Tribal gaming facing challenges ‘from all directions’

American Indian leaders, reflecting on generations of tortured history under federal government paternalism, greeted passage of the Indian Gaming Regulatory Act of 1988 with a healthy dose of skepticism.

Although IGRA promised—and delivered—unprecedented economic progress on Indian lands, many indigenous scholars predicted the benefits of tribal government gambling would be short-lived, particularly in states where tribes, alone, operated casinos.

“Native Americans fear that this ‘cure’ may result in yet another disappointment if the state governments elect to legalize gambling,” wrote author Klaus Frantz in his 1993 book, Indian Reservations in the United States. “The ease with which the government could devastate tribal casinos alarms many tribal members who fear that they will realize wealth only to return to a state of abject poverty.”

Frantz predicted tribes “would have a window of perhaps five to 10 years” to reinvest casino profits and create balanced reservation economies before state-sanctioned gambling and other factors rendered tribal operations useless.

His predictions were off quite a bit.

 

30 Years and Counting

State-sanctioned commercial gambling has, indeed, expanded since IGRA, from Nevada and New Jersey to 24 states, which are now home to commercial casinos and gambling at racetracks. And the once double-digit growth of tribal casinos has long vanished.

But the tribal casino industry 30 years after IGRA continues to thrive.

Some 480 gambling outlets operated by roughly 250 tribes in 28 states generated $31.2 billion in 2016, according to federal audits, a 4.4 percent increase over the previous year. Revenues have enabled indigenous communities to strengthen governments and create diversified economies. Casino income subsidizes housing, health care, education and other poorly funded government programs for tribal citizens.

But while the doomsday prophecies are no longer valid, the tribal gambling industry is facing serious challenges. And the threats are coming from all directions.

A mature and in some regions saturated tribal casino market has diminished revenues and opportunities for new facilities on Indian trust lands. Casino expansion in the Northeast United States is constricting tribal revenues in Connecticut, prompting the Mohegan and Mashantucket Pequot tribes to pursue a partnership in development of a commercial casino.

A recent federal court decision out of New Mexico, combined with the U.S. Supreme Court ruling in Seminole Tribe v. Florida (1966), has diminished tribal leverage in negotiating state regulatory agreements, or compacts, required by IGRA for tribes seeking to operate casino-style gambling.

Prospects for federal- and state-sanctioned sports betting, online wagering, daily fantasy sports, eSports and other types of gambling threaten to create competition for tribes. Legal and regulatory constraints of IGRA may hinder tribes seeking these new forms of wagering many believe are needed to attract millennials fixated on mobile gambling.

The U.S. Department of the Interior under the Trump administration is poised to enact rules making it more difficult for tribes to place new land in federal trust for casinos or other purposes.

And, perhaps most important, tribal leaders fear the political consequences of a growing and largely false perception of Native Americans not as traditional, culturally rich communities, but wealthy purveyors of gambling.

 

Complicated Rules

Unlike commercial casinos unencumbered in a free-market society, tribes operate in a complex web of politics and federal, state and Indian laws and regulations that hinder their ability to adapt quickly to market fluctuations and new technology.

While IGRA is the primary law governing gambling on Indian trust lands, tribes are also subject to congressional Indian affairs, presidential politics and Interior policies dealing with land/trust and other gambling and economic development issues.

IGRA subjects tribes to the whims of equally sovereign state governments. Indian governments are required under IGRA to enter into tribal-state compacts before they can operate casino-style gambling, tax-free and with primacy over regulations. Tribes can, however, operate electronic bingo-style gambling without interference from the state.

IGRA limits tribes to forms of gambling otherwise legal in the state in which they are located. Laws currently prohibit tribes from accepting wagers from outside reservation borders, leaving a legal cloud over the ability of tribes to engage in internet wagering or online sports betting.

The compacts in at least 10 states require revenue sharing, although IGRA prohibits the taxation of gambling income. California tribes are required to enter into labor and local government mitigation agreements.

Should the commercial casino industry succeed in lobby efforts to repeal a federal ban on sports wagering, tribes would be required to negotiate with the state for amendments to existing compacts, a process often fraught with politics and threats of onerous revenue-sharing demands.

Meanwhile, evolving Indian law and federal policy surrounding the often controversial and lengthy process of acquiring and placing land in federal trust for casinos contributes to the difficulty in predicting the ebb and flow of tribal gambling.

“There are always legal issues, regulatory issues, legislative issues and political issues,” says Alan Meister, a senior economist with Nathan Associates and author of the annual Indian Gaming Industry Report. “Those matters change. They evolve over time.

“It creates a great deal of uncertainty. There are a lot more uncertainties with tribal gaming than commercial casinos. Political, regulatory and legislative issues can affect their industry and change the dynamics of how things work and the prospects of things going forward.”

 

Slowing Growth

Tribal casino revenues, which last hit double digits with a 10 percent jump in 2006, grew by 5.5 percent in 2015, Meister says, topping the 1.6 percent growth by the $29 billion commercial casino industry and the 4.2 percent rise in the $8 billion racino industry.

