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NIGC wants to ensure tribes receive 'fair share'
Wednesday, February 2, 2005

The National Indian Gaming Commission plans to continue its review of tribal casino deals with non-Indian investors despite a call to show restraint by the former leaders of a key Senate committee.

At a tribal conference last week, top NIGC officials said they are examining various agreements that tribes have made with gaming vendors, developers and other backers. The goal is to find out whether the deals are fair to tribes and whether non-Indians are obtaining too much of a stake in casino projects.

"Are we concerned that the tribes are not getting their fair share?" said Phil Hogen, chairman of the NIGC. "That's the perspective we are attempting to take. We sit in the shoes of the trustee."

Hogen, a Bush administration appointee whose term is up at the end of this year, said the agency is not attempting to set any rules in stone. The comment appeared to be directed at a letter from retired Sen. Ben Nighthorse Campbell (R-Colorado) and Sen. Daniel Inouye (R-Hawaii) who questioned whether the NIGC was taking actions without tribal consultation or public comment.

"We don't want to be to too intrusive [but] when a developer comes along to a penniless tribe and says, 'Boy have we got a deal for you,'" he noted, "we're supposed to be the trustee and keep an eye on it."

Penny Coleman, the agency's top lawyer, elaborated on some of the issues being considered. She spoke of arrangements that call for tribes to share 30 percent of gross revenues from a third-party's casino machines rather than net profits, land "gifts" and other property-related transactions that could tip the scales in favor of a non-Indian company.

"In many places, that can be as much as 62 to 65 percent of the tribe's net profits," Coleman said of casino machine agreements common in Oklahoma. "But in the industry that we looked at at-large, we found that 30 percent is not the standard, that it's generally much lower."

According to the Indian Gaming Regulatory Act, a tribe must maintain a "sole proprietary interest" in a casino. Coleman said the NIGC is trying to determine if any of these agreements violate that standard, which Hogen acknowledged is "not terribly precise."

The issue has gained prominence in Oklahoma as tribes there have engaged in a rapid expansion of their gaming facilities with the help of a non-Indian company that is the leading supplier of Class II casino machines. Multimedia Games (MGAM) requires the tribes to dedicate about 70 percent of floor spaces to its machines and share 30 percent of gross revenues from those machines under various lease agreements.

"Has the company developed an ownership interest in this facility by ending up with a majority of the profit?" Coleman asked.

Multimedia also has made donations of land to at least one tribe, the Chickasaw Nation. The property is turned over to the tribe and held in trust but the company is maintaining a long-term stake in it, according to a recent financial statement. Other provisions call for the company to own the fixtures of a casino and other equipment.

Coleman said each agreement would be evaluated on a case-by-case basis. "These questions are very, very fact driven," she said.

In its financial statement, known as a 10K, Multimedia acknowledged the scrutiny it is seeing from federal regulators. "In particular, the NIGC is concerned that our development agreements, whereby we advance development funds to our tribal customers in exchange for allocated floor space and a share of gaming revenue, create a 'proprietary interest' of ours in the tribes' gaming operations," the document, filed with the Securities and Exchange Commission on January 26 stated.

The company said it is complying with NIGC's request for more information about the arrangement. Coleman said no decisions have been made.

The NIGC's actions drew fire from Campbell and Inouye, who were the leaders of the Senate Indian Affairs Committee until the end of December. They warned Hogen that the agency's review was having a "chilling effect" on the $16 billion tribal gaming industry

"Apparently, the sole proprietary interest standard is being applied with no notice or guidance having been published that would inform tribal governments and the public that seeks to do business with the tribes of this new standard," the senators wrote on December 15.

Shares of Multimedia's stock closed a $8.82 yesterday after less than stellar reports released last week. The company's profits fell 31 percent during the last quarter, and executives said they expected further declines as Oklahoma tribes begin to offer new casino games under a Class III gaming compact.

Hogen, Coleman and Nelson Westrin, an NIGC commissioner, spoke at the 10th annual Western Indian Gaming Conference in Palm Springs, California, last Thursday. The event is sponsored by the California Nations Indian Gaming Association.

Get the Letter:
Campbell-Inouye to Phil Hogen (December 15, 2004)

Relevant Links:
National Indian Gaming Commission - http://www.nigc.gov
Multimedia Games - http://www.multimediagames.com