Indian gaming is the most rapidly developing segment of the domestic gaming industry (see Table 2.1). Before the Pilgrims set foot on Plymouth Rock, North America was populated by hundreds of Indian tribes. Each tribe existed as a “sovereign government,” which meant that the tribes governed themselves as independent states. The concept of owning land came with the European settlers.
In exchange for land, the Indians entered into treaties with European nations, and later the United States, that guaranteed the tribes’ continued recognition as sovereign nations. In 1831, in Cherokee Nation v. Georgia, the Supreme Court ruled that Indian nations have the full right to manage their own affairs, govern themselves internally, and engage in political and legal relationships with the federal government. Basically, what ex-ists today are states within states.
Gaming has long been a part of tribal culture. Many of the traditional games are still played today at Indian ceremonies and celebrations. The tribes have always believed that they have the right to conduct gaming on Indian lands. In California v. Cabazon (1987), the Supreme Court upheld
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Table 2.1Growth in Tribal Gaming (1997 to 2001) 19972001Change (2001 over 1997) Gaming Number of RevenueNumber of RevenueNumber of Revenue Revenue RangeOperations(in thousands)Operations(in thousands)Operations%(in thousands)% $100 million and over15$3,298,61139$8,398,52324160.00%$5,099,912154.61% $50 to $100 million22$1,676,32019$1,415,755313.64%$260,56515.54% $25 to $50 million35$1,182,92443$1,528,611822.86%$345,68729.22% $10 to $25 million52$890,46557$976,44259.62%$85,9779.66% $3 to $10 million53$311,96051$340,01923.77%$28,0598.99% Under $3 million 89 $ 9 1 , 16 7 81 $ 76 , 02 9
88.9%$15,3816.0% 916 266$7,451,447290$12,735,379249.02%$5,283,93270.91% Source: National Indian Gaming Commission.
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the tribes’ rights as sovereign nations to conduct gaming on Indian lands, free of state control, if similar gaming is permitted within the state where the reservation is located.
The U.S. Congress further clarified this right with the passage of the Indian Gaming Regulatory Act (IGRA) in 1988. The Act established the judicial framework that governs Indian gaming. It also established the National Indian Gaming Commission within the Department of Inte-rior (see Fig. 2.2). The National Indian Gaming Commission (NIGC) is composed of three members:
• A chairman, who is appointed by the president of the United States with consent of the Senate, and
• Two associate members appointed by the Secretary of the Interior.
Each member is appointed to a three-year term and must pass a rigorous background investigation by the U.S. Attorney General. Before appoint-ment, each member must show that he or she:
• Has not been convicted of a felony or gaming offense, and
• Has no financial interest or management responsibility for any Indian gaming management contract.
Further, IGRA established three classes of games with specific controls for each:
• Class I gaming is defined as traditional Indian gaming and social gaming for minimal prizes. Regulatory control is vested exclusively in tribal governments.
• Class II gaming is defined as the game of chance commonly known as bingo (whether or not electronic, computer, or other technological aids are used in connection therewith) and, if played in the same loca-tion as the bingo, pull tabs, punch boards, tip jars, instant bingo, and other games similar to bingo. Class II gaming also includes non-banked card games, that is, games that are played exclusively against other players rather than against the house or a player acting as a bank. The Act specifically excludes slot machines and electronic fac-similes of any game of chance from the definition of Class II games.
Tribes retain their authority to conduct, license, and regulate Class II gaming so long as the state in which the tribe is located permits such gaming for any purpose and the tribal government adopts a gaming ordinance approved by the Commission. Tribal governments are re-sponsible for regulating Class II gaming with Commission oversight.
• Class III gaming includes all forms of gaming that are neither Class I nor Class II. Games commonly played at casinos, such as slot ma-chines, blackjack, craps, and roulette, fall in the Class III category, as
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Figure 2.2NIGC Organizational Chart
well as wagering games and electronic games of chance. Class III is often referred to as casino-style gaming. The Indian Gaming Regula-tory Act established how Class III gaming is to be regulated. IGRA re-quires the negotiation of a gaming “compact” for Class III gaming be-tween the tribe and the state where the tribe is located. It is the tribal/state gaming compact that specifies how the regulatory activ-ity is to be carried out, as well as in what role the tribal gaming com-mission (as the primary regulator) will serve, and in what role the state’s regulatory arm will serve.
