The 5 Cent Empire

Native American tribes parlayed legalized gambling into a $22 billion lifeline. Now states want a piece of the action.

Despite the still-impoverished status of many tribes — not to mention the sovereign status of those tribes — some think native bands should pony up. “Indian gaming is taking money from states,” says Chad Hills, gambling research policy analyst at Focus on the Family, a religious group, “but it’s not giving anything back.”

This growing demand for cash puts plenty of pressure on tribal finance managers, who deal with a different list of stakeholders than do CFOs at publicly traded companies. Tribal finance executives must parcel out precious casino revenues to a long list of recipients, including the NIGC, tribal members, charities, municipalities, and state governments. They also have to set aside funds for vital services like police departments and schools. At the same time, they are expected to engage in long-term business planning that spans an astounding 140 years (see “Six Sigma? How about Seven Generations?” at the end of this article). And they must do all this while maintaining cordial relations with state officials — officials who could end a tribe’s gambling exclusivity at any time.

Such statesmanship is not easy, particularly when local politicians want to scrap existing agreements — a sore point with Native Americans. Certainly, Tim Pawlenty, the governor of Minnesota, won few friends in Indian country when he tried to convince the Mille Lacs and two other tribes to fork over a combined $350 million each year to the state. When that failed, Pawlenty began negotiating a deal with other native nations.

The move infuriated members of several tribes, which had signed compacts with the state in 1989. “We think the state should stick to its agreements,” says Towle, a former KPMG senior accountant. “We shouldn’t be blackmailed into revenue sharing.”

The Wonder of It All

Maybe not, but for now states seem to hold all the cards. When it passed IGRA in 1988, Congress intended to foster long-term economic development among tribes by setting up a framework for Indian gaming (then, mostly bingo). The act, which was established to regulate tribal gaming, requires tribes to send annual audits to the NIGC and stipulates that revenues from gaming go to fund native governments, local charities, and municipal agencies. It also permits bands to invest casino revenues in tribal businesses or projects aimed at promoting tribal welfare. “Our framework complies with each of the IGRA categories,” confirms John Christman, treasurer of the Viejas Band of Kumeyaay Indians, in Alpine, California. “That’s our working business model.”

While the IGRA framework is mostly designed to benefit tribes, it also gives states tremendous leverage. How? By granting state officials the power to regulate any Indian casino offering video slots and other Vegas-style games of chance (known as Class III games). In some states, the oversight role includes licensing, auditing payout ratios, and settling patron disputes (as with non-Indian casinos). In fact, a tribe cannot set up a Class III casino without first signing a contract with its home-state legislature. That contract — essentially a government-to-government treaty — is called a compact. Says Robert Chicks, president of the Stockbridge-Munsee Band of Mohican Indians, in Bowler, Wisconsin: “Compacting was intended solely to address regulatory oversight.”

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