When the $530 million Red Hawk Casino opened more than two years ago, it looked like the Shingle Springs Band of Miwok Indians had picked a winning ticket.
But the prolonged recession and fierce competition from the nearby Thunder Valley Casino Resort has left the tribe unable to keep up with the payment schedule on loans from its casino
On Wednesday, the Minneapolis gambling company said it had cut the value of those loans on its books by $21 million.
"The (Northern California) economy continues to be one of the worst in the country, and the Red Hawk Casino continues to feel its effects," said Lyle Berman, Lakes' CEO.
Ken Adams, a Reno gambling consultant, said Red Hawk has been hindered from the start by its remote location off Highway 50 between Sacramento and Lake Tahoe.
That's put the casino at a major disadvantage against Thunder Valley Casino in Lincoln, which added a new 300-room hotel and additional gambling space last summer.
The Red Hawk Casino does not have a hotel, making it difficult to lure well-heeled Bay Area gamblers.
Instead, most of its customers come from within a 30-mile radius of the casino.
Adams noted that the weak economy and high gas and food prices have nibbled away at the amount of discretionary income available for gambling.
"When (customers') gas costs a third more than it used to and their food costs a third more than it used to, they have less to spend," he said.
In a conference call with investors on Wednesday, Tim Cope, Lakes' chief financial officer, noted that the company wrote down another $16 million on top of the $21 million loan charge due to problems with other "intangible assets" relating to the casino.
It did not say what those intangible assets were.
Berman said the tribe remains current on the bonds used to finance the casino's construction and other debt used for its fixtures and equipment.
Cope added that he expects the tribe to eventually resume making payments on its loan.
The Red Hawk write-down prompted Lakes to report a $28.1 million loss for the fourth quarter 2010. The $1.07 per share loss compares with a net profit of $2.4 million in the year-earlier period.
A spokesman for the Shingle Springs Band declined to comment.
With an area covering nearly five football fields, the Red Hawk Casino opened in December 2008, one of worst months of the economic downturn.
The El Dorado County casino, with over 2,100 slot machines, was expected to generate over $250 million in revenue each year but has struggled since its launch, prompted a major management shake-up last year.
In February 2010, the casino hired longtime Reno gambling executive Tracy Mimno as its general manager and has replaced other top managers.
With more than 500 members, the Shingle Springs Band is a federally recognized tribe that traces its ancestry to Miwok, Maidu, and Nisenan tribes from the Central Valley.
The tribe receives a fee of $500,000 from Lakes per month plus a share of revenue from the casino. It uses much of that money to fund the tribe's health care, educational, housing and social services programs.
What's left is split among tribe members.
El Dorado County officials also count on the casino to cover the cost of its social impacts. In 2008, the Red Hawk officials agreed to pay the county $192 million over 20 years to help fund highway expansion, additional police services and other community services.
Laura Schwartz, principal administrative analyst for El Dorado County, said the casino is current on all payments, which amounted to about $8.2 million last year.
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