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Wanamaker: Gaming exclusivity vs. the free market

The continued growth of Indian gaming casts an ever-brighter spotlight on the industry. This is particularly true regarding the terms of state-tribal compacts, which govern Class III Indian gaming operations.

As fiscally ailing states get hungrier for Indian casino profits, revenue "sharing" has become a hot topic among compact negotiators. But in return for giving the various states a piece of their gaming pie, what should tribes seek in return? Some have suggested that longer compact terms, which help tribes get long-term financing for the start-up and expansion of operations, make a fair exchange.

Others have suggested that tribes seek gaming "exclusivity." Such exclusive rights to conduct gaming may encompass a particular region or even an entire state, or might also prevail for a particular length of time. Some see exclusivity is somewhat similar to creating a business franchise, which generally gets the right to operate under a particular name in a specified area for a set time period. Others view it as a monopoly.

Watching Wisconsin

A pair of Wisconsin tribes recently filed a federal lawsuit upon which observers of Indian gaming might want to keep an eye. The Lac du Flambeau Chippewa and Bad River Chippewa tribes on Oct. 17 took legal action against Interior Secretary Gale Norton for approving a compact between Wisconsin and the Ho-Chunk Nation.

According to the Milwaukee Journal-Sentinel, the plaintiffs complain that this compact, approved last June, contains a "no-compete" clause enabling the Ho-Chunks to lessen their payments to the state in the event that a competing off-reservation Indian casino takes business away from an existing Ho-Chunk casino.

The lawsuit seeks invalidation of a clause permitting a reduction in the Ho-Chunk Nation's $30-million annual state payment in the event that another tribe gains approval for an off-reservation casino that substantially cuts into profits at existing Ho-Chunk gaming facilities. How to measure whether another casino would "substantially cut into profits" is unclear. No other tribal-state compacts in Wisconsin contain similar provisions. Negotiations between the tribes aimed at solving the issue reportedly failed, prompting the lawsuit.

The Nation owns casinos in Black River Falls, Lake Delton and Nekoosa, a bingo hall in Madison, and slot machines in five convenience stores. The Bad River Chippewas are looking to site an off-reservation casino in Beloit, while the Lac du Flambeau Chippewas are looking at a similar facility in Shullsburg.

Is giving a piece of the gaming market to only one player through exclusivity provisions a good idea? Or is it potentially detrimental to other tribes who are slower, for whatever reason, to enter the gaming arena?

Fair and open competition is what makes a free market economy thrive. Exclusivity may have its place, but it should not compromise the ability of tribes to exercise their right to participate in and profit from gaming.

Cayuga proposal

On Oct. 16, the Cayuga Nation of New York pitched a proposal that would finally settle its outstanding land claim against New York state while also granting the tribe a compact to operate a casino in the Catskill Mountain town of Monticello.

Under the proposal, the state would drop its appeal to the $247.9 million judgement in the land claim case and enter a Class III gaming compact with the tribe. While the state would be entitled to revenue sharing payments under the compact, the Cayugas would retain a percentage of such payments until the land claim settlement is paid off, estimated to occur in six years. The Cayugas estimate that Albany would receive approximately $19.5 million during the casino's first full year.

The deal would allow the state to pay off the land claim award using funds generated by the casino itself; federal funds would be not used nor would the cash-strapped state treasury need to be further depleted.

The tribal government also indicated willingness to negotiate an agreement with the state regarding taxation of fuel, tobacco and other products on sales to non-Indians. The Cayugas would charge a fee "comparable" to current retail sales tax rates, bringing their prices into a more competitive balance with neighboring non-Indian retailers.

Such a deal, if reached, would remain in effect as long as Indian tribes retain exclusive rights to casino gaming in New York, according to the proposal. Such exclusivity, covering multiple tribes, may represent a good balance between tribal interests, none of whom would welcome gaming competition from deep-pocketed commercial operators, and the state, which has recommitted itself to taxing Indian retailers' sales to non-Indians.

Landless for more than 200 years, the Cayuga Nation recently entered the retail gasoline and convenience store business, with two such operations within its land claim area in the towns of Union Springs and Seneca Falls. In April, the tribe applied to BIA to take land into trust for a Catskill casino.

Commercial competition?

The Turning Stone Casino Resort in Verona, N.Y., owned by the Oneida Nation of New York, may soon get its first direct local competition. Officials at Vernon Downs, a harness track in nearby Vernon, have begun construction on a 34,000-square-foot building to house 1,100 slot machines and hope to open it by the end of November.

The track still awaits final licensure from the state Lottery Division and cannot install its slots until its application is approved.

Seventy-one percent of the profits from the Vernon Downs slots are slated to go to the Lottery Division, while the remainder is to be divided between the track and owners of competing horses. Some estimates of the track's annual profit capability from the slots come in at around $80 million.

Opened in 1993, Turning Stone and has been an unqualified success, reportedly raking in some $70 million annually. Although there are no terms of exclusivity in the Oneida compact, Turning Stone has enjoyed little or no competition for much of its existence. Its closest casino competition has come from the St. Regis Mohawks, who opened a much smaller gaming facility at Akwesasne in 1999, and from the Seneca Nation, which opened its Niagara Falls casino last Dec. 31. Prior to these two casinos, its closest competition was a Canadian commercial casino in Niagara Falls, Ontario, the casinos of Atlantic City, and Connecticut's two Indian casinos, Foxwoods and Mohegan Sun.

What kind of competition will Vernon Downs serve up?

Turning Stone does not serve alcohol, but allows smoking; the Vernon Downs facility would do the opposite. Such policies may have some effect. It is likely to attract gamblers who favor racing to roulette wheels and poker tables.

The outstanding Oneida land claim may be a bigger factor. Considerable anti-Oneida sentiment lingers in the area, due to what locals perceive as a plundering of their sales and property tax bases. It will be interesting to see whether Vernon Downs plays an "anti-Indian gaming" card to promote itself.