The big question when considering a tribal casino reopening: How quickly will guest confidence return to pre-pandemic traffic levels? Forecasts are mixed. Some predict volume will fall one-third to one-half. Others express cautious optimism that a pent-up demand exists and activity will return to normal levels at least initially, especially if no other entertainment options exist in their market. With most tribal gaming operations planning to reopen within the next few weeks, we summarize some key financial issues for tribal casino reopening.
Financial Impacts of Reopening
The tribal gaming industry has experienced declines in revenues through these unprecedented times. Although most tribal casinos have generously continued paying employees during closures, such practices cannot last forever, and many are now turning to layoffs and furloughs. Most have tried to curb the decline in revenues by aggressively limiting spending. However, new costs have cropped up with reopening. Implementing new health and safety standards â€” virus testing, cleaning products, new/added payroll, costs for cleaning, etc. â€” drive up the cost for compliance.
For tribal casinos trying to maintain compliance with debt and financial ratio covenants, there is also now the added risk of missing those marks. Meeting current obligations under these debt agreements may not be possible for a period of time due to the closures and lack of cash flow. We encourage proactive discussions with the institutions holding your debt.
Cash Flow Coordination with Tribal Government
Tribal governments often depend heavily on profit distributions from gaming operations. In many cases, these profit distributions fund a significant percentage of the tribal governmentâ€™s operating budget. Reconsider these distributions in light of the casino closures.
Here are some of the questions suggested by REDW Principal and tribal gaming industry expert, Anthony Gerlach on the topic:
- How much of a dip in gaming revenues and profits should be forecasted due to the pandemic? For what period?
- Will there be a quick recovery back to â€œnormalâ€ volume upon reopening or is a delayed recovery expected?
- What changes in operations does the tribal government need to consider relative to this likely decline in available cash flows?
â€œIn fact,â€ said Gerlach, â€œconversely, gaming operations may need to seek cash flow assistance from the tribe, as a bridge to when operations once again turn profitable.â€
Federal Resource Considerations
The tribe and casino also must jointly consider what federal resources received by the tribe are available to use. Federal assistance may well be available for paying for the added costs of the tribal casino reopening. CARES Act funding under the Tribal Coronavirus Relief Fund might be the best resource.
The Tribe can use CARES Act funds to pay for costs that are:
- Necessary due to COVID-19 public health response
- Not previously accounted for in a tribally-approved budget as of March 27, 2020
- Incurred during March 1, 2020 through December 31, 2020.
Covered costs related to tribal casino reopening include:
- Added cleaning and sanitation supplies
- Payroll and related costs of any added positions needed to service this added cleaning
- COVID-19 testing for employees
- Temperature scanners and related equipment
- Plexiglas partitions for game operations
Tribes cannot use funds to cover revenue shortfalls. Gaming operations must maintain documentation to appropriately identify and justify such costs.
The REDW Tribal Gaming Industry Group recommends setting up new general ledger accounts and/or departments to segregate COVID-19 costs. The tribe should also plan to reimburse the casino for these costs once it approves the mandated documentation, as opposed to passing-through the funds to the casino to use at the casinoâ€™s discretion. The second approach poses a risk of classifying the casino as a subrecipient, which can trigger a federally required Single Audit for use of the funds.
First, notify regulatory bodies of the tribal casinoâ€™s intent and schedule to reopen. Agencies requiring advance notice include state gaming agencies and the Tribal Gaming Regulatory Authority (TGRA). The TGRA will likely be involved in some of the particular nuances of reopening and consensus with management about proper course of action. The National Indian Gaming Commission (NIGC) has also requested that gaming operations provide a notification of their reopening.
Next, conduct a review to update all regulatory compliance submissions before returning from closure. Ensure all submissions have been made regarding facility licensing, EPHS certifications, external and internal audits, fees, etc. Review the NIGCâ€™s Minimum Internal Control Standards (MICS) to update all compliance items, especially for activities stalled during the closure, such as the monthly or quarterly inventories required in areas like bingo paper, pull tabs, and sensitive keys.
Finally, review the status of employee licensing. What happens to employees whose licenses expired during the period of closure? Check the licenses of laid-off employees before they are rehired. Put special protocols or exemptions into place, as long as employees submit renewals within a certain timeframe.
HR Considerations for Tribal Casino Reopening
As tribal gaming operators look to reopen business amidst the COVID-19 pandemic, they need to make key decisions and develop protocols in many areas related to the health and safety of employees and guests. The most detailed and comprehensive plan for reopening we have seen is courtesy of the Wynn Las Vegas, which published a 28-page document on casino reopening procedures. (Click for link.) Topics include pre-entrance screening, social distancing, and sanitation for facilities and games.
The REDW Human Resources Consulting Department is assisting many tribal casino clients with reopening plans, focusing on employee safety and a new paradigm for â€œtouchlessâ€ customer service.
According to Cristin Heyns-Bousliman, REDWâ€™s National Practice Leader-Human Resources Consulting:
â€œTribal casinos must present clear policies and procedures for admission into the workplace, mindful social distancing, and enhanced sanitation protocol. This requires designing a new approach to make guests feel comfortable, with thorough staff training on how to implement this approach.â€
REDW Can Help
The tribal gaming industry will no doubt come out stronger on the other side of this pandemic, but there is certainly a storm to weather first. Count on the tribal gaming experts at REDW to help you navigate the financial impact to your operations.
Contact Anthony Gerlach, CPA for questions or further insights on casino reopening as it pertains to gaming operations, new regulations, and financial assessment and planning.
Address questions about employment law or human resources policies for employees returning to work to Cristin Heyns-Bousliman, Esq.
Copyright 2020 REDW LLC, CPAs & Advisors. All Rights Reserved. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice.