Though casino revenue-sharing has been halted between the city of Duluth and the Fond du Lac Band by the National Indian Gaming Commission, other tribal casinos around the country continue to share revenue with state and local governments.
Why?
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Of 255 tribes with gaming operations in the nation, 208 have some sort of payment provision, sharing revenue with state or local government units, said Duluth City Attorney Gunnar Johnson.
A report by Alan Meister, an Indian gaming analyst, showed that nationwide, tribal casinos shared $1.37 billion in revenue with state and local governments in 2011. He estimated that sum equaled about 12 percent of total profits.
But the National Indian Gaming Commission ruled in 2009, and a federal judge concurred, that the payments the city used to receive from the Fond-du-Luth Casino are unacceptable.
'There are dozens of revenue-sharing agreements across the nation, and new agreements are being structured even today,' Duluth Mayor Don Ness said. 'That should indicate there is a path to a compromise that could include revenue-sharing.'
Not according to Fond du Lac Chairwoman Karen Diver and Henry Buffalo, the tribe's lead attorney in the casino case.
The NIGC ruled that sharing any percentage of revenues with the city would be wrong, Diver said. 'The way the rules have been construed, any payment would need to resemble a justifiable fee for services,' she explained.
Johnson said he remains perplexed by the ruling of the NIGC. He said an agreement recently negotiated between Massachusetts and the Mashpee Wampanoag Tribe, in consultation with the Bureau of Indian Affairs, would send the state 15 to 21 percent of gross gaming revenues from a proposed casino in Taunton. Johnson said the pending agreement structurally resembles the agreement between Duluth and the Fond du Lac Band.
The BIA's involvement in the Massachusetts compact probably bodes well for its approval, according to Clyde Barrow, director of the University of Massachusetts Dartmouth's Center for Policy Analysis. He noted that 17. 5 percent of gross gaming revenues equates to about 25 percent of slot revenues, which is consistent with what New York and Connecticut collect.
But others remain more skeptical of the deal, including Gary Pitchlynn, a professor at the University of Oklahoma College of Law who specializes in tribal gaming. The BIA rejected an earlier proposed compact between the state and tribe, concluding that it would send an unjustifiable sum to Massachusetts.
'I think there's a good chance this isn't going to fly, either,' he said.
Increased federal scrutiny William Wood, a professor at UCLA School of Law and Southwestern Law School with experience in Indian gaming law, said tribal-state gaming compacts seem to be undergoing more scrutiny these days.
'Under the Obama administration, maybe the BIA is giving some of these agreements a closer look,' he said.
Added Pitchlynn: 'The appropriate number (in a revenue-sharing agreement) has a lot to do with the specific market and opportunity a tribe is being given.' He said the Pequot tribe agreed to share 25 percent of slot machine revenues with Connecticut at a time when it was being offered exclusive gaming rights to the whole state. Pitchlynn contrasted that lucrative opportunity with the far more modest offer now before the Mashpee Wampanoag Tribe, likely resulting in the right to operate the only full-fledged Las Vegas-style casino in southeast Massachusetts with possible competition from smaller slot parlors in the region.
The compact would give the Mashpee tribe semi-exclusive gaming rights in a market that's home to about 1.3 million people, versus the Pequots' exclusive access to what was originally a market of more than 20 million people drawn from Connecticut and surrounding states, Pitchlynn observed.
Duluth's agreement with the Fond du Lac band provided the tribe with exclusive rights to operate a casino within the limits of a city that's home to about 86,000 people.
But Johnson said the amount of revenue Duluth collected through its agreement with the Fond du Lac Band remains consistent with other arrangements that have been blessed by the BIA.
He pointed to Michigan's Gun Lake Casino, located between Kalamazoo and Grand Rapids, as another example. Opened by the Pottawatomi Band in February 2011, the Gun Lake Casino shares 8 to 12 percent of its electronic gaming revenues with the state of Michigan and another 2 percent with local units of government. To date, the total value of those payments has topped $27 million.
Against a national backdrop, Johnson contends Duluth's casino agreement made sense.
'I don't think you can justify saying that 19 percent is too high, based on the other agreements that are out there, as well as others coming, like the Mashpee compact,' he said, 'But even if you can, you can't justify leaving the city with absolutely nothing.'
Fond du Lac attorney Buffalo said the examples cited by Johnson involve compacts between tribes and states, not municipal agreements. He said Duluth lacks the standing necessary to even enter into such a compact.
UCLA's Wood acknowledged the Duluth agreement was extremely unusual. He said he was unaware of any other revenue-sharing agreement between a tribe and a government body quite like it.
Moving forward
In an interview last week, Ness expressed his desire to work with the Fond du Lac Band and Diver.
'I'm very open to sitting down with her at any time to see if we can find a level of revenue sharing that both parties would be satisfied with,' he said.
Given recent rulings and developments, Ness said he fully recognizes that it would be unreasonable to expect the city to receive the 19 percent cut of Fond-du-Luth slot machine revenues it once did. Those payments totaled more than $6 million a year when they were cut off in 2009. He said he would be willing to negotiate a smaller percentage that would be mutually acceptable to both the band and local taxpayers.
'I'm convinced that if the Fond du Lac Band and the city were to agree to a percentage and present it to the Bureau of Indian Affairs, they would endorse and support the structure of our agreement,' Ness said.
Meister, a principal economist with Nathan Associates Inc. of Irvine, Calif., appeared on the city's behalf at an arbitration hearing a few years ago, where he concluded the revenue-sharing agreement between the Fond du Lac Band and Duluth 'fell well within the range of other tribes' agreements across the country as to the amount of payments, the term of the agreement, the right to terminate gaming, access to records and restrictions on changing gaming regulations.'
'Let's see if we can get this worked out in a way that's consistent with what other government units are getting across the country,' said Johnson, the city attorney. 'I can tell you, the zero percent Duluth is getting right now is not consistent.'
Diver said the band has offered to negotiate to pay a fee to the city for public safety and other basic services, but the city has been unreceptive to anything short of a continued percentage cut of casino revenues.
Any revenue-sharing agreement would run afoul of the National Indian Gaming Regulatory Act's requirement that the casino be operated 'for the sole proprietary interest of the band,' Buffalo said. 'The only thing that's on the table for discussion is some sort of fee-for-service agreement. And the city can't treat the band any differently than it would any other business owner in Duluth.'
Buffalo said it's time for Duluth to acknowledge the clear message that's been delivered by recent rulings and decisions.
'It should be clear to them that the law has changed, and the old arrangement is no longer valid,' he said.
'They need to acknowledge that the law is what the law is now,' Buffalo continued. 'It's time to recognize that the ongoing relationship between the city and the band is more important, and we need to move forward.'
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