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When Down Looks Like Up

Posted on January 7, 2009 by -

In these difficult and unprecedented times, few industries or businesses have proven themselves immune to the effects of recessionary activity. All parties in the “economic food chain” are experiencing pressure, and even those outperforming their competitors are reassessing their approach and positioning. 

This is particularly true in many corners of Indian Country, where reduced cash flows at gaming properties are beginning to influence the financial position, both inside and outside of the casino walls. And when the economic engine of gaming starts to show significant declines in profitability, the community programs those dollars support may also be in jeopardy. Tribes recognize that the right response is needed. And quick.

If there is a silver lining, it just may be that because the current environment is so incredibly challenging, it is forcing tribes throughout the U.S. to closely evaluate (if not completely revisit) their business, marketing and construction/development plans-and “operational soul searching” of this intensity has a way of yielding some unexpected benefits. For the tribes who do it right, the changes they make now should not only help their tribal properties weather the current crisis, but will also result in more streamlined operations and effective business models that should help bolster profits for years to come.

Perspective
The gaming industry continues to be adversely affected by the economic downturn. In order to offer some perspective, let us look at the performance of the major gaming industry indices. As of March 6, the Dow Jones U.S. Gambling Index is down 18.2 percent for the year (following a decline of 73.3 percent in 2008). Relative to a 7 percent decrease in the S&P 500 over the same period, the data tells us that gaming is no longer a preferred sector for investors. Furthermore, shareholders in the world’s largest gaming operators-Las Vegas Sands, MGM Mirage and Wynn Resorts-have lost more than $70 billion of market value since the beginning of 2008.

From a credit perspective, the data is not any better. Within Fitch’s U.S. High Yield Default Index, the gaming sector experienced a record default rate of 32 percent in 2008, well above the overall high-yield market default rate of 8.5 percent. Seven issuers defaulted on more than $13 billion of high-yield principal. Twenty-one companies received credit rating downgrades from Moody’s, nine of which were Native American operators. To date in 2009, three Native American entities have been downgraded including Mohegan Tribal Gaming Authority, Mashantucket Western Pequot Tribe and Snoqualmie Entertainment Authority.    Fortunately, the news is not all bad. While destination markets like Las Vegas and Atlantic City continue to generate record decreases in revenues, many regional gaming markets are benefiting from a lack of travel by gamers. For example, Mississippi and Louisiana have shown small decreases or even small gains as they have rebuilt after Hurricane Katrina’s devastation. Many new properties in these regions have improved their competitive position in comparison to their predecessors. Beyond commercial gaming, a handful of Native American properties in regional markets have improved their competitive positioning, notably the Seminole Tribe of Florida.


Impact on Tribal Enterprises 
While much of this data may make many investors and operators nervous, it offers an opportunity for an in-depth review of the casino operations as well as the capital structure. With a solid framework in place, entities can preserve one of the most important aspects of business for many Native American operators: tribal distributions.    

Cash flows provided by tribal gaming enterprises are of the utmost importance to tribal governments and act as lifelines for the majority of Native American tribes. Not only do these distributions fund tribal programs such as health care, education and infrastructure, but individual per capita payments also augment incomes for many tribal members.

Unlike a traditional corporate structure, Native American tribes operate in an interrelated environment whereby the casino operations cannot exist without tribal government, yet the tribal government is dependent upon the funds provided by the casino. Given this dynamic, the interests of the tribe and creditors are aligned. Both parties stand to benefit when the tribe operates the casino in a way that maximizes cash flow generation and profitability.


Commercial Mindset  
Looking forward, it is our expectation that most, if not all, tribal entities will act commercially to preserve value for all of their stakeholders, including tribal members and creditors.

Even with limited refinancing options available due to the credit crisis, many tribes understand that they will need to tap the commercial credit markets at some point in the future to refinance their balance sheets and fund expansions or new projects. Additionally, tribes must recognize the potential impact on future generations from the decisions made in today’s difficult environment.


Give and Take on Both Sides  
As noted earlier, the interests of tribes and creditors are often aligned. Both parties will need to approach discussions regarding tribal distributions in good faith, but may need to make concessions. Many debt agreements for Native American gaming enterprises permit guaranteed minimum distributions to fund essential governmental functions, even in the event of a default.

If during this difficult economic time, however, a situation arises where the gaming entity cannot make required interest payments, tribes may be forced to cut back on non-essential programs similar to state governments experiencing major budget deficits.

Ultimately, creditors need to permit distributions at a level where tribes can continue running their governments, otherwise, the tribe may have no reason to continue operating the very business that is expected to pay back its loans. Difficult decisions will need to be made, but they are necessary to align distribution expectations with the current economic environment.


How Are Tribes Responding? 
Native American operators are responding by focusing on things they can control-announcing deep cost-cutting measures, reducing staff and delaying major development projects. 

For example, Mohegan Tribal Gaming Authority announced in January a number of initiatives including reductions in salaries for senior executives, suspension of compensation increases, 401(k) contributions, and a reduction of hours of operation for some businesses. In September, the Mohegan Tribe also announced the delay of its $925 million expansion plan.


Long Overdue? 
An interesting irony has emerged for tribal operators with regard to staffing levels. When tribes are positioning themselves for the development of a casino, the promise of job creation can be crucial to gaining political support and the approval of a state compact. Some even over-hired to prove their benefit to the local economy, creating inefficiencies and excessive payroll costs.

Although layoffs and downsizing are not welcome for anyone now, the current situation has forced tribes to deal with this issue and find a way to finally right-size their staffing levels. While it certainly is not the preferred method of addressing such a situation, tribal casinos are like every other business and have taken necessary measures to reduce such overhead costs and improve their profitability. Unwelcome, maybe. Overdue, definitely. These decisions may not be the best political moves both locally and within the tribal membership; however, these challenging times are requiring unpopular decisions.

Another positive development has surfaced out of the recession in the form of improved marketing programs. Whereas tribal operators may have had little need for highly targeted and perceptive marketing during the high-volume days of the recent past, creative and patron-sensitive tactics are now necessary for survival. Between reductions in staffing and enhanced marketing, tribal operators can improve operations and position themselves for a future recovery.


The Government Weighs In  
The federal government is doing its part to assist tribes in their economic development. The American Recovery and Reinvestment Act of 2009 provides Native American tribes the authority to access up to $2 billion of tax-exempt bond funding to finance hotels and other non-gaming amenities using tax-exempt bonds.

In addition, the National Indian Gaming Commission recently issued a letter regarding the securitization of financings by a pledge of gross gaming revenues. The NIGC had questioned the validity of such financings, expressing concern that the documentation for such financing is void unless it has been approved by the NIGC chairman as a gaming management agreement. The letter did not object to securitization by gross gaming revenues and set forth a specific list of restricted creditor actions. Creditors are not permitted to engage in any “management activities” including supervision of personnel, determination of hours of operation, marketing, accounting, operation or purchase of gaming machines and allocation of operating expenses. By offering clarity on this issue, tribes and creditors now have a detailed operational guideline in the event that gaming revenues do not meet expectations. In summary, the NIGC has stepped forward with additional guidance that will be beneficial to both tribes and creditors in the future.


Time Will Tell 
Despite the negativity and difficult economic environment, there is a silver lining for tribal gaming operators. The rationalization and right-sizing of cost structures will result in more efficient businesses and solid foundations for long-term success and profitability. A proactive mindset and foresight is crucial to weathering the storm and emerging unfazed.

The best operators are making informed decisions assisted by their financial and legal advisors. While no one truly knows how long the current recession will last, these businesses will be well-positioned to take advantage of more prosperous times.

Betrayal of Trust

Posted on January 7, 2009 by -

It has long been the belief of this nation’s first Americans that the federal government would attempt to rid itself of its trust obligations to American Indians. That prophecy is becoming realized in recent federal court decisions and congressional attempts to erode tribal sovereignty and the inherent right of first Americans to govern their people, on their lands.

The trend was accelerated dramatically last month with the U.S. Supreme Court decision in Carcieri v. Salazar. The ruling is creating great uncertainty for a number of Indian tribes seeking nothing more than the ability to exercise their governmental right and authority to provide for the welfare of their people.

Justices in Carcieri v. Salazar ruled that Indian tribes not recognized or under federal jurisdiction when the Indian Reorganization Act (IRA) was passed in 1934 were barred from using the act’s land-into-trust process to establish a homeland.

U.S. Senator Jack Reed (D-Rhode Island) was correct when he suggested casino gambling was “lurking behind” the greater and far more important issue: the trust relationship between two sovereigns, American Indian tribes and the federal government.

The Supreme Court, ruling on efforts by the Narragansett Tribe to place 31 acres of land in trust for a casino, prevents numerous other tribes recognized after 1934 from obtaining economic self-sufficiency through tribal government gaming by blocking their ability to place land into trust for casinos.

Interior Secretary Ken Salazar quickly released a statement saying he was disappointed in the decision, which ignores long-held practices by the department in placing land in trust for tribes.

“The department,” he said, “is committed to supporting the ability of all federally recognized tribes to have lands acquired in trust.”    

