The Fight In California Over New Compacts

2007 – #6 © Copyright 2007, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLAw.com

The fight over allowing a few tribes in California to open super-casinos is not yet over. But tribes have won the biggest battles.

Under compacts negotiated by Gov. Arnold Schwarzenegger, these tribe can have up to 7,500 slot machines in two casinos. The largest casinos in Nevada have less than 4,000 slots. The state, in return, will receive up to 25% of the net gaming revenue.

The State Senate approved the compacts quickly. But the State Assembly debated the issue for months.

The major stumbling block was, and is, the unions. Under the compacts, casino workers can only organize through an election. Union leaders point to some incidents in which employers have interfered with these elections. This is, of course, illegal. But it can stall the creation of a union for years.

Union leaders want casino employees to merely sign cards to form a union.

The second issue is that the compacts were negotiated prior to an important federal court decision, knocking out almost all of the regulations by the National Indian Gaming Commission (“NIGC”) to control tribal casinos. The problem dates back to the creation of the Indian Gaming Regulatory Act (“IGRA”).

The IGRA was a comprise. Congress had to find a way to protect tribal sovereignty while allowing states to decide what forms of gambling they would permit.

The solution was to divide all gambling into three parts, each with different rules.

Class I gaming, the most harmless – mainly home poker games and traditional Indian games played at festivals – is left up to the tribes to self-regulate.

Class II, bingo and poker, is mainly regulated by the tribes, with some oversight by the NIGC. Tribes can only operate Class II games if they are in a state that permits the games. Poker in Indian casinos has to have the same hours of operation and table limits allowed by state law. Bingo, however, is broadly defined, allowing tribes to offer linked video bingo devices, which look and play a lot like slot machines.

Class III comprises the most dangerous forms of gambling – slot machines; casino banking table games, like blackjack, craps and roulette; parimutuel betting; and lotteries. These are only allowed if the tribe agrees in a compact to let the state be at least a co-regulator.

Because the tribes and states were to be the primary co-regulators of Class III gaming, the NIGC was not given much of a role.

The enormous growth of Indian casinos led to calls for greater federal governmental controls. Twelve times, Congress considered laws to amend the IGRA, to permit the NIGC to regulate Class III gaming. None of these passed, but the NIGC began to operate as if they had.

The NIGC regulations set out minimum internal control standards (“MICS”) for everything from how the games were played, to internal and external audits, down to how many employees must be involved in emptying coin buckets from slot machines.

The U.S. District Court in the District of Columbia held that, “While surely well-intentioned, the NIGC has overstepped it bounds.”

The Court found that Congress was clear in the IGRA in dividing up the sovereign powers of the states, tribes and federal government. The NIGC has no role in regulating Class III gaming.

Tribes argue that there are already regulations in place. For example, they point to the independent annual audit they have to submit to the federal government, and the co-regulation by the California Gambling Control Commission.

Opponents point to problems the Commission has had in trying to regulate tribal casinos. These include disputes over whether the Commission has to give the tribes notice before inspecting the tribes’ slot machines.

But the final argument was: If the Legislature approves the compact, the state will eventually get more than $500 million a year.

Let’s see – unions complaining about how they organize workers and some technicalities about regulation versus half a billion dollars a year.

Did anyone really think the Legislature would not approve these compacts?

On July 27, 2007, the leading casino workers’ union announced that it has teamed up with two racetracks to put initiatives on the February ballot to undo the new compacts.

Stay tuned.

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© Copyright 2007. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.