Latest dispute shows the need for an overhaul of IGRA

Last week, a court ruled by a 2-1 margin that the Seneca Indian Nation were required to continue paying New York state $100 million a year from revenues generated at its three casinos in Niagara Falls, Buffalo and Salamanca. A compact signed between the state of New York and the Seneca Nation in 2002 gave the tribe exclusive Class III gambling rights for the area that effectively encompassed Buffalo to the East, the Finger Lakes to the West, the Canadian border to the North and the Pennsylvania border to the South. In return, the Seneca Indians agreed to give 18% of slot machine revenue in the first four years of the compact, 22% in the next three years and 25% for the next 7 years, at which point the compact would expire. It was also agreed that if the terms weren’t renegotiated, the compact would continue for another 7 years. The compact was amended in 2013, confirming exclusive rights to the Seneca Indians for the region listed, but it also opened the door to possible non-Indian gaming in other areas close to that region.

The compact did run out in 2016 and the Seneca Nation stopped making payments to the state, saying that in its view the end of the compact meant the end of obligations to the state. Governor Cuomo and New York’s attorneys disagreed, saying that the terms of the compact clearly state that the compact would remain in place for 7 more years if there were no objections, but Seneca’s lawyers argued that the compact only said that they would continue to be given exclusive rights to the territory and there was no mention of further renumeration. Moreover, the Tribal lawyers argued the state reneged on the compact by allowing competition.

The casinos have been successful, albeit not nearly as successful as the ones in Niagara Falls, Ontario and unlike Niagara Falls, Ontario which has seen a complete overhaul and beautification thanks to casino revenues, the city of Niagara Falls, New York hasn’t really seen huge rewards from the casinos, nor has Buffalo. The cities (and particularly Niagara Falls) are still quite run down and businesses are closing in droves. Ironically despite the success of the Canadian casinos, a large percentage of the business at Seneca casinos are from Canadians who prefer to gamble in U.S. dollars and prefer the atmosphere at the Seneca casinos where they can smoke cigarettes while gambling and avail themselves of free alcoholic drinks. In Canada, the law requires all indoor spaces including casinos to be smoke free and the distribution of free alcohol is prohibited.

The dispute between the Seneca Nation and the state went to binding arbitration where by a 2-1 count the arbitrators told the Seneca Indians they were in violation of the compact.

"To conclude otherwise and interpret 'renew' to mean that the Nation gets exclusivity without sharing revenue would render several provisions of the compact meaningless, ignore the purpose of the parties’ agreement, challenge common sense and produce a commercially unreasonable result," the arbitration ruling stated.

I spoke with Gene Johnson, Executive Vice President at Victor-Strategies, a policy and advisory group focusing on Indian rights, who explained why he believed the Seneca Nation had a viable case and why he believed the state did not negotiate a new compact because they effectively wanted to get rid of the compact altogether to allow for competition.

"The Upstate NY Gaming Economic Development Act which passed the legislature in 2013 (the amended compact) was supposed to affirm the exclusivity of Indian gaming zones. In reality the selection process was engineered to insert commercial casino competition.  The so called "Southern Tier Region" resembled the state of Idaho and the commercial casino bid that was eventually selected, del Lago, was in Troy, NY, situated in the long peninsula reaching to the shores of Lake Ontario.  This put the casino squarely between the Seneca and Oneida gaming zones and in a position to directly compete with them (75 miles away from Turning Stone).  The size and scale of the property was excessive for the regional demographics and gaming revenue has not come close to the rosy estimates.  The Casino Location Board, in approving the bid, was assured that the property would generate $263 million in its first year, but the casino, which opened in February 2017, only produced $149 million in revenue during 2018.  The operator has complained to the state, petitioned the governor for a tax break and blamed the Indians for competing aggressively for regional gaming business.  

Tribal government gaming operators in New York State cannot be blamed for taking offense at the actions of the legislature and administration during the commercial casino selection process.  The Oneida responded by constructing the Yellow Brick Road mini-casinos between their Turning Stone property and del Lago.  The Seneca took a close look at the 7-year extension to their initial 2002 agreement with the state and found no requirement to continue payments to the state after the original 14-year agreement expired.  Arbitration apparently agrees with the state, but the issue will most likely be decided in the courts.  Bottom line is that the state violated the spirit of their tribal gaming agreements which promise exclusivity by allowing nearby commercial competition in the New York casino market."    

As Johnson mentioned, even though the arbitrators agreed with the state, the Seneca Nation seemed to hint that they will battle this in the courts, since they believe the arbitrators were not considering all the facts and may have been biased. The Seneca Nation even set up a website senecagamingtruth.com where they have highlighted their arguments, indicating that they have given $1.4 billion to the state since the start of the compact, believing that is enough and listing articles from the Buffalo News and other newspapers which seem to show that the motives of the state are at odds with the Seneca Nation and that most of the decisions being made are strictly political without regard to economic development and to the well-being of the host cities.

No doubt when hearing the Seneca case, the courts will also have to address the Indian Gaming Regulatory Act (IGRA) and determine if it is in the best interests of both the state and the Tribe. And this won’t be the first time the flaws and inconsistencies in the IGRA will be discussed.

