Measure to control Indian gaming is self-serving

Back in 1999, California voters granted Indian tribes a monopoly on slot machines in the state. Since then, the public has watched with growing and justifiable dismay as state and local government leaders have groveled before the unchecked power of the tribes made rich by that monopoly.

The tribes have built casino empires up and down the state. In the process, they have enforced their will with little or no regard to the impacts on - or wishes of - state, city and county governments or their non-Indian neighbors.

In that environment, there is a natural appeal to an initiative that promises to force Indians to hand over a much larger percentage of their casino earnings to the state and obey environmental and campaign reporting laws.

Unfortunately, the initiative proposed, a constitutional amendment under review by the state Justice Department, won’t rein in the tribes or squeeze more money for the state out of them, as its proponents promise. Its real goal is to give the initiative’s backers a piece of the slot machine action.

Ostensibly, the measure would force tribes to give up money and follow state laws. If they didn’t, they would lose their slot machine monopoly.

But if the initiative passes, the select group of racetrack owners and card-room operators who are bankrolling this effort will likely wind up in the slots business, no matter what the tribes do.

Under the terms of the proposed initiative, all 60-plus tribes that have gambling compacts would be given just 90 days to agree to give the state 25 percent of their gambling revenues and to give up significant sovereignty rights. If they failed to do so - or if the governor, the Legislature, the Department of the Interior or the courts reject the deal - the state would be required to issue licenses for another 30,000 slot machines to be allocated to the five racetracks and 11 card-room operators that have put this nakedly self-serving measure on the ballot.

That is, in itself, reason to hope the initiative does not make it to the ballot. As desirable as reining in the power of gambling tribes may be, expanding casino gambling is too high a price for California to pay.

Proponents will need to gather almost 600,000 signatures to qualify the gambling initiative for the November 2004 ballot. The only sure way for California to win in this game is for this measure’s proponents to fail.

And this from GamblingMagazine.com:

Slots Tax Plan Has Ace Up Its Sleeve
December 23,2003
A proposed initiative to strip California Indian tribes of their slot machine monopoly if they won't share revenues with the state could give slots to some racetracks and card rooms -- even if the tribes agree to all the initiative's terms.
"I think it's pretty clear this was designed mainly to expand slot machines to tracks and card clubs, no matter what happens to the tribes," said Nelson Rose, a Whittier Law School professor and expert on gambling law. "It appears to do a lot of things, but that's the main one."
The proposed constitutional amendment, which would go before voters in November if proponents gather 598,105 signatures of registered voters, was unveiled by proponents as a way to force casino tribes to contribute their "fair share" to state and local governments.
Under it, all casino tribes would be required to agree to new compacts with the state within 90 days of the measure's enactment.
The new compacts would require them to surrender 25 percent of their slot machine revenues to the state and meet a list of other requirements. If any of the tribes refused, five racetracks and 11 card rooms -- all them in Southern California or the Bay Area -- would be allowed to operate a total of up to 30,000 slots in California.
Even card rooms without the slot machines would benefit - in a roundabout way. They would get four slot machine licenses for every card table in their establishment, and they could sell the licenses to establishments authorized to run them.
That sounds pretty good to Mike Whitely, owner of Mike's Card Room in Oakdale. "I was dreaming hopefully this would allow slots for everybody," he said, "but anything is better than what we have."
Whitely, with four tables, speculated that he could lease his 16 slot licenses for 25 percent of their profit. If they each made $100,000 a year, he'd get $400,000. "That would be a lot more than I'm making now, and I wouldn't have to do anything for it."
Initiative has many skeptics
Al Hester, who runs Al's Card Room in Turlock, said it sounds fine to him, too, but he doesn't think it's going to happen soon. "The Indians are not going to let us have that money," he said. "They'll give up whatever they have to give up to keep us from getting slot machines."
Ron Patel, general manger for the Black Oak Casino in Tuolumne County, declined to comment on the initiative. He said he hadn't learned enough about it to say anything yet. Some analysts, though, say the slot machines could go to the racetracks and card rooms even if the tribes capitulated unanimously.
If Gov. Schwarzenegger, who has said he is opposed to the initiative, refused to seek the new compacts with the tribes, or the Legislature refused to ratify them, the tracks and card rooms still would get slots.
And even if the tribes, governor and legislators all signed off, the tracks and card rooms would still get slots if the compacts were rejected by the U.S. Department of Interior or ruled invalid by a federal court.
Barry Fadem, the Bay Area attorney who drafted the initiative on behalf of a consortium of track and card room owners, said the provisions were included to ensure that public agencies would get new revenues from either the tribes or the tracks and card rooms.
Under the initiative, 33 percent of the track and card room slot revenue would go to finance educational programs for abused and foster children, and local police and fire services.
"The idea is that money from some source will flow to the state and those programs," said Fadem, who also drafted the 1984 initiative that created the state lottery. An initiative opponent, however, said the explanation "doesn't pass the smell test."
"This is a cynical effort by those two industries to hide the real purpose," said Howard Dickstein, a Sacramento attorney who represents all the major casino tribes in the Sacramento area. "The only real purpose is to expand gambling, a purpose that apparently didn't poll well with the focus groups."
The two companies own four of the five tracks that stand to gain slots under the initiative: the Magna-owned Bay Meadows, Golden Gate Fields, Santa Anita Park and Churchill Downs' Hollywood Park.
The fifth is Los Alamitos, in Orange County. Fadem and Sacramento political consultants Bob White and David Townsend were retained, focus groups were conducted, and Sheriffs Lou Blanas of Sacramento County and Lee Baca of Los Angeles County were coaxed into serving as official sponsors.
Despite the endorsement of Blanas and Baca, both the California Police Chiefs Association and the California State Sheriffs' Association have decided to oppose the initiative, reasoning that the new gambling sources wouldn't be worth the revenue.
Backers confident
Rick Baedeker, president of Hollywood Park and spokesman for the initiative, said opposition by the two groups was not a serious blow.
"We're a year away" from the election, he said. "We haven't even begun to recruit our support, and we really think that in light of the budget crunch in the state, this will be an important source of funding for these agencies, whether or not it comes from the Indians or from the additional machines." But additional opposition may come from the state's tracks that aren't part of the deal.
Stephen Chambers, executive director of the Western Fairs Association, said the group will meet next month to consider its position on the initiative. The association includes nine fairs with racing and 23 with off-track betting facilities.
None of them would be allowed to have slots, although they would split up 1.5 percent of the slot revenues from the tracks with slots.
"It's my assessment that this thing is fatally flawed," Chambers said. "If you are going to do this through the card rooms and the racetracks, you are crazy to exclude the fairs, because they represent such a huge part of the existing (gambling) market."
Some card room owners have also expressed anger at being left out. The 11 card rooms that would be allowed to have slots under the initiative are in Orange, Los Angeles, San Mateo and Contra Costa counties, and are the state's largest.