House Natural Resources Committee Chairman Rep. Nick Rahall (D-West Virginia) said the ruling “could throw a shroud over the sovereign nature of land held by untold numbers of Indian tribes.” He pledged to conduct a hearing on the matter.    

It is incumbent on the U.S. Congress to remedy the situation.

Indian Gaming Brings Benefits
It is time Congress, the courts and others cease using gaming as an excuse to erode tribal sovereignty and self-governance and rid itself of the federal government’s trust responsibility to the first Americans.

Tribal government gaming has proven to be a successful and productive economic development tool for Indian Country. Gaming is creating jobs with competitive pay and benefits for Indians and non-Indians. It is providing tribes with the resources to fund critical public services on reservations.

Non-Indian businesses near tribal reservations have seen their operations grow as a result of patronage by tribal governments.

Indian gaming has made it possible for young Native men and women to pursue their education at universities, colleges and vocational schools. It is helping tribes revive their languages and preserve their culture.

Communities surrounding tribal reservations have benefited from the vision and generosity of tribal governments.

The San Manuel Band of Mission Indians near San Bernardino, California, recently awarded more than $7.3 million to charitable organizations and community groups in Southern California and the western United States, enabling these groups and organizations to continue their good work and outreach. In the current economic environment, many more Americans are relying on these organizations for their basic needs.

Indian gaming is enabling tribal governments to become significant contributors to community improvements on and off their reservations.

The Supreme Court ruling threatens these opportunities for a number of tribal governments and their neighboring communities.


Congressional Action is Needed
Congress must act now to restore the right of all tribes to take lands into trust.

Elected officials on Capitol Hill must realize that some 90 million acres of Indian lands were lost from 1887-when a federal police of allotting tribal lands was imposed-and passage of the Indian Reorganization Act in 1934. Only 5 million acres have since been reacquired and placed in trust for Indian tribes.

Congress was quick to embrace the stimulus package offered by President Obama, passing the legislation in record time. It acted quickly to enact financial recovery programs for auto makers and financial institutions.

Indian tribes deserve the same speedy consideration.

Indian Country was optimistic when President Barack Obama took the oath of office. He and his administration have a real-time opportunity to honor the treaties and promises made to Native nations, a pledge he made to Indian audiences during his campaign. The president should confer with Congress and encourage them to quickly develop a fix.

It is difficult to gauge just how far-reaching Carcieri v. Salazar may prove to be. But without congressional action, options are limited and the future is bleak for a number of tribes.  

There is reason to be hopeful. Native lawyers and policy analysts are reviewing the decision. Soon they will offer their guidance on the best course for Indian Country.

This also was predicted by tribal elders.

Trust and Responsibility

Posted on January 7, 2009 by -

Tribal fee-to-trust issues will be defined in the next year by how tribes respond to challenges both fundamental and mundane. The Supreme Court decision in Carcieri v. Salazar will take center stage until the matter is resolved or trumped. Other recent and lingering matters hinder or facilitate tribes seeking trust acquisition, including the recently issued Opinion of the Solicitor regarding restricted fee lands and gaming, the viability of the January 3, 2008 guidance memorandum, Bureau of Indian Affairs elimination of trust acquisition performance standards, and potential fee-to-trust regulations.


Seminal Supreme Court Case
The Supreme Court issued its opinion in Carcieri v. Salazar on February 24. By press time, the Senate and House may have held hearings on the matter, and perhaps a fix will be in development.

The Supreme Court held the wording of the Indian Reorganization Act of 1934 (IRA) limited the secretary of the interior’s trust acquisition authority to tribes that were under federal jurisdiction as of the act’s enactment.

The court substantiated this holding through a strict interpretation of the act’s use of “now under federal jurisdiction” and the legislative intent to stem the loss of land sustained by tribes under the General Allotment Act. The court concluded section 2202 of the Indian Land Consolidation Act ensured tribes that were under federal jurisdiction in 1934, but opted out of the IRA, could still benefit from the trust acquisition provisions of the IRA.

The majority opinion, concurring opinions and dissenting opinions offer no clear application of this holding. Yet to be determined is the meaning of “under federal jurisdiction.” Carcieri will spawn additional questions if a congressional fix is not imminent. For example, Justice Stephen Breyer noted in his concurring opinion that the Department of the Interior, concurrent with the passage of the IRA, compiled a list of tribes it believed were subject to the IRA. None of the justices concede the list is conclusive evidence the federal government exercised jurisdiction with respect to only those tribes. In fact, Justice Breyer noted the department wrongly omitted tribes from the list. He asserted further that specific historical instances illustrate a pre-1934 jurisdiction over a tribe even though the recognition occurred after 1934. Justice Breyer listed three factors that may indicate a tribe was under federal jurisdiction in 1934: 1) a treaty with the United States still in effect in 1934, 2) a pre-1934 congressional appropriation, or 3) enrollment with the Indian Office in or before 1934.

The court’s lack of guidance will impact the trust acquisition process for some tribes until the Department of the Interior and Department of Justice weigh the ramifications of Carcieri and determine the proper administrative responses, or the federal courts build upon this holding in forthcoming cases. Congress may fill the void with a legislative fix. As noted, the Senate and House will hold hearings in the beginning of April. While this issue will be a critical matter for all tribal leaders, this will surely be a topic of great interest for cities, counties and states, as well as opponents of tribal sovereignty. Tribal leaders must carefully assess the goals and strategies associated with a potential legislative fix.


Solicitor’s Opinion
The Solicitor of the Department of the Interior concluded, in a January 18 M-Opinion, that section 2719 of the Indian Gaming Regulatory Act does not apply to land held in restricted fee. From 2002 until the issuance of this opinion the department applied the section 2719 prohibitions to lands held in restricted fee to foreclose a perceived loophole that might allow tribes to game on land acquired after IGRA’s enactment date. Secretary Gale Norton sought to prevent this circumvention of IGRA. She reasoned Congress intended not to limit the restriction to only per se trust acquisitions, but to all after-acquired land, including restricted fee land. The January 18 solicitor’s opinion limited this expansive interpretation by applying section 2719 to lands that were taken into trust pursuant to the IRA.

The solicitor stated that Secretary Norton’s concerns about a loophole were based on an assumption that off-reservation lands acquired by tribes after IGRA’s enactment would be subject to an automatic restriction on alienation imposed by the Non-Intercourse Act. The department has since determined this act applies only to “Indian Country” and lands outside of the reservation do not automatically qualify as Indian Country. On January 20, the National Indian Gaming Commission followed this rationale when it released its opinion on the Seneca Nation’s Class II gaming ordinance. It reiterated IGRA section 2719 cannot apply to land held in restricted fee and the Non-Intercourse Act does not apply to off-reservation fee land.

The solicitor and NIGC opinions have little impact on the off-reservation gaming issue, especially after City of Sherrill v. Oneida Indian Nation, which stated that the IRA provides the process for a tribe to reestablish sovereignty over land. However, its import may be in the unequivocal statement that the Non-Intercourse Act’s restrictions against alienation do not automatically attach to off-reservation parcels acquired by a tribe in fee simple absolute. Certain tribes have been forced by title companies to seek an approval from Congress prior to selling off-reservation fee land. These opinions should end this arduous and unnecessary step.


Land-Into-Trust for Gaming
On January 3, 2008, the Department of the Interior issued its memorandum entitled “Guidance on Taking Off-Reservation Land into Trust for Gaming Purposes.” The memorandum elaborated on departmental considerations when weighing the mandates of 25 C.F.R. section 151.11(b). This regulation mandates that the secretary, when contemplating an off-reservation acquisition, “shall give greater scrutiny to the tribe’s justification of anticipated benefits from the acquisition” as the distance between the proposed land acquisition and reservation increases.

The memorandum directed the reviewers to scrutinize two economic benefits to tribes: the income stream from a casino and the job training/employment benefits. It stated that “no application to take land into trust beyond a commutable distance from the reservation should be granted” unless the application analyzes and demonstrates how the negative impacts on the reservation are outweighed by the financial benefits of the gaming facility.

The new administration will soon have the opportunity to weigh in on this issue. The St. Croix Chippewa Indians of Wisconsin challenged, in April 2008, the validity of this memorandum and other actions taken by the department regarding its off-reservation gaming application. Since that time, the Tribe lost its challenge in the district court and its off-reservation fee-to-trust application was denied.

However, the U.S. Court of Appeals for the District of Columbia recently denied the U.S. government’s motion to dismiss and ordered the federal government to file a brief in response to the issues raised in the tribe’s appeal. In short, the Department of the Interior will be forced to either defend issuance of the guidance memorandum or to withdraw it and review these issues again.

No matter the outcome of this case, any tribe seeking to establish an off-reservation gaming operation still must meet the mandates of the 25 C.F.R. section 151.11. Tribes should develop applications that preemptively and conclusively address the greater scrutiny standard of the regulations.

Elimination of Trust Performance Standards
While more mundane than Supreme Court decisions and solicitor opinions, the BIA director’s elimination of performance standards for regional directors related to acquisition of tribal land into trust will have a profound impact on tribal attempts to take land, both on and off reservation, into trust. In fiscal year 2008, the BIA director inserted into the performance standards of the regional directors goals for the acquisition of land into trust in each region. This prioritized the review and determination of fee-to-trust applications by the regional offices over other tasks within these offices. This yielded determinations on hundreds of applications and the acquisition into trust of over 50,000 acres through the 25 C.F.R. section 151 process in one year.

