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Hogen foresees fears realized in economic downturn

WASHINGTON – National Indian Gaming Commission Chairman Phil Hogen, officially withdrawing the rules he hoped would lay down his long-sought “bright line” between Class II and Class III gaming machines, reprised the scenario he termed a “nightmare” at the Global Gaming Expo, or “G2E,” conference in Las Vegas a year ago.

In his theoretical nightmare, a slick slot machine salesman approaches tribes with a proposal to sell them “bingo machines that make as much money as a Class III machine. You can start playing these machines, your customers aren’t going to know the difference, and you won’t have to send the state a dime” under the Class III compacts that invariably demand a share of tribal profits as the price of exclusivity – a semi-monopoly – for Indian gaming. Wise voices among the tribes intone, “But if we do that, they might change the rules so that we’re not the only ones to have gaming anymore.”

But unwise tribe after unwise tribe went for the proposal; states decided they should open gaming operations to everyone, “and that put the whole system at risk.” Soon a “vice president” sent by the Justice Department was knocking on Hogen’s door, wondering why NIGC had done away with the Indian Gaming Regulatory Act system of uncompacted Class II bingo and Class III slot machines at Indian casinos under tribal-state compacts. Hogen said that’s when he woke up.

A year further on, as the national economy falters toward a recession that is considered certain in even the most formerly gung-ho economic circles, evidence multiplies that state coffers are feeling the pinch as tax revenues dwindle. Hogen fears that as states look for revenues, tribes may have pushed the envelope of Class II gaming too far. “They might risk the [regulatory] structure that has given them a kind of monopoly.”

That they pay dearly for it through revenue-sharing under Class III compacts may not prevent states from competing with them for the non-compact revenues that characterize the Class II machines Hogen considers illegal under IGRA.

“Now the state can put a casino anywhere they want to ... especially if they see someone sitting on the sidelines and they say, ‘Hey, they’re not playing by the rules.’”

Tribes are limited to trust land in their casino sites, Hogen said, meaning states could easily create incentives for people to do their gaming elsewhere than reservations.

Tim Wapato, the first executive director of the National Indian Gaming Association, said that Hogen’s scenario is worth worrying about to an extent. “I don’t know a state yet that hasn’t made demands on Indian gaming. States are in their own budget crunches, and they’ll get worse as the financial crisis takes hold. ... Guess who they’ll see when they start looking around for revenues?”

Joe Valandra, the former NIGC chief of staff who made a cameo appearance in Hogen’s theoretical “nightmare” at G2E as a Rosebud Sioux Tribe “chief” who is all for Class II machines that make Class III cash, dismissed Hogen’s fears. “I think it’s just another scenario of his,” one he’s heard a thousand times.

“States don’t really know how to run gaming,” he added. “They know how to tax gaming.” The money-losing proof of that is playing out in Kansas, he explained, where the state is taxing lucrative machines at a rate that depresses revenues by discouraging their installation in the first place.

Hogen has cited Kansas as one example of where his fears are being realized. He said he doesn’t want to dispute it in the media, though.

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