And from the San Diego Tribune

Tribes' casino figures don't add up
Stated '02 revenue seems more than $2 billion low
By James P. Sweeney
COPLEY NEWS SERVICE
December 21, 2003
SACRAMENTO – It's no secret that Indian casinos in California are doing well. The real secret is just how well.
The tribes do not have to publicly report earnings, and they closely guard that information. Most of what they disclose to state and federal agencies is confidential and expressly exempt from public-records laws.
The consensus has been that the casinos are generating $5 billion a year in gross gaming revenue – bets minus payouts, the standard industry measure of performance.
Tribes, aware that the number has become part of a political calculation that could cost them dearly, downplay their success. The only reliable figure, they contend, is the $3.6 billion they collectively reported to the federal government last year.
The actual figure appears to be closer to $6 billion, if it hasn't already eclipsed that, according to a Copley News Service analysis of the limited public data available.
That number is significant because it illustrates the breathtaking growth of Indian gambling in the four years since voters legalized Nevada-style casinos on California reservations. At $6 billion, California's industry would be well ahead of that in New Jersey, which had gross gaming revenue of $4.4 billion last year, and within reach of Nevada's, which leads the nation with a reported gross gaming revenue of $9.6 billion.
More immediately, however, the figure could play a prominent role in the coming debate over Gov. Arnold Schwarzenegger's demand that tribes pay their "fair share" to the state. Former Gov. Gray Davis asked tribes to pay the state $1.5 billion earlier this year.
"There's a question of expectation," said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. "If the state indeed wants to get $1.5 billion from the tribes, it's a big difference whether there is $3.6 billion or $5 billion or $6 billion (in gross gaming revenue)."
Nation's casino leader
California has 55 Indian casinos, far more than any other state. San Diego County has nine casinos, and five more tribes have compacts that authorize additional casinos.
The $3.6 billion figure for gross gaming revenue was derived from audits that tribes must submit annually to the National Indian Gaming Commission. The number includes table games, which typically account for less than 20 percent of the take at Indian casinos, insiders say.
The $3.6 billion figure does not reflect the summer opening of the wildly successful Thunder Valley Casino in suburban Sacramento or the Chukchansi Gold Resort & Casino in Madera County, which opened with 1,800 slot machines about the same time. There also were several major casino expansions during the past year.
Regardless, $3.6 billion might have been low to begin with. The gaming commission has little staff to review the audits and must depend largely on tribes, which have an incentive to minimize the numbers they report. Tribes pay fees to the commission based on their gross gaming figures.
In September, the commission posted a bulletin disclosing that some tribes were underreporting gross revenue. The commission's chairman, Philip Hogen, repeated the message in a recent appearance before California tribal officials.
"We found that not all tribes were using the same approach to come up with gross gaming revenues," Hogen said.
Some tribes, he said, were improperly subtracting revenue-sharing payments to states and expenses for slots that are networked with other slot machines to create and pay out a single large jackpot.
When Davis asked the tribes to pay $1.5 billion, his administration based the request on agreements negotiated in Connecticut and New York, where tribes agreed to pay 25 percent of their "net win," the equivalent of gross gaming revenue.
At the time, then-Finance Director Tim Gage indicated that the administration believed California tribes were grossing $4.8 billion to $6 billion a year. He declined to elaborate, but the administration's projection appears to have been distilled from an initial round of tribal payments to the state.
Those payments, to what's called the Special Distribution Fund, are assessed on a fixed pool of 12,041 slot machines in operation when the state's tribal gambling agreements, or compacts, were signed in September 1999.
The distribution fund was created to help offset casino impacts on local surroundings, address problem gambling and pay regulatory costs.
Twenty-eight tribes must pay 7 percent to 13 percent of the net win from those machines. The initial round of quarterly payments was deferred for two years and was not due until Sept. 30, 2002.