Powers of the Commission
(a) Budget approval; civil fines; fees; subpoenas; permanent orders. The NIGC shall have the power, not subject to delegation—
(1) Upon the recommendation of the Chairman, to approve the an-nual budget of the Commission;
(2) To adopt regulations for the assessment and collection of civil fines;
(3) By an affirmative vote of not less than two members, to establish the rate of fees that are paid by each Class II or Class III gaming activity regulated by the Commission;
(4) By an affirmative vote of not less than two members, to authorize the Chairman to issue subpoenas; and
(5) By an affirmative vote of not less than two members and after a full hearing, to make permanent a temporary order of the Chair-man closing a gaming activity.
(b) Monitoring; inspection of premises; investigations; access to records;
mail; contracts; hearings; oaths; regulations. The NIGC—
(1) Shall monitor Class II gaming conducted on Indian lands on a continuing basis;
(2) Shall inspect and examine all premises located on Indian lands on which Class II gaming is conducted;
(3) Shall conduct or cause to be conducted such background investi-gations as may be necessary;
(4) May demand access to and inspect, examine, photocopy, and audit all papers, books, and records respecting gross revenues of Class II gaming conducted on Indian lands and any other mat-ters necessary to carry out the duties of the Commission;
(5) May use the United States mail in the same manner and under the same conditions as any department or agency of the United States;
(6) May procure supplies, services, and property by contract in ac-cordance with applicable federal laws and regulations;
(7) May enter into contracts with federal, state, tribal, and private entities for activities necessary to the discharge of the duties of the Commission and, to the extent feasible, contract the enforce-ment of the Commission’s regulations with the Indian tribes;
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(8) May hold such hearings, sit and act at such times and places, take such testimony, and receive such evidence as the Commis-sion deems appropriate;
(9) May administer oaths or affirmations to witnesses appearing be-fore the Commission; and
(10) Shall promulgate such regulations and guidelines as it deems appropriate.
Powers of the Chairman
(a) The Chairman, on behalf of the Commission, shall have power, sub-ject to an appeal to the Commission, to—
(1) Issue orders of temporary closure of gaming activities;
(2) Levy and collect civil fines;
(3) Approve tribal ordinances or resolutions regulating Class II gam-ing and Class III gamgam-ing; and
(4) Approve management contracts for Class II gaming and Class III gaming.
Before a tribe can offer any Class II gaming, the tribe must first adopt an ordinance outlining how the gaming will be regulated. The Chairman must approve this ordinance. The ordinance must provide that:
1. Net revenues from gaming are not to be used for purposes other than:
a. The funding of the tribal government operations or programs, b. To provide the general welfare of the Indian tribe and its
members,
c. To promote tribal economic development, and, d. To donate to charitable organizations or
e. To help fund operations of local government agencies.
2. Annual audits are conducted by outside agencies,
3. All contracts for supplies, services, or concessions for amounts in excess of $25,000 annually (except contracts for professional legal or accounting services) related to gaming shall be subject to inde-pendent audits,
4. The construction and maintenance of the gaming facility and the operation of the gaming is conducted in a manner that protects the environment, public health, and safety, and
5. There is a licensing system that ensures that:
a. Background investigations are conducted on primary man-agement officials and key employees of the gaming enterprise and
b. Include a means of licensing primary management officials and key employees of the gaming enterprise, with prompt no-tification to the Commission of the issuance of such licenses, and
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c. A standard whereby any person whose prior activities, crimi-nal records, reputation, or habits and associations pose a threat to the public interest or to the effective regulation of gaming shall not be eligible for employment, and
d. Notification by the tribe to the Commission of the results of such background check before the issuance of any such license.
6. Net revenues from any Class II gaming operation conducted or licensed by the tribe may be used to make per capita payments to members of the Indian tribe, provided:
a. The tribe has prepared a plan to allocate revenues,
b. That plan has been approved by the Secretary of the Interior, and
c. The interests of minors and other legal incompetents entitled to receive payments are protected and preserved, and
d. The disbursements are subject to federal taxation.
