Friday, February 17, 2012

White Earth casino proposal could be Vikings stadium timebomb

Thursday, White Earth tribal leader Erma Vizenor led a delegation to the Capitol to push for a joint state-tribal casino that would fund, in part, the state share of a Vikings stadium. The White Earth proposal is not new, and has been floated repeatedly since 2005. Initial reports about the Minnesota Wins proposal focused on its political shelf life (which might be very short.) But even if approved by the Legislature, any revenue sharing agreement might not pass muster with the federal government.

A related conflict between the city of Duluth and the Fond du Lac band of Chippewa over a 1994 revenue sharing agreement for the Fond-du-Luth Casino is instructive. In 2009, the tribal government ceased revenue sharing payments with the city, arguing that the agreement signed by previous leaders was unfair and illegal.

In July 2011, the tribe's position was upheld by the National Indian Gaming Council (NIGC), a federal board that enforces the Indian Gaming Regulatory Act (IGRA). Duluth has subsequently sued to enforce the 1994 agreement, which dictated that 19% of the gross revenue (about 30% of net revenue, or approximately $6 million per year) from the casino would be paid to the city each year. Duluth is in a difficult negotiating position. While they hold the lease to the building and could conceivably evict the casino, that would mean losing 300 jobs and a major draw downtown. And since the Fond du Lac band has since built the much larger Black Bear Casino on I-35, the threat of closing Fond-du-Luth is more bark than bite.

The NIGC's decision in the Fond-du-Luth case should give pause to anybody who would rely on a constant stream of revenue from a White Earth/State of Minnesota joint venture casino.

First, under the IGRA, a tribe must "maintain a sole proprietary interest and responsibility for the conduct of any gaming activity." Long term agreements that transfer a significant portion of the gaming revenue to another entity violate the Act.
Accordingly, final agency actions by NIGC and OGC legal opinions have found an improper proprietary interest in agreements under which a party, other than a tribe, receives a high level of compensation, for a long period of time. and possesses some aspect of control. The compensation in these instances was typically based on a significant percentage of net gaming revenue and often had terms beyond 5 years.
The bill proposed for the joint state-tribal casino would last for 30 years, the proposal unveiled today would divide net revenue 50/50 with the State of Minnesota, and the State of Minnesota would have significant control of the operation. It is a joint venture, not a sole proprietorship.

Second, the NIGC held that the $75 million paid in rent over the life of the agreement had no "rational relationship" to actual services provided. In order to be legitimate, payments to another governmental entity need to be of "tangible economic benefit justifying a share of gaming revenue." In other words, for another government to receive payments from a tribal casino, those payments need to be in fair exchange for actual services rendered.

It's hard to see how the Minnesota Wins proposal could be approved at the federal level, even if it were to get through the Legislature. Even worse, imagine if the revenue dried up in the middle of repaying bonds on a Vikings stadium. What the Fond-du-Luth case should tell you is that a tribal-state revenue sharing agreement isn't necessarily durable, even if everybody seems happy at first. Thirty years is a long time.

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(Photo credit: Flickr user tbone_sandwich)

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