Thursday, August 21, 2008

Editorial: Federal Indian Gaming Regulators Asks Indians How To Tell If Outside Casino Managers Are Ripping Off Tribes

Feather News

The National Indian Gaming Commission extended the comment period yesterday on the issue of how to determine if Indian tribes are getting ripped off by outside casino operators and vendors. Comments will be accepted up to September 30th. The previous comment deadline was August 18th.

According to the NIGC statement, NIGC "Chairman Hogen went on to explain that when NIGC reviews management contracts and other proposals for the development of tribal gaming facilities, the agency is often looked to for guidance so that tribes and developers don't structure arrangements which may violate the dictates of the Indian Gaming Regulatory Act (IGRA) that tribes maintain the "sole proprietary Interest" in their gaming facilities. "It is important that NIGC give clear, consistent advice in this important area," Hogen stated, "and it will be useful to fully consider tribal points of view as we better formulate this guidance."

Five questions were posed by the NIGC. The Feather News has written below some quick answers to these questions as they pertain to the Tribe's former casino management company, Trading Cove Associates, for tribal members only. We will put more thought into these questions over the next month and will provide additional answers as they relate to TCA and other types of contractors.

The Feather News' wanted to report the NIGC's issues to its readers and the extended deadline. We also decided to provide brief answers that are meant to be more of an educational tool for tribal members and not a formal response to the NIGC. We remain deeply concerned, however, about other tribes getting into the same situation in which we find ourselves and hope that leaders of other Tribes analyze the consequences of their financial decisions with greater scrutiny.

We encourage readers to comment or ask questions on this article. Please, there is no question that you may have that we would consider stupid. A top priority is educating tribal members on financial issues so if you have a question, we are happy to provide an answer.

The five questions posed by the NIGC and the Feather News' first set of responses are as follows:

NIGC Question 1: In light of Congress’s directive that tribes have the “sole proprietary interest” in their gaming activity, at what point is money received by an individual or entity for his/her or its involvement with the tribe’s gaming activity no longer a payment for services but an ownership interest in the profits of the gaming activity?

Feather News Answer 1: The Mohegan Tribe wanted to end the 7-year management contract that permitted Trading Cove Associates (TCA) to manage our casino since the day it opened in October 1996. Then, the Tribe bought out the TCA contract before the 7-year period ended. In fact, we bought out TCA about halfway through that 7-year period on January 1, 2000. In the last full fiscal year (FY 1999) of the original 7-year management contract, TCA was paid almost $60 million ($59,532). The Tribe ended the contract about three years after it began in 1996, meaning that TCA would naturally want compensation for the last four years of its contract. So what would four years be worth? Not $240 million as one would expect. Instead, the Tribe made an agreement that is expected to net TCA over $1 billion (5% of revenues before deducting expenses) over a 15-year period. What is TCA required to do over that 15 year period? TCA must end their consulting and management services provided to Mohegan Sun in order to be paid their $1 billion. In other words, the Tribe bought out TCA's remaining $240 million for an amount that is expected to exceed $1 billion. Money for nothing? Sounds like ownership to me. Better than ownership because they have no risk.

NIGC Question 2: In what circumstances can substantial monetary payments be justified by the goods and/or services provided or the risk taken by the individual or entity?

Feather News Answer 2: Consider that the Mohegans paid TCA almost $60 million in the last full fiscal year (FY 1999) under the original 7-year management contract. Last fiscal year (FY 2007), under the new contract, TCA was paid $77.5 million for not providing management services. Money for nothing? Sounds like ownership to me. Better than ownership because they have no risk.

NIGC Question 3: Is there a level of control over the gaming activity which correlates to an individual or entity having a proprietary interest in the activity? If so, please suggest how this factor should best be evaluated.

Feather News Answer 3: The guy who wrote The Godfather, Mario Puzo, also wrote a book on Las Vegas. To paraphrase him from the book, an entity that receives a percentage of casino revenues is getting a better deal than they would by skimming money from the count room. Its guaranteed. As noted earlier, TCA is guaranteed 5 percent of every dollar taken in at Mohegan Sun. Since TCA has no control over the casino but is guaranteed 5 percent of the revenues, then they kind of own the casino profits without having to own the casino on paper.

NIGC Question 4: What factors should the NIGC consider in implementing and ensuring that this provision of the Act is abided by? Are there special circumstances for different types of contracts? (e.g., development, consulting, equipment, loan, security, etc.).

Feather News Answer 4: In the Mohegan's case, former chairman of the Senate Indian Affairs Committee, Senator John McCain, held a hearing on the TCA contract in 2001 and called the TCA contract "egregious" and scolded the Bureau of Indian Affairs for approving the 15-year TCA contract. The Cambridge dictionary defines "egregious" as "extremely and noticeably bad" and the Merriam Webster dictionary defines it as "conspicuously bad." So, in short, I would say that if the contract is extremely, noticeably and conspicuously bad, then that could be one factor the feds could use to determine that federal Indian Gaming law is not being followed.

NIGC Question 5: How does this provision of the Act coincide with the policy goals of the Act articulated by Congress, such as promoting tribal economic development and self-sufficiency as well as ensuring that tribes are the primary beneficiary of their gaming operations? See 25 U.S.C. § 2702 (1) and (2).

Answer 5: In recent years, TCA was paid about the same annual amount that the tribal government was paid (about $80 million) but now that profits have fallen, TCA will still get a large cut while the tribal government can only be paid the same amount to the detriment of the casino's financial health. If TCA is paid a higher amount than profits generated by the casino, then TCA seems to be the primary beneficiary.

P.S. Sen. McCain, a longtime advocate for Indians, while scolding the Bureau of Indian Affairs for approving the TCA contract also noted sadly that under existing laws, Indian tribes have the sovereign right to make bad decisions.

Comments can be sent to Chairman Hogen at NIGC, 1441 L Street, NW, Washington, DC 20005 or faxed to (202) 632-7066. The NIGC is an independent regulatory agency established within the Department of the Interior pursuant to the Indian Gaming Regulatory Act of 1988.