The subordination of the land into trust issue by the BIA central office signals that tribal applications for land into trust will be forced to compete for time and money with other important programs.          

These other programs may not yield the same impact on sovereignty and jurisdiction for the tribes. If tribal leaders want to re-establish this as a priority within their regions, they must emphasize the importance of this issue with the incoming assistant secretary of Indian affairs and the director of the BIA. Performance standards development begins in April of every year and culminates in early September.


Amendment of the Fee-to-Trust Regulations
A perennial fee-to-trust issue is the deliberation and promulgation of new fee-to-trust regulations. This will be on the horizon for consideration again. I think a few issues will influence this rulemaking process. First, tribal leaders will gauge the impact of the Carcieri case and its potential subsequent legislative fix. The legislative consideration of this matter may prove to be a coalescing event and training ground for all conceivable stakeholders in the fee-to-trust process, from disparate tribal opinions to regional interests to express opponents of tribal sovereignty and jurisdiction. Depending on the outcome of the legislative process, tribal leaders may urge the department to postpone reconsideration of the regulations, especially if the administrative process expands the initial consultation process beyond tribal concerns.

Second, the recently issued fee-to-trust handbook may forestall reconsideration. This handbook promulgates homogeneous fee-to-trust process throughout the nation. The BIA will hold its first tribal leaders dialogue meeting on the handbook in April. The current version purposefully omits off-reservation discretionary trust acquisitions and mandatory trust acquisitions sections. This will allow tribal leaders to participate in the development of these sections and refinement of the on-reservation acquisition portion.

Even if the fee-to-trust regulations are not considered this year, determining the impact of the Carcieri case, anticipating the outcome of the St. Croix challenge to the January 3 Guidance Memorandum, and working with the BIA to continue its laudable prior performance regarding the fee-to-trust matters should prove to be a full-time job for all those interested in the trust acquisition process, both on and off reservation. 

IGRA’s Impact

Posted on January 7, 2009 by -

n October 16-17, 2008, the Arizona State University School of Law hosted a conference at Fort McDowell Casino to commemorate and critically examine the 20 years of Indian gaming under the 1988 Indian Gaming Regulatory Act. The event attracted scholars, policy makers and tribal representatives from around the country, many of whom had participated directly in the creation and implementation of the act. Our paper examined the economic impacts of Indian gaming under IGRA and complemented the political work presented by other academics whose work examined the ways that IGRA resolved specific legal and regulatory dilemmas and allowed tribes to pursue Class III gaming without fear of federal criminal prosecution. An excerpt from the paper appears here:

The Growth of Indian Gaming
In recent years the NIGC has regularly released tables and charts reporting the gross gaming revenues of Indian casinos-that is, the total revenues net of prizes paid for every Indian bingo hall and casino across the country. Predictably when these data are released, commentators note the burgeoning Indian sector of America’s growing gambling industry.

Upon the release of the latest gaming revenue figures, which reached $26 billion in 2007, the commission chairman, Philip N. Hogen, noted, “The continued growth [of Indian gaming revenue] is significant considering recent economic struggles throughout the country. The Indian gaming industry has experienced tremendous growth since the inception of the Indian Gaming Regulatory Act 20 years ago in 1988.”
    The numbers warrant Hogen’s accolades of “significant” and “tremendous” (Chart 1). In inflation-adjusted terms, Indian gaming exploded more than a hundred-fold from $171 million in 1985 to $26 billion in 2007, for an average compound growth rate of 26 percent per year after inflation. As the light blue line in Chart 1 indicates, Indian gaming grew rapidly in comparison with the commercial casino sector as well, jumping from 2 percent of its size in 1988 to more than three quarters in 2007. Back in the opening days of bingo halls at Penobscot, Seminole, Shakopee and elsewhere, few observers had any inkling that such growth was in store for Indian Country. Yet while the growth of Indian gaming appropriately deserves its many superlatives, growth has not been uniform over time. (See fig. 1.)

To the human eye, the growth of Indian gaming revenue in the chart appears simply “exponential.” That it is, but there is more than meets the eye: the exponential growth is not consistently so. When the same data is portrayed on a log scale, wherein the intervals between grid lines change from constant increments in the chart to constant proportions, it becomes clear that the pace of Indian gaming growth had three major phases. On the log scale, steady rates of compound growth in Indian gaming revenue appear as straight lines, and there are three roughly straight-line periods in the graph. Up until 1988, compound annual revenue growth was modest-in the single digits. For the five years beginning in 1988, growth leapt to an average of 79 percent per year (light blue line in the chart). And beginning in 1993, growth cooled substantially to a steady 15 percent per year over the 1993-2007 period. Virtually no growth took place in the last of those years: growth was 0.4 percent after inflation. (See fig. 2.)

 


In fig. 2, the log scale shows steady compound growth rates as straight lines.

Abrupt corners in a graph like fig. 2 beg further examination. That Indian gaming grew quickly in the five years after IGRA probably does not strike knowledgeable participants from that time as news, but the period when that growth took place is striking in retrospect. The Supreme Court decided Cabazon in 1987, and IGRA became law in 1988. The coincidental uptick in growth points to the power of these actions to unleash capital flows-of both financial and human capital-to Indian Country. Clearly, Cabazon certified to the outside world the civil and regulatory freedoms tribes had been asserting, but did IGRA help too?

Legal and political observers, most importantly tribal leaders and representatives, often (and correctly) note that IGRA constrained American Indian powers of self-determination in gaming relative to what Cabazon afforded. But in a very real sense IGRA also lifted from Indian gaming the heavy burdens of political and regulatory uncertainty. 

Of course, the effect was neither complete nor uniform. Gubernatorial recalcitrance held down investment in California for more than a decade after IGRA’s passage. “Friendly” and unfriendly lawsuits in Washington, New Mexico and elsewhere were necessary to settle the nature of compacting authority, game types, revenue sharing, and a host of other issues relevant to the Indian gaming investment climate. The Seminole decision, of course, vitiated a central congressional assumption in the compacting framework. Notwithstanding its shortcomings, however, IGRA went far in organizing the process by which state and tribal claims could be resolved.

Thus to the tribal leader’s correct observation that IGRA constrained Indian nations, the economist raises his familiar question: Compared to what? Wouldn’t Indian gaming revenue have continued at a slow pace of growth under a Cabazon-only rubric as it had done under a Butterworth-only framework?

Recall that state governors and members of Congress were up in arms about regulation and competition against non-Indian casinos. For how long would tribal governments have suffered slow gaming growth, and at what loss of net present value for tribes? Any delay in the arrival of the steep upward slope indicated by the light blue line in fig. 2 would carry consequences in the tens of billions of dollars for Indian Country.

It may forever be impossible to disentangle IGRA’s various abetting and hindering influences from Cabazon‘s broad acknowledgment of tribal regulatory authority because the two come so close together in time, but the acceleration in growth visible in fig. 2 raises the bar for those who lament the state compacting provisions in IGRA.

Yes, IGRA constrained the tribal sovereignty that is so essential to American Indian economic development. Yes, IGRA’s shortcomings as a framework for accommodating tribal and state interests effectively and efficiently are plainly evident.

On the other hand, is not five consecutive years’ worth of 79 percent compound annual growth a necessary proof that IGRA made investors-and tribes themselves-feel much more secure about directing resources toward Indian gaming development? How intensely were electronic gaming machine companies investing in Class II technologies before IGRA? How cheap and accessible was the capital necessary to create a Foxwoods, a Mystic Lake, or an Emerald Queen prior to IGRA, if at all? How readily were state governments cooperating to build highway off-ramps to Indian reservations? Good institutions of government make investors feel secure by reducing political, legal, and regulatory uncertainty, and IGRA, flawed as it was, created an environment that clarified tribes’ role in the federalist matrix of government-to-government relations in a way that was more than just good enough to get that job done. Would Cabazon alone have done as much? If so, when?

The second “corner” of fig. 2 comes in 1993 and presents puzzles in itself and perhaps even challenges the above explanation for the significant uptick in 1988. If IGRA created beneficial investment conditions in 1988, did something make them less attractive after 1993? If so, what? That year brought with it a new administration, and it is conceivable that BIA procedural changes introduced delays or uncertainties. A more plausible scenario is that in May 1994-the year growth fell substantially-Connecticut and Mohegan signed their gaming compact, which among other things extended Mashantucket Pequot’s 25 percent revenue-sharing terms to a second tribe. Perhaps that compact introduced higher stakes into compact negotiations around the country, thereby introducing uncertainty.

On the other hand, that compact extended statewide exclusivity to Mohegan, which would tend to accommodate growth in investment. It may also be the case that the uptick in 1988 was an accounting anomaly because revenues prior to IGRA were not centrally monitored as closely as they were after IGRA’s passage.

This explanation may be weakest because an improvement in the accuracy of reporting would probably not begin and end abruptly over five years. Whatever their underlying causes, the discontinuities in the revenue trend in Chart 2 are remarkable in their own right, and an invitation to more investigation.

