Not so responsible gambling

The Indian Gaming Regulatory Act passed in 1988; in the 24 years since the IGRA passed there have been many changes Indian country.  It would be safe to say that before the Act and the advent of Indian gaming Indian tribes were the poorest segment of the population.

Indian tribes had the highest rate of unemployment, lowest per capita income and the highest rates of alcoholism and other health problems.  Individual tribes wanted to provide employment and benefits to their tribal members, but found it difficult to develop any viable cash-flow on their own and were dependent on federal largess.  A few tribes did manage to start businesses, but not many.  In general, it was very difficult for tribes to raise capital to fund any business venture, also they lacked a skilled workforce and for the most part, they were located too far from any population base.  IRA was passed to help tribes find a way around the poverty and become self-sufficient.

Prior to the Act, a number of Indian tribes had begun offering bingo and other gambling games on their reservations; they depended on the federal courts to protect them from state laws.  The tribes claimed that tribal sovereignty protected them from state laws prohibiting gambling and they were free offer gambling on their reservations.

Congress intended with the IGRA to place some limitations on the expansion of gaming and force the tribes to negotiate with state governments before conducting gaming operations.   But, Congress had another purpose as well – to encourage tribal economic development.  Congress was successful. Tribes could no longer just offer any gaming they chose and rely on the courts to support their efforts.  Now, each tribal casino operates under a compact negotiated between the tribe and its host state; rogue gaming operations are a thing of the past.

That was what the states and the casino industry wanted from the Act.  However, the tribes also got what they wanted and needed, IGRA has been a major stimulus to economic development in Indian country.   Nationally in 2010, Indian gaming revenues were over $26 billion.  There are 448 casinos in 28 states; those 448 casinos are operated by 239 tribes. Tribal casinos in California alone generated $7.5 billion in casino revenues in 2011.

Only about half of the tribes in the country have casinos and not all tribes with casinos are profitable.  Even among the tribes that are successful, there are those that make a great deal more than the rest.  The reasons for the success go back to the reasons that tribes before IGRA struggled to establish a business, the proximity of a significant population base and access to capital for investment.  The tribes that have been most successful had access to both, money and customers.

For example, the two tribes in Connecticut have been among the most successful, their reservations were close to urban populations and good highway systems and they found investors willing to put hundreds of millions of dollars in tribal casinos without the usual land or building as security.  Tribes in Florida Wisconsin and Minnesota found a slightly different formula for success; they had relatively good location and cash from bingo operations to fund their casino ventures.

The actual financial results are not public information and it usually takes a special circumstance for us to get a glimpse into tribal finances; such as a lawsuit, bankruptcy or a really good investigative reporter.  From one of those sources, we have learned something about the finances of Mashantucket Pequot tribe and its Foxwoods casino because of its struggles to refinance its debt and avoid bankruptcy.  Also we have learned about the finances of the Seminole tribe of Florida and its casinos because of the federal lawsuits and IRS actions against the tribe and its past leadership.  And very recently we have learned something about Shakopee Mdewakanton tribe of Minnesota and its Mystic Lake casino through the diligence of the New York Times.

Part of what we have glimpsed has been shocking and it has exposed a weakness in the original Act.  Tribes are allowed to use casino profits to the benefit of the tribe.  Some of the ways tribes have used casino profits includes providing social services, additional business development and housing; no outsider, government agency, newspaper reporter or indeed tribal member ever finds fault with a tribe spending its casino profits on schools, roads, scholarship funds or old age benefits.

However, IGRA also allows tribes to distribute profits directly to individual members; any plan to distribute revenues directly to tribal members must be approved by the federal government – but most have been approved.  The direct distribution is potentially a serious long-term social problem.   At least outsiders see problems, tribal members receiving the money rarely complain.

Last year in the process of refinancing its debt, the Mashantucket Pequot tribe was forced to reveal the amount of money it was distributing.  The lenders objected and forced the tribe to stop the distribution.  Tribal leadership was extremely worried; the tribal members had been receiving large payments for years and that evaporated overnight; few, if any tribal members were prepared for life without that income.

The Pequots were receiving a lot of money by most any standard, except that of the Shakopee Mdewakanton tribe, whose members, according the New York Times, are receiving a million dollars a year. In the traditional American sense that is success writ large, millionaires one and all.  But, sadly like the Pequot, the Shakopee are faced with the possibility of losing their income.  Increased competition from other casinos, and now the threat of online gambling hangs over their heads.  And, like the Pequot, the Shakopee are not prepared.

The tribal chair in discussing the issue with the New York Times bragged that unemployment was a 99 percent – who needs a job when making a million dollars a year with working?  They make a million, but they have no investments, degrees or plan for the future.  The money falls into their hands and they spend it as it falls.  Last year, I was at a meeting with some Mystic Lake casino officials and Professor Bill Eadington of the University of Nevada in Reno; the tribe and the casino officials wanted help fighting casino gaming legislation in Minnesota.  Professor Eadington asked many questions about the level of education, financial planning and other responsible uses of the casino’s profits.  The answer was simple – the money was just handed to the tribal members with no sense of social responsibility toward the tribal members as individuals or for their future.  No tribal member has gotten a college degree, none has started a business or invested in other responsible businesses. The professor refused to help the tribe because of its irresponsible behavior.

Responsible gambling is a common phrase these days, it generally means not gambling and losing more money than one cannot afford or doing any harm to one’s family or others by gambling.  However, it could be applied here to the gambling operator instead of the gambler.  It could be said that Foxwoods and Mystic Lake’s profits have used irresponsibly – to be irresponsible gambling; tribal leadership has gambled with the lives of tribal members irresponsibly.

The problem may simply go away as tribal cash-flows are affected by ever increasing competition from other casinos and soon online gambling.  But this is still an issue that deserves some debate.  It was not part of the intent of Congress in 1988 to create a class of temporarily wealthy, but in the long-term dependant individuals in place of the impoverished ones of the pre-IRA.  Congress intended to make tribes stronger, more self-reliant and capable – not all tribes saw the wisdom in the Act.

 $1 Million Each Year for All, as Long as Tribe’s Luck Holds;  A generation ago, the Shakopee Mdewakanton tribe lived in a motley collection of beat-up trailer homes, melting snow for bath water when wells froze over because they lacked indoor plumbing…Today, the Shakopee Mdewakanton are believed to be the richest tribe in American history as measured by individual personal wealth: Each adult, according to court records and confirmed by one tribal member, receives a monthly payment of around $84,000, or $1.08 million a year…the current expansion of legalized gambling in the United States, and the prospect of more to come, could not have arrived at a worse moment for tribes, because after 25 years of booming profits, the tribal casino business has suddenly gone flat. Timothy Williams, New York Times, 8-9-12

 Former Seminole tribe leader David Cypress will be sentenced Thursday for filing a false tax return, but he’s already become the “poster boy” for the federal government’s income tax enforcement campaign, his attorney is arguing in a bid to spare him from a prison sentence. Cypress’s guilty plea and his agreement to pay nearly $5.5 million in overdue income taxes to the IRS provides outsiders with a rare peek at some of the tribe’s financial affairs and the “rags-to-riches” transformation brought on by the introduction of legal gaming and casino gambling on the reservation. Gaming profits reached $300 million per year by 2001, with monthly dividends paid to each member of the tribe — but without the benefit of training in basic financial planning skills, Cypress’s lawyer Joel Hirschhorn wrote in court records. Paula McMahon, Sun Sentinel, 8-9-12



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August 2012
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