For the initial quarterly payment, the 28 tribes reported a collective average daily net win of nearly $270 per slot machine, knowledgeable sources said.
Since then, those tribes have paid $124.4 million over five quarters, said Gary Qualset, chief accountant of the California Gambling Control Commission.
At least some payments are outstanding. Although the tribes disagree, the commission also has said some tribes are taking improper deductions and underpaying what they owe.
As a result, any daily win figure extracted from the slot-tax payments would be conservative.
The total paid to the state by the 28 tribes divided by the average rate paid on the 12,041 machines shows those slots produced an average daily win of nearly $258 per machine over the five quarters.
Among them, those tribes have more than 38,000 slot machines, according to public records and numbers reported on tribal or other Web sites. At $258 per machine per day, those casinos are grossing $3.6 billion a year from slots alone.
Some tribes have done the same reverse calculation and come up with a similar result, said Michael Lombardi, a gaming consultant close to tribes.
"You're pretty damn close," Lombardi said, referring to the analysis by Copley News Service.
Eadington, a leading gaming economist, reviewed the analysis and came up with the same results.
"You're getting a number here that is about the same as (in) Atlantic City. I have no trouble with that," he said. "I would have suspected it should be higher."
Successful operators
The 28 tribes – they include Barona, Sycuan and Viejas in San Diego County; Morongo, Pechanga and Agua Caliente in Riverside County; San Manuel in San Bernardino County; and Santa Ynez in Santa Barbara County – operate many of the state's most successful casinos.
It's unknown how closely their numbers match those of 25 other gaming tribes that don't pay the slot tax because they either run small casinos or went into gaming after the compacts were signed.
Those tribes collectively have more than 17,000 slots. But most of those machines – more than 10,000 – are in six large, new casinos operated by the Pala, Rincon and San Pasqual bands in San Diego County, along with the United Auburn, Picayune and Dry Creek bands.
Two of those casinos, Pala's and United Auburn's Thunder Valley, are among the most profitable in the state.
Station Casinos, which manages Thunder Valley, recently reported earnings that, while less than gross gaming revenue, are expected to exceed $300 million in the casino's first year. That has made Thunder Valley one of the most successful casinos in the world.
Eadington said the results of the Copley News Service analysis can be applied to all of the state's Indian casinos with a high degree of confidence.
"Because you're covering such a large chunk of the population with known numbers, you're in pretty good shape," he said.
If the $258 daily win figure extends to all of the 55,000 slots in the state, Indian casinos are grossing nearly $5.2 billion, not counting revenue from table games.
A conservative estimate for table games easily pushes the tribes to $6 billion or higher. Tables games account for nearly 34 percent of the take in Nevada and almost 26 percent in New Jersey. Both those states have the full range of table games, including craps and roulette, which typically represent a fairly small piece of table-game revenue, industry officials say.
California tribes can offer only Las Vegas-style card games such as blackjack.
Attorney Howard Dickstein represents three of the state's most successful gaming tribes – Pala of north San Diego County, United Auburn and the Rumsey band of Yolo County.
He doesn't believe the tribes' gross gaming revenue is anywhere near $6 billion a year and suggested that, at any rate, the overall figure has little bearing on negotiations with the Schwarzenegger administration.
"They have to go tribe by tribe and look at what's fair," Dickstein said. "If a tribe is already operating at a marginal level, it's unlikely that they would give 25 percent of their net win, which really would amount to half of their net profit, to the state. That's exorbitant, and it would probably put them out of business."
Lombardi, the gaming consultant, said the numbers show there is still "plenty of room for growth in the Indian gaming market," particularly among tribes that have ample demand to go above the state limit of 2,000 slot machines per reservation.
"If the state is looking for more revenue, that's where it is," Lombardi said. "Those are the premium locations that are driving those numbers."

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.