The ASU conference looked retrospectively at 20 years of Indian gaming under the frameworks of IGRA, describing jurisdictional conflict, legal and regulatory unpredictability, and political change. As tribes and states look to the future, the global recession and financial market collapse compound the uncertainties.

Nonetheless, the story of economic growth achieved under a framework that settled the place of tribes in the federal system-at least for a few issues and a few years-holds out the promise that Indian gaming can grow rapidly again under conditions that the tribes and the federal government themselves have the power to create. With luck, the states will recognize their enlightened self-interest in supporting such growth as well.

Class II: The Players

Posted on January 7, 2009 by -

National Indian Gaming Commission
The NIGC has had nearly 20 years of experience in not making up its mind what constitutes a Class II game. Its initial instinct was to prohibit all electronic forms of bingo and pull tabs. After growing courtroom losses, it modified that position, through a series of advisory opinions (non-binding) and 2002 regulations defining what designs were permissible for Class II use as “technologic aids,” and what constituted a “facsimile,” which requires a compact. Even following promulgation of those 2002 rules, however, the NIGC continued to issue confusing advisory opinions (non-binding) and undertook its ill-fated “classification standards.” Under the guise of clarification, those standards attempted to redefine the statutory definition of “bingo,” eliminated “games similar to bingo,” and created an intricate structure apparently designed to render Class II games commercially non-viable. Tribal interests invested thousands of hours in opposing the proposal, which was ultimately withdrawn-and is, therefore, non-binding. The NIGC is due for some significant personnel changes. One commissioner position has been vacant for more than a year, and should be filled before too long. The chairman’s three-year term has now lasted more than six years, and he expects to leave as soon as a replacement can be nominated and confirmed. The direction and ambition of a reconstituted commission will bear watching.
 

States
States have neither the authority nor the expertise to determine whether a Class II game complies with the provision of the Indian Gaming Regulatory Act. Most such efforts focus on a game’s appearance, and on whether, from an outside perspective, it looks, plays and feels like a Class III game. Some years ago, when the United States Department of Justice proposed a similar test-that IGRA did not permit games that were “too fast, fun and lucrative”-even the NIGC fought back. In recent months, some states have attempted to apply the provisions of the NIGC’s withdrawn criteria for Class II games. But those criteria never made it to law, and if the NIGC cannot enforce those standards, even less can the states do so. Further, the states have no right to enforce any standards. When Congress enacted the Indian Gaming Regulatory Act, it did not do so in a vacuum. The Supreme Court had acknowledged tribes’ inherent regulatory authority over bingo operations on their tribal lands, exclusive of state regulation. In the IGRA, Congress took away some of that exclusivity as to a gaming category it called Class III. To operate Class III games, therefore, a tribe must reach agreement with a state over Class III regulatory provisions or, when an agreement cannot be reached, enter the labyrinthine process of litigation and administrative challenges. But Congress did not abrogate any measure of tribal exclusive regulation of Class II games, and provided an oversight role only to the NIGC. State power over Indian gaming is limited to Class III. Since the United States Supreme Court invalidated tribes’ ability to enforce good faith compacting (Seminole Tribe of Florida v. Florida), states can stonewall compact negotiations, or impose unfair compact demands without judicial retribution. Their power is substantial, but it is limited to Class III.

Tribes
Tribes have always been the primary regulators of Class II gaming. Tribal gaming regulatory agencies staff the front lines in assuring the integrity and fairness of the tribal facility, and in that role, have learned much about the functioning of Class II games. Class II technologic aids were developed entirely in response to tribal needs to enhance Class II gaming. In general, such gaming systems were needed in jurisdictions that refused to enter into compacts to permit tribal Class III gaming. Tribal regulatory agencies developed and implemented rules necessary to protect the interests of both the tribe and the gaming public. The first, because the purpose of the IGRA is to provide for tribal economic development. The second, because the public will not long return to a crooked facility. Over the years, Class II gaming has matured at much the same rate as technology in other comparable areas. Tribal gaming regulators have reviewed and evaluated each new game, and have dealt with the inevitable bugs and fixes. That expertise was manifest in the advice provided to the NIGC in connection with the MICS and technical standards proposals. That same expertise can be utilized to provide a better foundation for understanding the proper classification of technological aids to Class II games.


Class Clown

Posted on January 7, 2009 by -

Now that the dust has settled over the last round of NIGC Class II proposals, it is time to evaluate what has already happened, what is current, and what might happen next.        

Over the last five years, the NIGC proposed several views, reviews, revisions and final thoughts about what it believed would finally provide the “bright line” between, on the one hand, Class II technologic aids and, on the other, Class III gaming permitted only pursuant to a compact or procedures. The commission’s efforts to provide that bright line never wavered, but the line never became clear. Finally, and to the resounding cheers of many who had followed the NIGC’s progress, Chairman Phil Hogen announced last summer that he would withdraw his proposed classification standards. 

The actual withdrawal did not occur until October, at the same time that the commission published its final technical standards to govern Class II games, and its Minimum Internal Control Standards (MICS). Although the NIGC thereafter dismissed its Tribal Advisory Committees and then empaneled a new committee to advise on further MICS development, the NIGC has not spoken much about Class II in recent months.

Except when the chairman confirms that he still believes a bright line is needed. His statements mirror the text of the public notice withdrawing the proposed classification standards: “The withdrawal does not mean that the commission believes ‘one-touch’ bingo games are Class II,” says Hogen. “Going forward, the commission intends to address this and other classification issues through a combination of training, technical assistance, and enforcement actions.”


Evolution, Not Revolution
Both the rules to govern Class II technical standards and MICS, as promulgated, were greatly changed from their originally proposed form, thanks to the involvement of a Class II working group composed of tribal leaders, tribal regulators, tribal attorneys and industry experts whose suggested modifications to better reflect the technological reality of Class II gaming systems. At the end of a spirited process, the MICS and technical standards were not only transformed in structure, but acknowledged that regulation of a Class II gaming system was different from oversight of multiple Class III gaming devices. Although the working group felt that some of the NIGC’s late changes demonstrated residual confusion about Class II game play, the final rules could, at least, be understood in the context of issues presented by a Class II operation. Those rules are now in effect, and independent gaming laboratories have begun the task of testing Class II equipment to permit compliance certification.

While Chairman Hogen has not publicly embarked on any new classification initiatives, Class II is still generating regulatory interest. As some tribal observers have expected, states remain jealous of the ability of tribes to engage in Class II gaming outside state control. That ability built the impressive gaming operation in place at multiple sites maintained by the Seminole Tribe of Florida, and is also the principal leverage for the Seminole Tribe’s migration to Class III operations. So long as Class II games remain attractive to customers, even compacted tribes can consider the option of placing Class II systems on the floor independent of state jurisdiction-and generate a revenue stream independent of state demands for revenue sharing. It is not surprising that exercise of that tribal right has caused some consternation.
    

California Dreamin’
In California, economic reality has reduced the value of expanded Class III gaming to below the new cost of the “fair share” gaming compacts. After months of operation under the new compacts, some tribes have found the incremental revenues of the new games to be dwarfed by the greatly enhanced revenue share obligation, making the state the primary beneficiary of expanded Class III operations. As a result, some tribes are exploring changing out some of their floor space to Class II games whose revenue stream need not carry the additional burden of state payments.  The state is not amused.

The California Gambling Control Commission (CGCC) has expressed interest in examining Class II games that some tribes have chosen to place on their floors as an alternative to the Class III expansion. The CGCC asserts that it is entitled, under the compact, to determine whether “Class II games” are no more than Class III games with a thin veneer of bingo, as to which the state may claim payments. But IGRA accords tribes exclusive regulatory authority over Class II games, with oversight by the NIGC. The statute permits state involvement only in Class III gaming, and only pursuant to the terms of a compact. Tribes reject CGCC involvement in regulation of Class II gaming. The new “bright line” discussion continues to be the proper distinction, under IGRA, between Class II technological aids, subject only to tribal regulation, and Class III devices subject to regulation through a tribal/state compact. But now the growing question is: who decides where that line falls?

The Sycuan Tribe, in southern California, has been operating Class II games alongside its compacted Class III devices. The Sycuan Gaming Commission has dealt with inquiries from both the NIGC and the CGCC with respect to the status of its games.

Not satisfied with a Class II checklist apparently utilized by those agencies, the Sycuan Gaming Commission has begun to structure a regulatory process to provide a more meaningful discussion of the distinction. It intends to create a regulatory product permitting classification judgments premised on the foundation of broad and deep understanding of what constitutes Class II gaming under the IGRA. As such, the Sycuan Tribal Gaming Commission is planning for an information-gathering proceeding of a kind never before undertaken in Indian Country.

In early May, the Tribal Gaming Commission is expected to convene a hearing to take testimony, both oral and written, on the subject of Class II gaming under the IGRA, the development of technologic aids, the development of regulation and classification of those aids, and the different approaches to resolving the conflicts about which features are critical to game classification. Witnesses will include those with years of experience in traditional and evolving bingo halls, those who participated in the drafting of the IGRA legislation, and others who struggled with the regulation of the games as the technology developed. Collectively, they must address the possibilities for implementing the three IGRA criteria for bingo in ways not contemplated when the peak of technological choice was choosing the color of a dauber.

