Gaming Exclusivity Fees Dip for First Time in Oklahoma

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For the first time since 2004, Native American tribes in Oklahoma paid less to the state in exclusivity fees than the previous year, according to a new report.

The Oklahoma Gaming Compliance Unit’s annual report for FIscal Year 2014 shows that the state collected $122 million in exclusivity fees for the year, a $5.5 million drop from the previous year’s collections.

The report said the decline coincided with a drop in fee revenues from electronic Class III games like slot machines, and an increase in the number of Class II electronic bingo machines, which tribes are not required to pay exclusivity fees on the revenue generated. “The 4 percent downturn in exclusivity fee revenues occurred despite an overall increase in the number of Class III games, suggesting possible market saturation,” the report stated. “An increase in Class II machines may have also played a part in the revenue decline.”

Though there was a decrease in the fees collected, the number of Class III machines actually increased from 39,393 in Fiscal Year 2013 to 39,936 in Fiscal Year 2014.

Tribes pay exclusivity fees on Class III games based on the amount of revenue received: 4 percent for the first $10 million in revenue; 5 percent for the next $10 million in revenue; and 6 percent in fees for generating more than $20 million in revenue. Tribes do not pay a fee based on revenue generated from Class II games.

The exclusivity fees go to the Education Reform Revolving Fund, the General Revenue Fund and the Department of Mental Health and Substance Abuse Services. Due to the decrease in fees collected during the fiscal year, the Education Reform Fund received $4.8 million less and the General Revenue Fund received $657,000 less. The Department of Mental Health and Substance Abuse Services’ fee remained steady at $250,000 because that amount is statutorily required.

“Declines can be caused by several things, one would be a decline in business, which has not happened in our company or the whole state. The second thing could relate to the number of Class II versus. Class III games. We have seen a shift in our game mix,” says Mark Fulton, Chief Operating Officer for Cherokee Nation Entertainment. The shifts in games selected is based on taste as well as the fact that traditionally Class III gaming vendors are now offering better Class II products, Fulton says.

The Comanche Nation saw a significant dip in the fees shared with the state. The state of Oklahoma collected $6.2 million in exclusivity fees from the Comanche Nation in Fiscal Year 2013, but that dipped to $3.2 in Fiscal Year 2014, a decrease of 48 percent. Comanche Nation officials did not respond to requests for comment.

The annual report from the Oklahoma Gaming Compliance Unit comes around the 10-year anniversary of the voter-approved State Question 712, which established a tribal gaming compact.

Cherokee Nation Principal Chief Bill John Baker called the ballot initiative “a game changer.”

“We went from bingo profits that were really rather marginal to where we have an opportunity to designate $100 million dollars of casino profits to build two brand new clinics and double the size of two of our older clinics and double the size of our hospital campuses with cash,” Baker says.

Baker said that state officials anticipated the compact bringing in $71 million a year to the state, but that the tribes have more than surpassed that every year.