Tribes, MGM locked in legal dispute in Connecticut

A legal skirmish involving the commercial and American Indian segments of the nation’s gambling industry was perhaps inevitable, particularly with the spread of casinos to 38 of the 50 states.

And it comes as little surprise the first major confrontation between commercial and tribal government casinos would take place in Connecticut, situated as it is in the midst of an exploding, highly competitive casino market in the Northeast United States.

The Mohegan and Mashantucket Pequot tribes—operators of the Nutmeg State’s two casinos—are embroiled in a legal dispute with one of the country’s largest gambling companies over legislation giving the tribes exclusive rights to jointly operate a third casino near Hartford.

The tribes believe at least one “satellite” facility is needed to help prevent the loss of jobs and revenue as a result of emerging competition in nearby states, particularly a $1 billion hotel-casino being built by MGM Resorts International in Springfield, Massachusetts, on Connecticut’s northern border.

“The Massachusetts casino when it opens its doors will strike a devastating blow to our state” resulting in a loss of some 9,000 jobs, Pequot Chairman Rodney Butler told a March session of the state Commerce Committee.

MGM has sued Connecticut Governor Daniel Malloy, claiming a 2015 bill giving the tribes the exclusive right to form a corporation (MMCT Venture) and seek casino sites outside their reservations violates the equal protection and commerce clauses of the U.S. Constitution.

MMCT Venture has narrowed its search to East Windsor and Windsor Locks, both about 15 miles south of Springfield near U.S. 91, ideal spots to head off gamblers who otherwise would visit MGM’s resort. A final proposal must go to the legislature for approval.

 

Level Playing Field

MGM believes a third Connecticut casino on non-Indian lands should be subject to a bidding process open to both gambling companies and tribes. The company suggests the state would be better served with a more upscale gambling resort in the populous southwest part of the state.

“This is all about open and fair competition,” MGM Vice President for Global Affairs Alan Feldman says. “It’s not about whether an entity is or is not a tribal government.”

The Las Vegas-based casino company is appealing a June U.S. District Court ruling dismissing MGM’s lawsuit on the grounds the company’s claim of injury is “too speculative to confer standing.”

State law prohibits commercial casinos. But Mohegan and Pequot officials contend there is nothing in Malloy’s Tribal Casino Act to prevent MGM from creating a business entity, making a proposal and seeking a change in the law.

“Other companies are allowed to come in and offer what they want to build,” Mohegan CEO Chuck Bunnell says. “We’re going to present an alternative to Connecticut losing jobs. If MGM has a different alternative, they should come forward and present it.

“They’re acting like they don’t have that opportunity. This is America. Anybody can come forth and give a proposal.”

Feldman says his company approached the secretary of state for a license to do business and was rebuffed because of language in the legislation. MGM, he says, is prepared to build a Connecticut resort if given the chance.

“The secretary of state was very clear,” Feldman says. “We could not have a business license.”

State Attorney General George Jepsen, in a review of the legislation, notes possible problems with the constitutionality of the act and a legislative process that he says could conflict with federal Indian law and Department of the Interior gambling policy.

“The proposed legislation poses several legal issues that cannot be resolved with a high degree of certainty,” Jepsen said in a letter to lawmakers. “We are unable to predict with any certainty how a court would resolve such issues.”

Meanwhile, about 1,000 commercial and tribal government casinos nationwide are elbowing each other for room in what is becoming a crowded U.S. gambling market.

Although the MGM/tribal war is particularly volatile, lines of demarcation separating commercial and tribal government gambling throughout the country are becoming increasingly blurred, and potentially problematic.

“Commercial and tribal gambling are subject to public policy objectives,” Feldman says, and operate under different legal and regulatory paradigms. “How can those policy objectives be met when both the tribal gaming and commercial gaming footprints continue to grow? That is the principal issue here.”


Making the Distinction

Commercial casinos are business ventures taxed and regulated by states. Most tribal casinos operate as tax-exempt, government enterprises under the Indian Gaming Regulatory Act (IGRA) of 1988. Casino revenues largely subsidize services to tribal citizens.

IGRA provisions, however, apply only to casinos on Indian lands held in trust by the federal government. Tribes operating casinos off Indian lands are subject to the same taxes and regulations as commercial casino companies.

IGRA permits tribes to operate Class II bingo-style gambling without interference from the state. But it requires tribes with Class III, Nevada-style casinos to enter into tribal-state compacts giving states limited regulatory oversight of the operations.

In several states, including Connecticut, tribes under compacts (the Pequot Tribe technically operates under Interior Department secretarial procedures) pay the state a share of gambling revenues in exchange for a benefit, most often regional or statewide exclusivity to operate casinos.

The Mohegan and Pequot tribes each pay Connecticut 25 percent of their gross gaming revenues—roughly $260 million last year—in exchange for the exclusivity to operate Class III casinos.

Connecticut’s decision to let the Mohegan and Pequot tribes jointly operate a commercial, off-reservation casino is born of a desire to prevent further erosion of the state’s share of tribal gambling revenues in the face of increasing competition from surrounding states.