Congress stated its intent that tribes have the fullest possible use of new and evolving technology. If they are to benefit, the tribes must constantly evaluate how that evolving technology might be deployed while preserving the distinction Congress created between Class II and Class III games. But doing so must not harm legitimate Class II gaming, the one class of commercially viable gaming that Congress protected as the tribe’s exclusive preserve. Tribes have a profound interest in retaining this aspect of their governmentally operated economic enterprise.

Tribal regulators have deep expertise in regulating within that preserve. The Sycuan Gaming Commission is poised to begin the next effort to provide meaningful game classification, as guidance for its own facility, for state and federal regulators. Other tribes, seeking to keep and clarify control over their own operations, might benefit from the effort. And all of us will learn from the information assembled.

Second Generation

Posted on January 6, 2009 by -

Leadership is a nebulous quality. There are many ways to lead: by example, by dictate, by design, by humility, with compassion, using fear or intimidation, and many others.

In Indian Country, leadership carries with it an important mantle. In a community where poverty has been a constant companion; where achievement has often been stifled by educational challenges; and where the best and the brightest are often not recognized, emerging leaders are becoming increasingly important.

Thankfully, Native America has produced important leaders during the most difficult times for their people. That was true when gaming became an economic generator in Indian Country. Gaming was never a slam-dunk for tribes. It was always a struggle with seemingly insurmountable hurdles thrown up at every turn. Yet the tribal leaders persisted until gaming became a reality and the lives of tribal members improved in many ways.   
Today, the “second generation” of leaders in the gaming era has to continue the momentum begun by the tribal forefathers. The five leaders we profile here are not only tribal leaders, however. They are leaders in the political arena, the commercial sector and the financial world. 

While these five leaders are notable for their achievements and their vision for the future, they represent an entire generation of leaders who will determine the future of their tribes and the future of Indian gaming. So while we celebrate their accomplishments and their ambition, we recognize their time has only just arrived and their mark on Indian Country has only begun to be written.

Each of these leaders employs different strategies and diverse paths in their roles and their relationships with their tribes, but let there be no doubt that their leadership is appreciated and noted. 

 

National Stage
Ernie Stevens, Jr.
Chairman, National Indian Gaming Association

Anyone who has ever heard Ernie Stevens, a member of the Oneida Nation of Wisconsin, speak-and there have been many in the eight years he has served as chairman of the National Indian Gaming Association-knows that he reveres tribal elders and the “pathbreakers” who blazed the trail for Indian Country, both in and out of gaming.

Even though he himself was honored with a “Pathbreakers” award at a special conference examining the 20 yeas of IGRA at Fort McDowell in Arizona last year, Stevens deflected the honor to speak about people he considered to be especially worthy of the award.

He started with his father, Ernie Stevens, Sr. The elder Stevens was a political activist for Native American causes and for a time worked at the Bureau of Indian Affairs in Washington, D.C.

Stevens speaks reverently of the man who undoubtedly bestowed upon him his passion for Native causes, and who has inspired him to speak so clearly and unambiguously when discussing Indian gaming at the federal level.

And then he moves on to his 98-year-old mother who survived the boarding school era and still speaks the language.

He then recognized another award-winning recipient that night at Fort McDowell, his immediate predecessor at NIGA and fellow Onieda member, Rick Hill.

“He was my counselor at the Boys Club back in the day,” laughs Stevens. “I would not be who I am today without his input.”

Stevens quotes leaders like Wendell Chino and Roger Jourdain, who stood strong against any intrusion into tribal sovereignty.

And it is who he is today that brings out the leadership quality in Stevens.

“These are the people who motivate us,” he says. “Our strong legal position and the power and heart of Indian people are what keep us going through everything.”

With increasing threats of federal oversight, a new administration in Washington, D.C., and, most importantly, the economic crisis, Stevens says the members of NIGA must make adjustments.

“We must take steps to maintain our strong employment base, keep our markets healthy and most importantly, find economic opportunities for those tribes that have little and no chance to capitalize on gaming.

“There’s too much work to do in Indian Country to rest on our laurels and simply reflect on the victories of the past. We must move forward in order to honor those who brought us to this point.”

With the Obama administration in office, Stevens hopes that many of the previous contentious issues that tribes endured with the federal government will not be so controversial.

With the recent Supreme Court decision challenging definitions of off-reservation lands, the administration and Congress will be challenged to pass legislation that addresses that issue.

And the recent move by the NIGC to not adopt changes to the Class II formulas is something of a victory. But Stevens refuses to call it such, and says that he will continue to oppose NIGC regulations that he believes tread on tribal sovereignty, including the agency’s assertion it has the right and duty to regulate Class III gaming.

“We’ve proved in court they were wrong, but that’s old news now,” he says. “Let’s move forward and protect this industry. We shouldn’t have a federal government telling us what’s best for us. That’s over.”

Stevens says another thrust in Indian Country has to be government-to-government relations, even beyond the federal level.

“Working on economic development with the surrounding communities and other tribes is probably the most important thing we can do for Indian Country,” he says.

Stevens may reflect on being the “second generation” in Indian gaming leadership but he’s already preparing for the third.

“My son just got elected to tribal council,” he says, “like me and my father before me. It’s just meant to be.”

 

The Commercial Spirit
Tracy Stanhoff
President and Creative Director, AD PRO

For some leaders, the call comes from the past and from far afield. Tracy Stanhoff, a successful businesswoman who lived a long distance from the Kansas reservation, says she could not stay away when many tribal members asked her to take over the leadership of the Prairie Band Potawatomi Nation after the previous tribal chairman resigned.

“My grandparents were removed from the reservation during the Depression,” she explains, “and placed on the Navajo reservation, as many other Natives were. My parents then went to Los Angeles during the encouraged relocation of the 1950s. So I considered it important to answer that call.”

It was in southern California that Stanhoff developed her business, AD PRO, a full-service advertising and graphic design company. She put that business in the hands of her staff during her time as chairwoman.

“When I ran for chairman,” she says, “I won with what was then the most votes in the history of the tribe.”

Stanhoff says gaming has been very good for her tribe.

“Before gaming, there were no paved roads on the reservation,” she remembers. “We’re a progressive tribe, a proud people. And I believe we’re the poster child of what’s gone right in Indian gaming in this country.  We used to depend on government grants for all our services on the reservation. Now we have a beautiful government building, recreation facilities, a Boys and Girls Club, health-care facilities and more. Our road system has been built up. Our infrastructure has been improved. A lot of our people are able to come back to the reservation and live on the land. There are jobs that allow this to happen.”

Challenges remain, but gaming has led the way.

“We still have a housing shortage, but because of gaming, we’re able to address that,” says Stanhoff. “From low-income housing, senior citizen apartments, temporary housing for those in transition. While we’ve seem some layoffs in the economic downturn, most people are employed or at least more employable than they ever were before because of gaming.”

In addition to the tribe, Stanhoff says the casino has meant much for the non-tribal community, as well.

“I believe we’ve led a renaissance in northeastern Kansas,” she says. “We’ve spurred the multiplier effect in the area of our reservation. Our fire and police departments have reciprocal agreements with the surrounding communities.”

Stanhoff’s short time as chairwoman spanned an important time for the tribe and included the transition from Harrah’s management to tribal management of its casino. She says the desire to operate the casino and keep all the profits was a two-edged sword.

“Harrah’s management did get us up to speed quickly and they taught us a lot about best practices which we adopted,” Stanhoff explains. “On the other hand, they considered all of their systems and methods proprietary so when they left, it was like starting over from scratch: the computer systems, the players club, HR, marketing… they all had to be replaced.”

And the technical aspects of the turnover was also quite demanding.

“While we owned our players list, just getting it separated from the Harrah’s data was a challenge,” she says.

Stanhoff stepped down only 18 months after taking the job, faced with opposition from some tribal members.

“It wasn’t many members, just a few,” she explains. “Even though I am an enrolled member, because I wasn’t from the reservation, there was some problem with that. But this group was just disgruntled and it wouldn’t matter who was in charge, they would oppose them.”

Stanhoff has returned to lead her company to new heights. It’s the “full service” designation that makes her company unique.

“One of the things we’ve done that makes us different from other graphic design companies is that we do vertical integration,” she says. “We do actual production in house and have all the equipment we need to actually produce the physical piece.”

While she has many Native American clients, she says her business serves both large and small companies.

“Our largest clients are major corporations in the United States: Boeing, American Honda, a lot of energy companies on the West Coast.”    

As president of the American Indian Chamber of Commerce, Stanhoff hopes to lead other companies by her example.

“I never faced any barriers I could not overcome,” she says.

 


Preserving the Empire
Bruce “Two Dogs” Boszum
Mohegan Tribal Council Chairman

For a small tribe in southeastern Connecticut to develop what is arguably the most respected gaming company in the U.S. is impressive. But to keep that momentum and continue forward is the charge of Bruce “Two Dogs” Boszum, the chairman of the Mohegan Tribal Council.

Boszum was first elected to the tribal council in 2004, and was appointed to lead the council one year later. Because he respects the traditions of the tribe-he is also a designated “pipe carrier” who presides at all important events-he understands the importance of those who came before.