The growth has been less the result of new facilities and more from the expansion of existing operations with hotel rooms and non-gambling amenities.

A few of the more lucrative gambling tribes—the Seminole Tribe of Florida, Poarch Band of Creek Indians in Alabama and the Mohegan Tribe of Connecticut, to name a few—have turned to commercial gambling investments, both in the United States and overseas.

A greater trend, however, has been the diversification of tribal economies beyond gambling.

“For several of the more progressive, larger, wealthier tribes we’ve been working with, they’ve taken the stance that gaming is eroding; their share of the marketplace is eroding and more competition will come,” says Kristi Jackson, chairman of TFA Capital Partners. “They’re building up in more areas outside of gaming. They are also building in areas outside their geographic footprint.

“One tribe says it’s their goal that within 10 years they want their revenue and earnings from non-gaming sources to eclipse their gaming revenue,” Jackson says. “It becomes easier as the gaming erodes, but it remains a tall order to fill.”

It is in that context that the predictions of Klaus Frantz do, indeed, prove prophetic.

“A lot of people didn’t think we’d be able to roll it out this long,” tribal attorney Scott Crowell says of the 30 years of gambling under IGRA. “But the hard reality is that—with the market changing and the growing opportunities for non-Indian gaming—tribal government gambling is no longer the golden egg it was in ’88.”

 

Obstacles In New Gambling Options

The National Indian Gaming Association, the trade group and lobby for tribal casinos, has formed a work group to explore how indigenous governments operating under a variety of state legal and regulatory structures can adapt to the potential for sports betting and other new forms of gambling.

“The working group will be the pulse of Indian Country,” NIGA Chairman Ernie Stevens told Legal Sports Report.

Stevens in October testimony asked the Senate Committee on Indian Affairs to consider the myriad laws and regulations confronting tribes, particularly compacts that vary dramatically from state to state.

“As this committee examines issues and opportunities to help Indian gaming succeed over the next 30 years, we urge you to work with other committees of jurisdiction in closely examining emerging markets such as internet gaming, daily fantasy sports and sports betting,” he said. “These activities pose both potential expansion opportunities and challenges to existing tribal gaming operations and tribal-state compact agreements.”

The disparity of rules and regulations under which tribes operate makes it difficult to craft a nationwide strategy on new forms of gambling.

“It’s going to be tribe-by-tribe, state-by-state,” says consultant J.R. Matthews, president of Red Feather Productions. “Trying to provide a blanket answer for the entire country for an issue like sports betting is like trying to say New Mexico is going to react the same way as the state of Virginia. It’s not going to happen.”

 

Tipping the ‘Balance of Sovereign Interests’

IGRA requires states to enter into “good faith” negotiations on casino compacts, but justices in the Seminole case upheld state immunity under the 11th Amendment against lawsuits requiring that state officials sit down at the negotiating table.

State leverage in compact talks was further strengthened earlier this year when the 10th Circuit Court of Appeals rejected efforts by the Pueblo of Pojoaque in New Mexico to negotiate a Class III, casino-style compact directly with Interior, a process called secretarial procedures.

The 10th Circuit also ruled the state acted properly in threatening to pull the licenses of vendors doing business with the pueblo.

The rulings—along with a related decision by the 5th Circuit Court of Appeals—effectively eliminates secretarial procedures as an option for tribes seeking new or amended compacts needed to operate sports betting or other new forms of gambling.

Jonodev Chaudhuri, chairman of the National Indian Gaming Commission, warns that the court rulings in the Seminole and Pojoaque cases tip the balance of state and tribal sovereign interests Congress sought in enacting IGRA.

“That balance was changed dramatically by the Seminole decision,” Chaudhuri told the Senate committee.

“When tribes don’t have that recourse,” he said of secretarial procedures and 11th Amendment immunity, “states are free to leverage their position with tribes much more freely and are becoming more creative, such as bringing pressure on vendors.”

“The situation is materially altered in states like New Mexico,” Crowell, attorney for the Pueblo of Pojoaque, says of the court rulings. “It’s basically a state veto of discussions. It’s unacceptable.”

Tribes in several states have, since IGRA, developed political and/or economic leverage needed to bring states to the negotiating table. This is particularly true of states such as Oklahoma, where officials are looking to tribes to bail them out of budgetary problems.

“If this were 1988, the situation would be devastating,” Crowell says. “Now, tribes have other means of achieving their intended results than the enforcement of federal law in recalcitrant states.

“In many states, tribes have economic power or political power or a conscious state government or a combination of the three, whereas they can still achieve decent results.”

Crowell calls for the federal government as trustee for indigenous communities to file litigation against states such as Texas and Louisiana that willingly violate IGRA’s “good faith” provisions and refuse to negotiate compacts.

“Failure to act on behalf of the tribes makes the federal government complicit in the illegal negotiating tactics that are embraced by those states,” Crowell says.

“I don’t think the Department of Justice and the Department of the Interior realize how far compact negotiations have run askew because of Seminole and now the 5th and 10th Circuit decisions.”