The tribes agreed to continue paying the state 25 percent of gross game revenues. Allowing MGM or another commercial casino company to operate in Connecticut would violate exclusivity clauses in the tribal-state agreements and result in loss of the revenue share.

Larry Roberts, Interior’s acting assistant secretary for Indian affairs, in nearly identical April 2016 letters, said draft amendments to the Connecticut tribal-state agreements “reflect the unique circumstances” in allowing the tribes to jointly operate a commercial casino.

“Our view is that the tribes’ existing exclusivity agreement would not be affected by a new state-authorized casino that is jointly and exclusively owned” by the two tribes, Roberts said.


A Growing Trend

There are 486 tribal government casinos and 460 commercial facilities in the United States, according to the American Gaming Association, each segment generating more than $30 billion a year. There are also 56 racetrack gambling operations.

As the U.S. gambling market has matured, so too has competition between commercial and tribal government casinos. Some of the competition has gotten a bit nasty.

“We’re going to see this more and more as regional markets get saturated across the United States,” Clyde Barrow, an economist and manager/partner of Pyramid Associates, a Massachusetts gaming policy firm, says of Connecticut.

“It’s the level of the competition and the viciousness of the competition. It seems to escalate.”

Tribes and commercial companies operating both stand-alone casinos and racinos (slots and table games at parimutuel racetracks) share markets in a handful of states, notably Michigan, Mississippi, Florida, New Mexico and New York.

A few tribal operations are managed by commercial gambling companies, notably the Harrah’s subsidiary of Caesars Entertainment and Station Casinos. Penn National recently launched a joint venture with the Jamul Tribe near San Diego.

Meanwhile, several tribes—Mohegan, Pequot, Poarch Band of Creek Indians in Alabama, Cherokee Nation of Oklahoma and others—own commercial casinos and racetracks and are exploring additional gambling ventures off their reservations.

Both the Mohegan and Pequot tribes failed in bids to build casinos in Massachusetts, although not in Springfield. The Mohegan Tribe owns the Mohegan Sun Pocono in Pennsylvania and has a management interest in Resorts Casino Hotel in Atlantic City.

MGM, ironically, once had a licensing agreement with the Pequot Tribe allowing Foxwoods use of the company name and trademark lion’s head logo on a resort hotel. The agreement was signed in 2006 and terminated eight years later.

Commercial and tribal operations have, for the most part, peacefully coexisted.

But the dialogue got a bit heated about 15 years ago when the Mississippi Band of Choctaw Indians explored building a casino on trust land near Ocean Springs in Jackson County, near a cluster of coastal casinos in Biloxi and Gulfport in adjacent Harrison County.

Commercial operators claimed the Choctaw tax exemption would have given the tribe an unfair competitive edge, cannibalizing the regional gambling market and drawing jobs and revenue from Harrison County.

The Choctaw—whose upstate Philadelphia resort-casino was initially financed and managed by Boyd Gaming in Las Vegas—eventually backed away from the Ocean Springs proposal.


Mutual Understanding and Cooperation

It would be a stretch to suggest Indian Country is keeping a close eye on the border war between MGM and the Connecticut tribes.

“I don’t think most tribes are even paying attention,” says a prominent Capitol Hill lobbyist who requested anonymity.

And it would be wrong to infer there is simmering hatred between tribal and commercial casino operators.

The AGA and National Indian Gaming Association, the lobby and trade group for Indian casinos, have, in fact, recently agreed to join forces on issues of mutual interest, particularly sports wagering and daily fantasy sports (DFS).

A few of the more lucrative tribal casino operators—including Mohegan, Foxwoods, Florida Seminole and Oklahoma Cherokee—serve on the AGA board of directors.

The border war between Connecticut tribes and MGM will not likely impact AGA/NIGA cooperation.

“I don’t believe so,” says Whitaker Askew, AGA vice president of government relations. “AGA and NIGA have a long list of issues we are working on that impact the gaming industry at the national level.

“Sport betting is probably at the top of that list. Working together will improve our chances, as an industry, for success.

“Issues specific to states—commercial or tribal—are matters gaming associations can address separate from NIGA and AGA, and our attempts to work together on issues that unite the industry.”

Tribal lobbyists concede AGA is better equipped and has more resources to confront gambling-related issues.

“AGA is doing some smart things. They are doing things NIGA is not,” a Washington-based tribal advocate says. “They are paying serious attention to sports book, DFS, non-core tribal gaming stuff.

“AGA is getting real experts and working on policy and strategy. NIGA is doing panels at the trade shows.”


Tribes View MGM As ‘Anti-Indian’

NIGA did step up to the plate last summer when Nevada Senators Dean Heller and Harry Reid attempted to amend a defense authorization bill that would have not only blocked the MMCT casino, but limit the ability of tribes nationwide to seek off-reservation business investments.

NIGA blamed MGM for what it called an “unprecedented attack on Indian tribes and their ability to pursue economic development opportunities.” The Connecticut congressional delegation helped kill the amendment.