“We always pay respect to our elders as people who got us to where we are today-Chief Ralph Sturgis and all the members of the council in those days,” he says. “It’s a good feeling to know that they had the mindset to secure things for the future of our tribes. It’s our responsibility now, to preserve what 13 generations have tried so hard to do.”

With seemingly a constantly depressed economy in the Mohegans’ part of the state, Boszum says gaming has been beneficial.

“We were all on our own for all of our history before gaming,” he says. “Once the casino was open, it gave us some tools to pay for our education, our health costs, the welfare of our people. It’s been a funding mechanism for tribal government.”

And the surrounding towns have also benefitted, he explains.

“For the local community-Montville, Uncasville and other locations around us-we contribute 25 percent of our slot revenue to the state of Connecticut,” he says. “While we don’t pay property taxes, we are involved in local events, helping with infrastructure like sidewalks and roads.

“We also spend close to $500 million in goods and services each year in Connecticut alone. We try to keep it in the state. And that creates about 20,000 jobs outside the casino in new businesses that have opened up in Connecticut to service the industry.”

The Mohegan Sun has cooperated with state agencies to bring tourists back to its corner of Connecticut, according to Boszum.

“Tourism had been dying out,” he says. “We worked with the tourism agencies to bring it back to life. We include local attractions like Mystic Seaport in packages we offer to our customers.”

Boszum says that diversification of the tribal economy isn’t as important with the Mohegans as it might be with other tribes because of the expertise they have developed in casino development and management.

“We’ve become the best in the world at what we do,” he says. “Our core values are outstanding. For now, we’re staying in the gaming business. We purchased Pocono Downs in Pennsylvania and opened a world-class casino there. We’ve been contacted by and are working with other tribes to help them manage and develop projects. Our brand is very strong and people look to us to help them.

“For right now, given the state of the economy, we’re very happy with the gaming business.”

Boszum says the tribe is happy working with the state, but it draws the line at giving up any sovereignty. A recent flap in which the state legislature is attempting to implement a smoking ban throughout the state, including the two casinos, has raised his ire.   

“For over 400 years in Connecticut, we’ve talked with the government,” he says. “I deal directly with the governor. There’s no committee, just a one-to-one relationship. The state is not going to come on this reservation and tell the tribe what we can and cannot do. Not under my watch.”

He says the issue isn’t smoking, it’s the state trying to impose its will on a sovereign nation.

“The hotel and all public space is non-smoking,” Boszum says. “You have to really hunt to find a place to smoke. About 82 percent of the entire facility is non-smoking, and going up to 85 percent soon. We banned smoking in all of our restaurants before the state of Connecticut made it a law.”

The Mohegan tribe is trying to tough out the recession by maintaining its workforce. So far, it’s working.

“We’ve had some problems, no doubt. But we have not done any layoffs up until now. And we have not touched any education or health benefits. We feel they are too important to cut back. We want to keep everybody working. When we let them know exactly what’s happening, they understand.”

 

Back to the Beginnings
Laura Spurr
Tribal Council Chairwoman, Nottawaseppi Huron Band of Potawatomi Indians

While the second generation of tribal gaming leadership usually means a tribe has opened at least one gaming facility, there still are a handful of tribes that are just taking the first step. And they are learning from their predecessors.

Laura Spurr, the tribal council chairwoman of the Nottawaseppi Huron Band of Potawatomi Indians in lower Michigan, is looking forward to her tribe’s first casino, the FireKeepers Casino east of Battle Creek, scheduled to open this summer.

“If you look at Indian casinos as a model,” she says, “I think there are some great lessons. Many started with bingo, especially here in Michigan. Most of them made responsible decisions about expansion and are financially solid right now.”

Like many of the original gaming tribes, gaming means a regeneration of the tribal community.

“For us, we did not have a great number of members locally who could work on this,” says Spurr. “Our members had dispersed into the major cities, so we’re trying to re-establish our tribe and bring them back.”

The Huron Band ran into many of the roadblocks encountered by other tribes-federal recognition, tribe-state relations, environmental issues, lawsuits attempting to stop casino development and much more. But it persevered and finally had lined up all the requisite approvals in late 2007.

But then, the economy had started to tank, and the tribe’s dream of opening a casino seemed to have evaporated. But still, Spurr and the council refused to surrender.  

“We were working with Merrill Lynch and met with them on a regular basis to move forward,” she says. “In the first quarter of 2008, we finally had a plan. The financing was a difficult process but we did everything we had to do and it was well-received. We have several strict covenants, but we were able to move forward.

“On May 6, 2008, we finalized the funding and on May 7 the construction company got started. We didn’t even have time for a groundbreaking.”

The dream continues to live today, even though the initial years after recognition were difficult.

“When our tribe was recognized in 1995, we received $196,000 from the Bureau of Indian Affairs,” Spurr explains. “While this is much less than other tribes in the same situation have gotten, we were still able to use this money to build the infrastructure for the tribe. We were able to build a community center, a health clinic and 16 houses on the reservation with Housing and Urban Development funds. We completed all this on time and on budget. We have taken advantage of all the opportunities that being a federally recognized tribe affords us.

“We knew we had to have a healthy and thriving government before we got into gaming and that has helped us prepare for the hurdles we have now overcome.”

While it may seem that Michigan is gaming-saturated with 23 casinos, Spurr says the secret to the FireWalkers casino is location.

“If you look at a map, Detroit is more than 100 miles to our east and Four Winds (a casino operated by the Pokagon Band in New Buffalo, Michigan) is more than 100 miles to the west, and to the north, it’s at least 100 miles to the nearest casino. So we have a radius of 100 miles or more of no competition. This includes towns such as Battle Creek, Jackson, Lansing, Kalamazoo, and even Fort Wayne in Indiana. Yes, there are 23 casinos in Michigan, but a very large land mass. So that’s a lot of space. The only place that is really congested is Detroit, where there are three.”

For that reason, Andre Hilliou, the president of the tribe’s management company, Full House Resorts, fears that the casino will be “capacity constrained” soon after opening. Spurr says she’s conservative, so will wait for further expansion.

“We’re starting with just a casino, restaurants and bars,” she says. “There are plenty of hotel rooms located near the casino so I don’t think we’ll have any problem with that. It may come up in the future.”

Asked where she hopes the tribe will be in five years, she says, “Debt free!”

 

Youth Be Served
Shan Lewis
Vice Chairman, Fort Mohave Indian Tribe

If there was a trifecta in Indian gaming, the Fort Mohave tribe may have hit it.

Its small reservation spans three states-Nevada, Arizona and California-all with some form of tribal government gaming. Shan Lewis, the vice chairman of the tribe, says, despite the paperwork, the tribe has some great opportunities.

“It’s an advantage,” says Lewis. “It’s not new to us working with three states. We have law enforcement issues, water issues, land issues… so we’re accustomed to having to deal with multiple jurisdictions, towns and agencies.”

The first tribal casino, the Avi Casino Resort, was opened in extreme southern Nevada, on the Colorado River, a few miles from Laughlin in the early 1990s.

“We don’t consider ourselves competitive with Laughlin,” says Lewis. “We cater to the local residents in the three states. We’re a favorite spot for the river crowd during the summer and the snowbirds in the winter. That’s our unique market; our niche. It’s two different worlds.

“Most people like the fact that we’re not surrounded by other casinos and we’re out by ourselves. We’ve got a golf course that Laughlin does not have anymore.”

The Fort Mohave agreement with Nevada was much easier than any other tribal gaming compact, suggests Lewis.

“Although I wasn’t around at the time, I believe the establishment of the casino in Nevada was relatively straightforward because Nevada has always had gaming,” he says. “We just needed to register with the Nevada Gaming Commission and follow their rules and regulations and we were permitted to open. The compact with Nevada is tiny compared to the ones with Arizona and California.”

Prior to gaming, Lewis says the Fort Mohave economy was a struggle.

“We were a tribe that depended a lot on agriculture before gaming came along,” he says. “The results of gaming allowed the tribe to improve the services to our members. It provided jobs on the reservation. It allowed us to venture out to bring other things to the reservation, although gaming is still the number-one revenue generator.”    

Nonetheless, the tribe has always sought to diversify its economy, according to Lewis.

“We wanted to diversify so we don’t rely on just gaming,” he says. “We have our own power and utilities company, our own water company and gas stations, smoke shops, tire centers, restaurants and other businesses. Gaming has created a lot of opportunities for us and we have to take advantage of them in case gaming becomes less important.”

Even within the gaming sector, Lewis says the tribe understands that gaming is just an amenity.

“Tourism is as important as gaming,” he insists. “This plays a big part in our marketing. Gaming is hardly even mentioned. We have plenty of non-gaming events, as well.”

Lewis is one of the youngest tribal officials in Arizona, in his early 30s, and when he talks about his predecessors, he is somewhat awestruck.  

“So much is owed to the past tribal leaders,” he says. “Being fairly new, I hear the stories. The challenges were immense and I can’t even believe they were able to overcome them. The way the tribes came together in Arizona to agree on one thing was a major accomplishment.”

His goal is to improve the lives of the Fort Mohave tribal members.