 

Ancestral Lands Will Be Scarce Under Trump

After an Interior under President Barack Obama placed 630,000 acres of land in trust for Native Americans, the Trump White House is threatening new rules to the Fee-to-Trust Regulations (25 CFR 151) that would make it more difficult for tribes to reacquire ancestral lands.

A proposed “two-phased” review for tribes seeking land away from existing reservations requires them to submit employment and other economic data while providing evidence of “cooperative efforts” with local non-Indian communities.

It’s no secret that much of the push-back on new trust land is the result of congressional and local government opposition to tribal casinos, despite the fact only about 20 of 2,300 land/trust applications in the Obama administration involved gambling.

The fires of anti-casino momentum have been fueled by recent efforts to establish regulatory safeguards against prostitution and human trafficking in reservation gambling facilities. Tribal casino operators have also expressed concerns about cybersecurity issues.

“I consider the lack of law enforcement resources in Indian Country—especially for gaming tribes—to be one of the most critical issues Indian County is confronting,” says Democratic Senator Heidi Heitkamp of North Dakota.

“The department is mindful that while gaming has great potential to improve economic conditions for tribal and non-tribal communities, it can also introduce new complications to communities, including a drain on local resources, increased traffic, visitation and crime, such as drugs and prostitution,” Interior’s Deputy Assistant Secretary of Indian Affairs John Tahsuda told a Senate committee.

“Given our commitment to being a good neighbor and steward, we believe local voices must have a fair opportunity to provide input and insight into these decisions.”

Interior is holding a series of public hearings prior to adopting new fee-to-trust rules later this year.

 

Perception Versus Reality

About 80 of the tribal gambling operations generate 73 percent of the revenues, according to various sources. Many marginal operations on rural, often impoverished reservations are kept running because of the jobs they provide tribal citizens and surrounding communities.

“There’s a huge amount of revenue being generated by a small number of tribes,” Meister says. “Sometimes the benefits are largely with jobs.”

But tribes are confronted with the commonly held perception they are wealthy from gambling, a false belief reinforced by a well-intended economic impact report released in October by the American Gaming Association.

The AGA study puts the economic impact of tribal gambling at nearly $100 billion, a figure that alarms tribal leaders fearful of Trump’s austerity agenda.

“That’s a real dangerous figure when it comes to perceptions,” says Joe

Valandra, former chief of staff for the National Indian Gaming Commission. “If the Indians are generating $100 billion, congressional leaders may ask, ‘Why do they need money from us?’”

“Some of the anxiety you may be picking up on has more to do with who is doing the study and how the narrative is playing out,” says Dante Desiderio, executive director of the Native American Finance Officers Association.

The AGA is largely a lobby for the commercial gambling industry, though it does have nine of the nearly 250 casino tribes as members.

Unlike commercial casinos, tribal revenues are directed to programs for the general welfare of tribal citizens.

“Having our own organization do this means we get to control the narrative a little bit more, or at least have more of a say,” Desiderio says of the impact study.

“Are they (AGA) really thinking this through? Do they know what this means—what the impact is and, from a political perspective, how this may help or hurt tribes?”

Rather than pointing out the vast disparities between the two industries, AGA President and CEO Geoff Freeman said in a press release, “as tribal and commercial operators continue to work together, our industry will continue to grow in the years to come.”

“The suggestion that commercial gaming and tribal governmental gaming can be talked about in the same breath is somewhat shocking,” Crowell says. “The purpose of commercial gaming is to maximize profits for publicly held corporations. The purpose of tribal gaming is to generate revenues necessary for the governments to survive and for tribes to be economically self-sufficient. Those are two completely separate objectives.”

Officials with AGA and Spirit Rock Consulting, a tribal firm hired to represent the lobby group, declined to comment.

A number of tribal leaders applaud limited cooperation between tribes and the AGA.

“The relationship between the commercial gaming industry and the Indian gaming industry is uneasy, but I believe in cultivating allies where possible,” says Kevin Washburn, former assistant secretary of Indian affairs and professor of law at the University of New Mexico. “These two major spheres of the larger gaming industry have very different goals. Tribes engage in governmental gaming to raise public monies for governmental services and initiatives. Commercial gaming operations operate to enrich shareholders. In that respect, Indian gaming has a higher purpose.

“That said, both industries have a long-term interest in preserving gaming as a safe and trusted industry and maximizing the revenues from this resource. For some purposes, it makes sense for them to work together, and I am glad to see cooperation between the AGA and NIGA, rather than fighting and division.”

Others fear the “higher purpose” Washburn refers to will be lost if the distinction between the tribal and commercial casino industries becomes blurred.

“There are several tribes that have some concerns about the tribal entities and the AGA,” says John McCarthy, executive director of the Minnesota Indian Gaming Association. “It’s purely from the standpoint of tribal sovereignty. We have to be careful. Our whole existence is based on tribal sovereignty.

“So now we’re playing a little close to these guys with the AGA who were after our heads early on and said nothing good about us,” McCarthy says about the casino operating companies that lobbied against IGRA. “Next thing you know, we can’t stand up in a Senate hearing and say ‘our tribal sovereignty’ because it isn’t about tribal sovereignty anymore. We’re part of the industry.”

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.