MGM also angered indigenous Americans when it opposed federal recognition last year of the Pamunkey Tribe of Virginia, a move some believe was inspired by fears the tribe would develop a casino and compete with the MGM National Harbor resort in Maryland.

Feldman distanced the company from the defense authorization amendment, contending it is not MGM’s position to limit the ability of tribes to engage in commercial activity off Indian lands.

MGM opposed Pamunkey’s federal recognition, Feldman says, on behalf of the Congressional Black Caucus (CBC), which was disturbed by a Pamunkey policy prohibiting interracial marriages. The policy was repealed in 2012.

“We have a lot of friends with the CBC,” Feldman says. “We raised concerns about some of the practices the tribe was taking. The tribe has since changed those practices. That was the one issue we raised. They made the change. We didn’t have anything further to say about it.”

Compared to other commercial casino operators, MGM has had few business dealings with tribes other than the hotel licensing agreement with Foxwoods. Its lobby efforts in connection with the Connecticut litigation and Pamunkey recognition annoyed indigenous advocates.

“People have made some pretty strong comments about MGM’s attacks on the first Americans,” Mohegan’s Bunnell says.

“Other commercial companies have had relationships—respectful relationships—with tribes. In many cases they’ve helped tribes build and manage facilities. They have experience in the market and they’ve created mutually beneficial relationships with the first Americans.

“Certainly that has not been our experience with MGM. They’ve used any means possible to squash competition, whether it was moral or not.”

“Tribes aren’t really happy with MGM,” says Kiowa-Comanche John Tahsuda, a principal with Navigators Global, a government relations firm. “They’re not making friends. But the company doesn’t have that big a presence to make the radar.”

Feldman rejects the characterization MGM is opposed to economic progress in Indian Country. But he warns of the “Pandora’s box” created by off-reservation casino controversies and the danger in prompting congressional involvement in federal Indian policy.

The spread of Indian casinos on newly acquired trust lands has generated Senate and House criticism of federal laws and Interior policies on tribal land/trust issues. Casinos are blamed for the failure to get a congressional fix to a Supreme Court ruling making it difficult for Interior to place land in trust for indigenous communities.

And competition between tribal casinos in California, Arizona, Wisconsin and elsewhere has prompted suggestions by indigenous leaders for amendments to IGRA provisions dealing with gambling on newly acquired lands.

“The tribes in Connecticut—whether or not they choose to acknowledge it—have opened this issue to debate,” Feldman says. “We aren’t the ones trying to get a piece of legislation passed that would provide exclusivity for off-reservation gambling.

“There are plenty of senators who have nothing to do with MGM who have different views than MGM about tribal gaming. We don’t control them.”


A Casino ‘Arms Race’

Connecticut officials along with Mohegan and Pequot officials see new casinos as the only alternative to competition from gambling expansion in several Northeast states.

MGM’s Springfield casino is the most immediate threat to the state’s share of casino revenues from the tribes, which over the last two decades has amounted to more than $7 billion.

“Simply, this is about siphoning revenues from Connecticut to benefit a Las Vegas company while at the same time moving thousands of existing jobs from Connecticut to Massachusetts,” Pequot Chairman Butler and Mohegan Chairman Kevin Brown said in a joint statement.

“That’s why the tribes, the legislature and the governor have committed to developing a solution that protects Connecticut.”

The protection, however, is likely to be both limited and temporary.

The initial strategy was to build three satellite casinos, including a resort in the upscale, densely populated southwest region. But New Haven, Bridgeport, Stamford and suburban communities are generally opposed to casino gambling.

“Politically, casinos are not going to be able to go there,” Barrow says. “That will never happen.”

There also was brief consideration to placing slots at Bradley International Airport in Windsor Locks.

A planned $300 million investment in a largely slot machine facility on U.S. 91 near Hartford will likely prevent the loss of up to 60 percent of the jobs and revenue decline anticipated from the Springfield casino and other regional projects, according to economists.

A second satellite facility in Danbury in West Connecticut could up the retention of jobs and revenue to more than 80 percent.

But additional gambling resorts are in the planning stages for New York, Massachusetts and elsewhere, and Connecticut’s share of tribal gambling revenues will likely continue to decline.

“I call it a casino arms race,” Barrow says. “The economic and market geographies don’t correspond to state boundaries. They cross state boundaries. And states are competing with each other within those market areas.”

MGM Chairman and CEO Jim Murren is critical of Connecticut’s strategy of investing in gambling facilities that fall short of casino resorts in an effort to prevent diminishing jobs and revenue, calling the operations “boxes of slots.”

“Connecticut has had a duopoly for decades, and instead of attempting to improve the quality of entertainment, there seems to be a desire to sprinkle slots around the state,” Murren told the Associated Press. “It might raise some revenue, but it doesn’t create many jobs.”

Tribal officials are offended at the “boxes of slots” analogy, contending one or more satellite casinos will put in the state in a strong position to compete in the regional market.

Meanwhile, MGM is pledging to press on, both in Springfield and in the courts.

“We’re not going to go peacefully,” MGM president William Hornbuckle told Bloomberg News.

Author: Dave Palermo

Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law. He can be reached at dgpalermo1@gmail.com.