“We want to continue to build on our economic development to make lives better for our tribal members,” he says. “Money makes the world go around, so in order to provide better services, you need money. We certainly can streamline policies and procedures to provide better service, but money is important.”

And as important as the past leaders are, Lewis can’t help to look to the future.

“My children are tribal members, so anything that I do to improve the tribe, I’m helping my family, as well. My life is so much better because of what tribal elders did for us years ago, and I just want to honor them by providing the same service to the tribe.”

Learning Lessons

Posted on January 13, 2008 by -

The Sycuan Band of the Kumeyaay Nation is proud of our success with economic development and tribal government gaming. We are equally proud of the ways that we have been able to extend our business success into positive community relations in and around San Diego and the rest of the state of California. As major sponsors of institutions like Children’s Hospital, the American Cancer Society and the American Diabetes Association and as contributors to dozens of local charities, our gaming and business revenues allow us to fulfill our larger mission of being both good neighbors and a strong government partner.

One of our recent partnerships is with San Diego State University (SDSU), where we endowed the Sycuan Institute on Tribal Gaming at SDSU’s School of Hospitality and Tourism. Under the terms of the endowment, the Institute has created and introduced an academic curriculum leading to a B.S. in Hospitality and Tourism Management with an emphasis in tribal gaming. The four courses required for the tribal gaming emphasis include casino operations, marketing, legal and regulatory issues and an introduction to Indian gaming’s social, political and cultural context. All four courses are now being offered by SDSU and we look forward to supporting the growth of the program and the success of its graduates. In particular, we are excited about the development of a professional class of hospitality experts who will enhance the Indian gaming industry in California and, we hope, across the United States.

In addition to the for-credit academic courses, the Sycuan Institute is also charged with building and maintaining an academic research component that solicits research proposals and makes grants to researchers in this relatively new field of study. The institute’s research arm supports scholarly research on Indian gaming’s social and economic impacts, assists scholars in producing research that is useful to tribal governments and tribal gaming operators, contributes to the literature on Indian gaming’s political and community effects, and strengthens the link between scholarly research and policy making that affects tribal governments and Indian gaming.

During its first year the Sycuan Institute funded six major research projects treating such diverse issues as responsible gaming, employee diversity and cultural revitalization through gaming. This year there are seven projects under way that will produce findings related to off-reservation gaming, traditional gambling among the Kumeyaay and language recovery, among others.

The Sycuan Institute on Tribal Gaming is a unique partnership that produces numerous benefits for the tribal governments in the region as well as for the university. For example, our partnership has the potential to improve business performance through strengthening tribal government gaming management resources and creating a pipeline for students to both work and study. The academic research component at the Institute can address regulation and other policy issues that would benefit from a research foundation and an objective analysis of the facts. The university provides faculty resources, expanded educational opportunities and visibility and community awareness for tribal government gaming in the region; our tribe, on the other hand, provides professional guidance on course development, access to executives as guest speakers and mentors, internship opportunities for students, industry information and data for research analysis and funding.

We look forward to a long and fruitful partnership between the tribe and the Sycuan Institute and encourage other tribal governments to consider the similar partnerships with universities or other institutions that can contribute to both an improved business environment and better gaming policy. By continuing to cultivate a professional workforce, develop and document “best practices,” build a meaningful and rigorous gaming literature and share successful gaming innovations, we can strengthen tribal government gaming in ways that continue to benefit our people, our employees, our patrons and our communities. For more information about the Sycuan Institute on Tribal Gaming, please visit htm.sdsu.edu/sycuan.

Bingo!

Posted on January 13, 2008 by -

It’s a simple game, one which almost every American understands. It’s a staple of  church halls, VFW centers and charity events. But most of all, bingo has meant resurrection for many American Indian tribes.

First introduced in Italy as far back as 1530, bingo was a lottery-style game that migrated to France in the late 1700s. The Germans used it in the 1800s as a math teaching game for children.

Bingo migrated to America as “beano” in 1929, and was played in county fair-style settings with beans and colored discs drawn out of cigar boxes. It was first played at a carnival near Atlanta. It was renamed “bingo” when New York toy salesman Edwin S. Lowe simply misheard someone yelling “beano.” Lowe later hired a Columbia University math professor, Carl Leffler, to help him increase the number of combinations in bingo cards. By 1930, Leffler had come up with 6,000 unique bingo cards, and promptly went insane, according to legend.

The Catholic Church adopted the game as a fundraiser in the early 1930s and by 1934, 10,000 bingo games were being played weekly. Today, bingo produces gross revenues of more than $10 billion in North America alone.

Bingo actually launched the largest gaming company in the world, Harrah’s Entertainment. John Harrah, father of company founder, Bill Harrah, sold his son a $100-a-week bingo operation in Reno for $50,000. And the rest is history.

As a “Class II” game, Native American tribes introduced it in the 1970s as fund raisers for the nations. But it wasn’t until high-stakes bingo was introduced in Florida, Connecticut, Maine, California and elsewhere in the early 1980s that it drew the attention of the federal government.

The Supreme Court decision, Cabazon vs. California, was all about high-stakes bingo, and today, bingo remains an important part of most tribal gaming halls. Some of the world’s largest bingo halls are still located in Indian Country.

And the interpretation of “electronic aids” led to Class II gaming machines, which are in actuality electronic bingo games displayed in a manner that is reminiscent of a Class III slot machine.

The importance of bingo to the development of Indian gaming cannot be overstated, something which is all too fitting, given the game’s history and simplicity.

The Past…And Future… of the IGRA

Posted on January 13, 2008 by -

Since its 1988 passage, the Indian Gaming Regulatory Act (IGRA) has provided a statutory vehicle to promote economic development for federally recognized Indian tribes throughout the United States. The goal of the act was to encourage self-sufficiency and strong tribal governments via the operation of casino gaming on their reservation lands. 

Sheila Morago, executive director of the Arizona Indian Gaming Association (AIGA), praises the IGRA as the most successful economic legislation ever created for Indian tribes.

“Prior economic tools worked for metropolitan areas with built-in infrastructures. They never addressed those rural tribes that needed funding to create solid infrastructures. Gaming offered a positive alternative,” she says.

The IGRA followed the U.S. Supreme Court’s 1987 ruling on California v. Cabazon Band of Mission Indians. The decision allowed California tribes to conduct high-stakes bingo on reservation lands, free of state regulation.

Heidi McNeil Staudenmaier, senior partner at Snell & Wilmer LLP, a law firm in Phoenix, Arizona, explains, “Tribes have always believed in their inherent right to operate gaming activities on their reservation lands. As a compromise, the IGRA provided a regulatory structure for Class II and Class III gaming. From a tribal perspective, they were agreeing to let the state and federal governments participate.”

The language of the IGRA emphasizes three important areas. It provides for Indian gaming regulation, designed to prevent organized crime and corruption, while ensuring that tribes are the primary beneficiaries of gaming revenues. The IGRA aims to ensure integrity in Indian gaming operations for the operators and players.
    

Class Promotions
The IGRA divides all gaming activities into Class I, II and III operations. States cannot regulate Class I, or traditional Indian games (and no tribe currently offers Class I games to anyone but tribal members). Class II low-stakes games, like bingo, can be regulated the same way as other similar activities within a state. For Class III high-stakes Las Vegas-style gaming operations, the IGRA authorizes regulatory mechanisms with individual states, via a negotiated compact. Compacts are then approved or rejected by the Deparment of the Interior (DOI).

In some early cases, states quickly agreed to compacts, thinking it would never amount to anything significant. Others refused to negotiate and faced legal challenges.  

The IGRA bars a state compact from taxing tribal casinos, but allows revenue-sharing agreements. Staudenmaier states that each state has taken a different approach to negotiating compacts. Some compacts have few rules and little involvement, while others mandate extensive regulatory oversight and operational limitations.

Due to the overwhelming successes of Indian gaming, the tribal and political landscape has changed since 1988. Recognizing that they underestimated the returns from Indian gaming, some states have scrambled to renegotiate better compact terms.

Other components of the IGRA were the formation of the National Indian Gaming Commission (NIGC), an independent federal regulatory authority. Its purpose was to oversee the management and regulation of Indian gaming. Finally, the law also established standards for tribal land acquisitions and off-reservation gaming operations.


Casino Compromise
Chairman Michael Lombardi of the Southern California Augustine Band of Cahuilla Indians Gaming Commission has worked in Indian gaming operations for decades.

“IGRA was a political compromise for the  Cabazon v. California case,” he contends.

Lombardi applauds the early efforts of Senator Daniel Inouye (D-Hawaii) and former Senator Ben “Nighthorse” Campbell (R-Colorado).

“These two individuals were the best friends of Indian gaming. They believed the IGRA would force state and tribal governments to develop respectful government to government relationships,” he claims.

The IGRA’s expectation of enhancing Indian gaming’s economic growth has surpassed all projections. A once fledgling revenue source has evolved into a massive entertainment and leisure industry.

According to recent data from the National Indian Gaming Association (NIGA), Native American gaming employed 670,000 jobs nationwide for American Indians and its neighboring communities. Tribal casinos generated approximately $25.7 billion in gross gaming revenues in 2006, plus an additional $3.2 billion in related hospitality and entertainment services gross revenues. Indian gaming has paid billions in federal, state and local taxes and $100 million to charitable organizations. 

