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Gambling and the Law®:

Californians Will Vote, Again, on Compacts

Professor I. Nelson Rose is recognized as one of the world’s leading authorities on gaming law. An internationally known scholar, writer and public speaker, he consults and testifies as an expert witness for governments and industry. His most recent books, Internet Gaming Law and Gaming Law: Cases and Materials, are available via his website, www.GamblingAndTheLaw.com.

The voters of California are being asked to vote, once again, on Indian gaming. But unlike the prior two elections, the question is not whether tribes can have casinos. Rather, it is whether a few tribes may more than double their existing operations, creating some of the largest casinos in the world.

The political players have also changed.

California voters first approved tribal gaming at the general election on November 3, 1998. Proposition 5 was an initiative written and funded by the state's tribes. Almost all the money raised by the opposition came from Nevada casinos. Prop. 5 was approved by 62.4% of the state's voters after a $100 million campaign, the most expensive initiative campaign in American history.

But on August 23, 1999, the California Supreme Court issued a 6-1 decision, declaring Prop. 5 invalid. Citing my 1986 book, Gambling and the Law for the definition of a “casino,” the Court held Prop. 5 violated the State Constitutional prohibition on casinos.

A federal court had ruled that the existing tribal casinos had to be closed, unless there were valid compacts in place. So, the tribes quickly worked out a deal with Gov. Gray Davis, the leaders of the State Legislature and the unions to put a new issue on the ballot. Prop. 1A would amend the State Constitution, creating an exception for tribes to the Constitutional ban on casinos. Nevada gaming companies knew they would just be wasting their money trying to fight this one at the ballot box. So, in March, 2000, Californians voted, again, overwhelmingly in favor of tribal casinos.

Last fall, Gov. Arnold Schwarzenegger unexpectedly announced, immediately before the Legislature recessed for the November elections, that he had signed new compacts with five tribes. The tribes – the Morongo Band of Mission Indians, the Pechanga Band of Luiseño Indians, the Agua Caliente Band of Cahuilla Indians, the Sycuan Band of the Kumeyaay Nation and the San Manuel Band of Mission Indians – all operate casinos with up to 2,000 slot machines, earning $200 million to $425 million, or more, each. These new compacts allowed the tribes to add up to 5,500 additional slot machines, in return for sharing up to 25% of gaming revenue with the state.

So, if a tribe wanted, it could open a casino with 7,500 slot machines and an unlimited number of table games, twice as large as the largest casino in Las Vegas.

It was a brilliant political move. Schwarzenegger, a Republican up for reelection, forced the Democrats, who controlled the State Legislature, to decide who they would alienate: the politically powerful tribes or the party’s traditional allies, the state’s unions. For these compacts did not contain provisions the unions wanted that would allow casino workers to easily organize.

The unions and other opponents also claimed the compacts did not provide enough regulation. But legislators could not amend the compacts; they could only vote them up or down.

The Democrats punted. They put off the vote on approving these compacts until after the elections, on the grounds that they could not decide this important issue in only a few days.

It didn’t work – the tribes saw this as siding with the unions. They gave millions of dollars to Republican candidates, including Schwarzenegger. The Governor was reelected by such a large majority that I cannot even remember his Democratic opponent’s name.

After the election, the State Senate quickly approved the compacts. But they were held up in the State Assembly for months.

The major stumbling block remained 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 issue of whether these compacts provide for adequate regulation arises from the fact that they were signed before a recent decision, that knocked out the National Indian Gaming Commission’s power to make regulations over Class III gaming. In January 1999, the NIGC promulgated regulations setting out minimum internal control standards (“MICS”) for Class II and Class III operations. These were more than 70 pages long and covered everything from how the games were played, casino security, internal controls, credit operation, internal and external audits, etc., down to how many employees must be involved in emptying coin buckets from slot machines.

Although the MICS were followed by nearly everyone for seven years, there was a small problem: the Indian Gaming Regulatory Act clearly gives the NIGC only the power to regulate Class II gaming.

The Colorado River Indian Tribes challenged the NIGC’s authority to issue MICS. In an important decision, a three-judge panel of the U.S. District Court in the District of Columbia held that, “While surely well-intentioned, the NIGC has overstepped it bounds.”

So, opponents of these compacts argued to the Democratic leaders of the California Assembly that federal regulation over Class III casinos was now gone, and the compacts did not provide for adequate state regulation to take its place.

At the end of June 2007, Assembly Speaker Fabian Nunez (D.-Los Angeles) announced that a side deal had been worked out with four of the five tribes (all except San Manuel). The tribes agreed their casinos could be audited by the state. They also promised to cooperate with state garnishment of employees’ wages for back child and spousal support, and to set up safeguards to protect problem gamblers and minors.

There was never much doubt that the State Legislature would eventually approve the compacts. The state’s share will eventually be more than $500 million a year.

Politically, the deal shows how much power the casino tribes have won in California. The side agreement did not even give lip service to protecting workers’ rights to organize as the unions wanted.

Nunez and other leaders sidestepped the question of whether these side agreements are legally enforceable. They are called “government to government memoranda of agreement.” State legislators voted on them along with the untouched compacts. But they are not part of the compacts.

On July 27, 2007, the leading casino workers’ union, UNITE HERE, and two of the state’s largest racetracks, Hollywood Park and Bay Meadows, filed papers with the state attorney general's office seeking a February 5, 2008 vote on these compacts. The groups will have to gather 443,971 valid signatures of registered voters by October 10, to qualify. Since California allows signature gatherers to be paid, it will cost only about $1 million to get this on the ballot.

Then the real battle begins.

Individual tribes in California have been known to write checks for $20 million to defeat voter initiatives they do not like. But there may be rich gaming tribes on both sides of this campaign. The four tribes who would benefit from these compacts have some very powerful tribal casinos as their direct competitors. The Pala Tribe and the United Auburn Tribe have already agreed to put up $500,000 each, which means the signature gathering is a done deal.

Also on February 5, 2008, Democrats in California will be asked to choose their candidate for President.

My guess is that more money will be spent on ads for and against the casino initiative.

END

I. NELSON ROSE

Professor I. Nelson Rose is an internationally known scholar, author and public speaker, and is recognized as one of the world's leading experts on gaming law.

Prof. Rose is best known for his internationally syndicated column and 1986 landmark book, "Gambling and the Law®." He is the co-author of Internet Gaming Law, Blackjack and the Law, and the first casebook on the subject, Gaming Law: Cases and Materials (LexisNexis). Prof. Rose is co-editor-in-chief of the Gaming Law Review.

Harvard Law School educated, Prof. Rose is a consultant to governments and industry. He has testified as an expert witness in administrative, civil and criminal cases throughout the United States, in Australia and New Zealand, including the first NAFTA tribunal on gaming issues. Prof. Rose has acted as a consultant to major law firms, international corporations, licensed casinos, Indian tribes, and local, state and national governments, including the province of Ontario, the states of Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas, and the federal governments of Canada, Mexico and the United States.

With the rising interest in gambling throughout the world, Prof. Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences. He is a Distinguished Senior Professor at Whittier Law School and has taught classes on gaming law to the F.B.I., at the University of Macau, University of Ljubljana in Slovenia, Sun Yat-sen University in China, the Universidad de Cantabria in Spain, Université de Toulouse in France, and as a Visiting Scholar for the University of Nevada-Reno's Institute for the Study of Gambling and Commercial Gaming. Prof. Rose has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, Canada, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

Prof. Rose can be reached through his website www.GamblingAndTheLaw.com.