years," and denies that he owns anything more than a truck, a car, and a trailer home.)

Foes of Indian gaming have long sworn that it's awash in crookedness, with no less an unbiased observer than Donald Trump telling a congressional panel that "organized crime is rampant on the Indian reservations." The Justice Department and FBI have testified to the contrary, and Indians never fail to note that their casinos are more heavily regulated than non-Indian ones, with oversight from tribal regulators, the state, and the National Indian Gaming Commission. Still, to watch the turmoil at Pine Ridge is to realize that good governance is a crucial part of the gaming equation.

Inside the occupied headquarters building, where activists heat up chicken soup on a burner intended for branding irons, Dorothy Sun Bear describes how she lives in a tent near Wounded Knee Creek with her eight children, scratching out an existence selling beadwork. "It rained on us all spring," she says. "We have no water, no electricity."

This is the poorest county in the nation, an economic dead zone where tribal unemployment hovers around 80% and alcoholism around 50%. To call the tribe's history tumultuous would be an understatement. The Oglala Sioux were herded here in the late 1800s following the seizure of their hunting grounds, the killing of their leader, Crazy Horse, and the massacre of more than 200 men, women, and children by federal forces at Wounded Knee. The indignity still seemed fresh almost a century later, in 1973, when the radical American Indian Movement forced an armed standoff at Wounded Knee in which two Indians were killed and a federal marshal was seriously wounded.

Nowhere is the tribe's ongoing struggle more evident than in the town of White Clay, a mean-looking strip of four liquor stores just outside the reservation's southern border. The white owners sell about four million cans of beer a year to an overwhelmingly Sioux clientele, whose reservation, like most Indian casinos, is dry. One's first impression upon entering the place is that someone has accidentally dropped a block of inner-city Los Angeles into the middle of the prairie. The ground is strewn with oversized beer cans and skeletons of ancient Chevys. Clumps of Indians drink in front of tumbledown houses while the sheriff's patrol car creeps wolfishly back and forth.

Border-town relations are not friendly. "Look at their houses," says a white native of nearby Deadwood, S.D., toothpick in mouth. "They don't keep them up. I think the government should help them some, but look what we're giving them, and look what they've done with it." He adds disapprovingly, "They all go to college for free."

A few yards down the road is a teepee encampment called Camp Justice, where an American flag hangs upside down. Two Sioux men were found murdered here last year, and their families suspect local police were involved. Further inside the "rez," as the locals call it, the scene is more upbeat: a powwow replete with headdresses, drum beating, and buffalo meat, where uniformed veterans from World War II and Vietnam accept awards. Here the American flags fly right-side up.

The casino is at the far end of the reservation, a white speck on an undulating ocean of grass. "It makes a lot of money, but we don't see it," says Fallis. "There's so much fraud and misappropriation going on that it's pathetic." Agrees fellow Grass Roots supporter Guy White Thunder: "The council runs like a mafia." The activists want to return to a system of tribal chiefs and headmen, and have built a makeshift altar of eagle feathers and sacred pipes inside the council chambers. (The council continues to function as a sort of government-in-exile while the FBI conducts forensic audits of its finances.) But not everyone here approves of the Grass Roots' methods. "We are just airing our dirty laundry," says Tom Poor Bear, brother of one of the slain men, "and the white man, he loves to see us like that."


With a population of 275,000 and a reservation the size of West Virginia, the Navajo are the giant of Indian tribes. The Navajo Dinetah, or homeland, stretches from the pinnacles of southern Utah to the red canyons of northern Arizona to the arroyos of western New Mexico. It is the Indian country of John Ford movies, vast and iconic, and its stillness has yet to be upset by the rude jangle of slot machines.

Kelsey Begaye would like to keep it that way. "There's healthier ways of making money," insists the Navajo Nation president, looking as immovable as the rock formations that encircle his small capitol building in Window Rock, Ariz. "I'd rather have bankers and consultants come out of the Nation."

In a 1994 referendum the Navajo people voted not to allow gambling. They did so again in 1997, though by a slimmer margin. The matter refuses to go away. Attempting an end run, the tribal council has passed two resolutions in the past year to legalize gambling. But Begaye vetoed both, declaring, "The will of the Navajo people must be honored and respected."

His antigaming stance is partly pragmatic: He thinks the casinos, so distant from any urban centers, would simply end up luring Navajos. But he also worries about the potential for "abuse and misuse" of casino money, about the addictive mix of gambling and alcoholism, about what it would do to Navajo culture and its ideal of "walking in beauty." "Navajos have always been rich with their lifestyle and pretty country," he says, the sandstone tableau now afire with the low afternoon sun. "Being rich doesn't mean I have to have money in my pocket."

Not every member of the tribe agrees. "The tribe is going broke," states Tony Secataro, president of the Canyoncito band of Navajo, a quasi-autonomous group that lives on a parcel of land close to highway I-40. Citing the 50% unemployment rate and the depletion of the reservation's income-generating resources like oil and coal, the band has been talking about seceding from the Navajo Nation if Begaye doesn't give in. "I would consider that denying my right for a gainful life, and my people's," says Secatero. "Investors are scratching at our door."