The IGRA was a federal law enacted in 1988 to provide Indian Nations the right to offer casino gambling tax-free (provided state laws permit casino gambling) as a way of encouraging economic development on tribal lands, self-sufficiency and hopefully to decrease the amount of subsidies required from the states. The law distinguishes between Class I gambling (charity gambling), Class II gambling (bingo and lotteries) and Class III gambling (casinos), and it mandates that if Indians want to run Class III gambling on their lands, they must come to an agreement (i.e. compact) with the state on various issues, including revenue sharing and it must be approved federally by the Department of the Interior. The latter measure was put in place to ensure that the federal government’s concerns around money laundering, terrorism, etc. are addressed and to date the Department of the Interior has rejected very few compacts. When devising the law, the federal legislators had to balance the desire of states to control all gambling that occurs within its borders and the Indian tribes who wanted the right to run gambling from their reserves in a manner they liked, without state interference. And for both sides the ultimate goal of course was to maximize profits.

The courts decided that the IGRA was a way to satisfy both sides, but as most would expect, in many cases it satisfied neither side. In some less populus states like the Dakotas, Alaska, Nebraska and Montana the IGRA is working well, since there is no real desire to run casinos by anyone other than the Tribal groups. But, in states like Florida, California, Michigan and New York it is indeed an issue, since there is a large population and huge demand for all forms of gambling. And commercial casinos often see Indian gambling as an unfair competitor, since they offer games tax-free and can thus often offer better odds. The tribes generally believe that what happens on their lands is none of the state’s business and in many instances the tribes also are in dispute as to what is "Indian lands."

For example, in 2010 the Bay Mills Indians opened a casino in Vanderbilt, Michigan with proceeds of a claim under the Michigan Indians Land Claims Settlement Act. The state went to court to try and shut down the casino since Vanderbilt was not Indian lands, but the Tribe said that it was Indian lands because any property obtained from the sale under the Settlement Act is automatically held as Indian land. Moreover, they argued that Vanderbilt is indeed Indian land because, under an agreement in 1836, the property belonged to the Indians. The state said it was hogwash and even appealed to the U.S. Supreme Court to get a ruling, but SCOTUS said that the state had no standing to sue the Bay Mills Indians due to sovereign immunity dictated under the IGRA. So, in better words, even if it was not on Indian lands the state has no right to sue a tribe for gambling breaches. The casino in the meantime has not reopened, but now the Saginaw Indians have weighed in as well and said they don’t want the casino in Vanderbilt, also suggesting that is their lands. So needless to say, it’s a mess and there is a lot of infighting between states and Indian groups as well as fighting between Indian groups over issues like boundaries, fair distribution of profits and the obligations of both sides in the areas of security and policing.

Not all tribes agree on gambling

In California especially, there are quite a bit of tribal disputes, as some tribes want to run casinos to generate profits, but many other neighboring tribes don’t believe in gambling and resent all the traffic close to their reservations because of the casinos, plus they may have moral objections. As one analyst told me, it’s like the far side cartoon where the nursery day care center is next door to the dingo farm and the caption reads "trouble brewing." And while the IGRA deals with compacts, it does not deal with moral objections. The law says that if a state does not permit gambling (e.g. Utah), then tribes can not run gambling in the state. But nowhere does it address what happens if neighboring tribes don’t permit gambling.

But perhaps the most obvious example that illustrates the animosity between parties in the IGRA is in Florida. Under terms of a compact signed in 2010 the Seminole Indians had the exclusive rights to all slot machines outside of Miami-Dade and Broward County and the exclusive right to card games in the state until 2015. While the Governor at the time, Rick Scott approved of the compact, he seemed to be the only one in government who did. The Senate and House seemed very unhappy with the compact and did not want it renewed, so when it ran out in 2015 the Senate and House legislators threatened to send in the police to close down the Indian casinos and put up state sponsored casinos in its place. But in return, the Seminole Tribe said they would not only continue operating their casinos, but threatened to stop paying money to the state because they said the state violated the terms of the compact. According to the Seminoles, the racetracks in Tampa Bay put up video machines where one could play card games like blackjack or baccarat and they also allowed player banked card games where the players at the table were gambling against an individual designated as “the bank” making it a player vs. player game (which was permitted under the compact) instead of playing against the house. The Seminoles went to court and the courts agreed saying they were clearly in violation of the compact and thus allowed the Seminoles to continue operating as is. In 2018 the Seminoles and state of Florida came to an agreement for the next year, but with Rick Scott leaving as governor what will happen next is anyone’s guess.

So, the Seneca Indian case is just one more example of the failings of the IGRA. Make no mistake, the act has been applauded for forcing states and tribes to work closely together and to help build bridges. But as is the case with most federal laws, the ambiguity in the text of the law, the lack of direction and the incompleteness of the whole legislation, along with the inability of courts to make concrete decisions has created a situation where the IGRA is in desperate need of an overhaul. Of course, even if that occurs . . . there will be conflict.

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