By 2008, the Indian gaming industry has grown to total more than 200 tribes who operate more than 400 casino properties in 26 states. Not every venue is a success, but most do well enough to provide employment and improve the education and standard of living for most tribal members.

“The superstar casinos are on both coasts,” explains Morago, “with a few in between. Most of the small, rural venues are doing all right. The casinos provide employment and mitigate the shrinking federal dollars coming their way. Also, the young people know they can expect to get jobs.”


Legal Challenges
In 20 years, both NIGA and the NIGC have often operated at cross-purposes. Some NIGA member tribes have sometimes considered the NIGC’s position an infringement on tribal compacts and sovereignty.

NIGC Director of Congressional and Public Affairs Shawn Pensoneau says, “The job of monitoring tribal gaming is large enough that most states cannot do it. The NIGC totally supports the notion that tribes are the primary regulators. However, as the industry has grown, our oversight role remains important.”

The situation peaked when the Colorado River Indian Tribe (CRIT) of Arizona sued the NIGC. In 2006, the U.S. Court of Appeals in Washington, D.C. marginalized the NIGC’s statutory authority. It barred the NIGC from issuing minimum internal control standards (MICS), initiated in 1999, for Class III tribal casinos that operate under state compacts.

The ruling affirmed a 2005 summary judgment of the District Court for Washington. The decision immediately suspended numerous federal audits and authorized tribal refusals to allow NIGC investigators into their gaming operations.

NIGC Chairman Philip Hogen quickly petitioned the Senate Indian Affairs Committee in November 2006, claiming that if the ruling were upheld, federal law enforcement would be “crippled in its efforts to protect the integrity of tribal gaming operations.” The FBI, and numerous federal prosecutors who have participated in investigating dozens of cases of alleged criminal activity relating to Indian gaming operations, have supported the NIGC’s dissension.

The CRIT decision has also sounded alarms for some lawmakers. In March 2007, Senator Dianne Feinstein (D-California) contacted Senator Byron Dorgan (D-North Dakota), chairman of the Senate Committee on Indian Affairs, and ranking member, the late Senator Craig Thomas (R-Wyoming). Her letter relayed her deep concern for the integrity of tribal gaming in California if the CRIT decision diminished the NIGC’s authority.

Other legislation to create new barriers to off-reservation Indian casinos has been proposed and defeated, including a bill from former Congressman Richard Pombo (R- California) in September 2006. It attempted to limit what some term “reservation shopping.” However, while defeated, new land policies have since emerged.


Amend It Or Leave It Alone?
The meteoric growth of Indian gaming has also fueled efforts in the past several years to amend the IGRA. Thus far, congressional efforts have failed, due in part to the diligence of groups like NIGA and the National Congress of American Indians, America’s oldest Indian organization. The two have formed an alliance to effectively lobby the Congress in Washington D.C.

Presidential candidate Senator John McCain (R-Arizona) introduced legislation-S. 2078- in 2005, when he served as chairman of the Committee on Indian Affairs. Despite seeking changes, Staudenmaier says that over time, McCain has tried to maintain a fair, even-handed approach to Indian gaming.

“Most tribes would agree that Senator McCain has been a friend of Indian gaming,” she says.

McCain ended his chairmanship in December 2006, charging that the 109th Congress had failed to pass what he considered vital reforms. Despite numerous hearings in his committee, McCain and his members dissented as to whether the proposed changes were too restrictive or too lenient.

Some constituent groups wanted it left alone, fearing that close examination would open up the proverbial “can of worms” and negatively affect their tribes. In the Congressional Record on December 8, 2006, McCain lamented, “It seems that these people assumed that ignoring the problems is a better policy than confronting them.”  

McCain’s two major concerns were the erosion of the NIGC’s oversight role, thanks to the CRIT ruling, and the lack of specifics relating to casinos located far from a tribe’s reservation land. He implored the upcoming 110th Congress to address what he labeled as critical issues for the future successes of Indian gaming.

Morago says that AIGA advocates “working the legislation as long as possible” to make any changes as palatable as possible. She says, “Arizona has 22 tribes. Twenty-one tribes have signed gaming compacts and 15 have gaming agreements. AIGA has 19 member tribes. Via machine transfer agreements between individual tribes, there are 22 total gaming operations in Arizona. We realize it is important for tribes to work with the legislation when possible. We can always say ‘no’ at the end of the process.”


Where To Allow Indian Gaming To Operate
Historically, the federal government has owned all Indian reservation land in the continental United States. Laws from the 1800s allowed the Secretary of the Interior (SOI) to take Indian lands into trust.

“Still on the books, the law attempted to ‘protect’ tribes from selling to what the government considered unscrupulous individuals. The paternalistic law is archaic and condescending to tribal authority,” Staudenmaier says.

The IGRA bars tribes from conducting gaming on land unrecognized as reservation lands or designated “Indian lands” prior to October 17, 1988. The language does include exceptions for tribes without land, those who settle land disputes and those who lost land, but regained their federal recognition status.

Land not conforming to those standards must obtain the approval of both the individual governor and the SOI through a two-part determination. The analysis explores whether the land acquisition is in the tribe’s best interest and will be favorable to the surrounding community. Only three tribes have received this approval since 1988.

Some view this as “reservation shopping.” The DOI addressed the issue definitively in January 2008 by rejecting 22 applications for new off-reservation casinos. The DOI used a single criterion-the distance from the reservation- as the foundation for the decision. Ten applications were for land from 160 to 1,550 miles away from a tribe’s reservation. Several crossed into another state.

Following a McCain proposal that would have eliminated the two-part decision process for any tribes applying after April 15, 2006, a flood of applications poured in to the DOI. Intense lobbying by the tribes defeated that bill, but the applications remained on file

The new DOI guidelines may require that any new lands be within a commutable distance of 75 to 100 miles from a tribe’s historical land. Staudenmaier says, “Some view this new policy as a potential death knell for the future.”


Politics Makes All The Difference
While strength in numbers is good, strength in political numbers makes all the difference. Since the passage of the IGRA, Native Americans have come to enjoy a newfound political power. Morago says, “When the voting margin is a few percent, we are delighted that tribes may make that ballot difference.”

Democrats have enjoyed an especially close bond with the tribes. Industry analysts state that the Democratic Party and its candidates have advocated more for tribal sovereignty and interests than the Republican Party. However, Lombardi says that may change. “Due to his history with tribes, Senator McCain will force Democrats to compete this year,” he says.

In 2006, the Center for Responsible Politics reported that Democrats have fared better by two-to-one from tribal political contributions. The Washington, D.C. non-partisan, non-profit research group tracks political financing and analyzes its effect on elections and public policy.

It may be the most apparent in California. The University of California’s Institute of Governmental Studies Library reported that California Indian tribes have become the largest contributor to California political campaigns.

For Lombardi, the influence of Indian Country is the realization of decades of hard work and hope. He says, “One success of Indian gaming is the formation of political coalitions that have grown into a powerful voting bloc.” He claims that California Governor Arnold Schwarzenegger has realized the impact of tribal gaming throughout California since the initial compacts were ratified by Proposition 1A in March 2000.

In California, Indian gaming has generated billions, totaling $7.7 billion in 2006. Gaming has become so lucrative that hundreds of Native Americans are petitioning the Bureau of Indian Affairs for recognition of new California tribes in order to build casinos.

Schwarzenegger has altered his position on Indian gaming since his early days in office, and embraced its positive impact.

“Unfortunately, Indian gaming has become a piggy bank to some, but Governor Schwarzenegger recognized the advantages of positively working with the tribes,” Lombardi says.

California’s February 2008 Proposition 94, 95, 96 and 97 ballot questions proved his recognition of Indian Country’s viability, both politically and economically. The language is virtually identical, but each deals with specific groups-the Pechangas, the Morongo, the Sycuan and Agua Caliente tribes.
The legislation, which passed, allows for more machines, self-auditing, internal environmental analysis and a “fail safe” guarantee to reduce or eliminate tribal taxes if California opens other casinos.


What Lies Ahead?
Despite the introduction of S. 2676, called the Common Sense Indian Gambling Reform Act of 2008, by Senator David Vitter (R-Louisiana) in February 2008, it is unlikely for anyone to press for legislation, which fundamentally impacts the IGRA, in an important election year. As of press time, there are no co-sponsors, and experts agree that it could create way too much of a political backlash.

What Vitter wants is to again attempt to amend the IGRA, specifically addressing the land-in-trust and two-step determination issues, NIGC authority and fees and defining the “State” as both a governor and the state legislature.

Looking into the future, it may be difficult to uniformly amend the IGRA. The states and their perspectives are often very diverse since tribes have diverse needs in given situations.

While certain changes may be inevitable, based on the explosion of Indian gaming, Staudenmaier believes most tribes desire the status quo. She says, “The majority of tribes can live with what is there. The IGRA may be far from perfect, but they feel the best course is to keep it because to open it to changes can lead to more negative than positive.”

Morago states, “Various factors will affect what happens. As budgets and the economic situations change, tribes may face increased competition from states that will introduce new gaming as an alternative economic vehicle. It may force tribes to renegotiate their own state compacts.”