Class III gaming is lawful on Indian lands if:
1. The gaming is authorized by an ordinance or resolution that 2. Is adopted by the governing body of the tribe that has
jurisdic-tion over such lands,
3. The form of gaming is permitted within the state where the In-dian lands are located, and
4. Is conducted in accordance with a tribal-state compact entered into by the Indian tribe and the state.
Tribal-State Compact
Any tribe seeking to operate Class III gaming must request the state, where the Indian lands are located, to enter into negotiations for the pur-pose of creating a tribal-state compact. Before taking effect, the compact must be approved by the Secretary of the Interior. The compact will address:
1. The application of criminal and civil laws and regulations of the Indian tribe or the state that are directly related to the licensing and regulation of the gaming,
2. The allocation of criminal and civil jurisdiction between the state and Indian tribe necessary for enforcement of such laws and reg-ulations,
3. The assessment by the state of any monies in such amounts nec-essary to defray the cost of regulating the gaming,
4. The taxation of the Indian tribe in amounts comparable to those assessed by the state for comparable activities,
5. Remedies for breach of contract,
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6. Standards for operation, maintenance, and licensing of the gam-ing facility, and,
7. Any other subjects directly related to the operation of the gaming facility.
Management Contracts for Class III Gaming
Tribes choosing to offer Class III gaming may initially lack the manage-ment experience necessary to construct and operate a sophisticated gam-ing operation. Consequently, the NIGC established a means for a tribe to enter into a management contract with individuals, or a company, more experienced in the field of gaming. Class III management contracts are subject to the following:
• All contracts must be approved by the chairman of the NIGC;
• The tribe and company must provide to the chairman the names, ad-dresses, and other pertinent background information on each person or entity having a direct financial interest in, or management respon-sibility for, such contract. If a public corporation, this information must be provided to the chairman for each individual who serves on the board of directors and each of its stockholders holding 10% or more of its outstanding stock;
• A description of previous experiences each person has had with In-dian gaming contracts and the gaming industry in general;
• A complete financial statement of each individual having a direct fi-nancial interest in, or management responsibility for, such contract;
• The management fee shall not exceed 30% of the net revenues unless the management entity has provided a significant capital investment.
If the chairman is satisfied with the capital investment and income projections, he or she may approve a fee of not more than 40% of net revenues;
• The contract term shall not exceed five years, except that, upon the re-quest of the tribe, the chairman may authorize a term that exceeds five years but does not exceed seven years.
Commission Funding
As of 2002, the schedule of fees paid annually to the Commission by each gaming operation that conducts Class II and Class III gaming is:
• No more than 2.5% of the first $1,500,000, and
• No more than 5% of amounts in excess of $1,500,000 of the gross rev-enues from regulated gaming activities, and
• No more than $8,000,000 per year per gaming activity.
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32 Chapter 2 Gaming Control Reservation Land
Tribes are permitted to buy land and place it in trust, thereby making the land part of the reservation. The NIGC established October 17, 1988, as the date that land must be in trust in order for the tribe to offer Class III gaming. Exceptions to this date are: (1) Such lands are located within or contiguous to the boundaries of the reservation as of October 17, 1988, (2) the Indian tribe had no reservation on October 17, 1988, (3) such lands are in Oklahoma and are located within the boundaries of the Indian tribe’s former reservation, (4) such lands are contiguous to other land held in trust or restricted status by the United States for the Indian tribe in Okla-homa, or (5) such lands are located in a state other than Oklahoma and are within the Indian tribe’s last recognized reservation within the state.
Indian Gaming Facts (from http://indiangaming.org/library/index.html) SIZE
• Total number of federally recognized Indian tribes: 562.
• Number of tribal governments engaged in gaming (Class II or Class III): 201.
• Number of tribal governmental gaming operations: 321 (several tribes operate more than one facility).
• Number of states with tribal governmental gaming (Class II or Class III): 29
• Number of tribal-state gaming compacts: 249.
REVENUE
• Tribal governmental gaming revenue in 2001: $12.7 billion (less than 10% of total gaming industry).
• Many tribes operate gaming facilities primarily to generate employ-ment.
EMPLOYMENT
• Total number of jobs: 300,000.
• National percentage of Indian to non-Indian employees: 25% Indian, 75% non-Indian.
• In areas of high unemployment like North and South Dakota, 80% of tribal governmental gaming employees are Indian.
LAND
• IGRA requires that land taken into trust status must (1) benefit the tribe, (2) not be detrimental to the surrounding community, and (3) be approved by the state governor.
• Only 23 total land-into-trust acquisitions since 1988 for gaming pur-poses.
• Only 3 off-reservation land-into-trust acquisitions since 1988 (only 78 total acres).