INDIAN GAMING: The challenges have never been more daunting
by Jana McKeag
July 15, 2009
Gaming is the backbone of many tribal economies and has benefited tribes beyond anyone’s wildest dreams. But as we have learned, the “best of times” have often been accompanied by the “worst of times”
“It was the best of times, it was the worst of times …” Little did we think as high school students reading the obligatory “A Tale of Two Cities” by Charles Dickens that his famous opening line would someday apply to Indian gaming.
Yes, it’s true that in many respects Indian gaming and tribal governments are experiencing “the best of times”. In the past two decades tribal gaming has grown from modest-sized bingo operations located in just a few states into a $26 billion industry. Even less than two decades ago the idea that tribal governments would be financing their services and assisting their members with revenues from gaming operations would have been considered absurd. Now gaming is the backbone of many tribal economies and has benefited tribes beyond anyone’s wildest dreams.
But as we have learned, the “best of times” have often been accompanied by the “worst of times”. In the “old days” tribes entered into often-contentious compact negotiations with states and their governors; or even worse, were confronted with governors who refused to negotiate compacts in good faith at all. And who would have ever guessed that states would extort taxes (excuse me, “revenue-sharing”) from tribes as a “negotiated” term of their compact approvals?
More recently, a number of “worst of times” scenarios have arisen to threaten both the sovereignty and livelihood of tribes: efforts by organized labor to unionize tribal casinos, the jurisdictional implications of the pending Employee Free Choice Act, the Internal Revenue Service’s ruling that health care coverage provided by tribal governments to its members may be regarded as taxable income, the U.S. Supreme Court’s ruling in Carcieri, and the prospect of revenue-strapped states enacting legislation to allow slot machines in non-Indian bars, liquor stores and racetracks.
These are most definitely critical issues. But there is one issue that could potentially undermine the underlying financial structure of the entire Indian gaming industry and which, alarmingly, appears to be largely ignored by many Indian gaming advocates. This issue is the economy and the impact of the recession.
Kristi Jackson, vice chair and CEO of Tribal Financial Advisors, a firm that deals exclusively with tribal financing and debt-related issues, recently stated: “As we enter an era of deleveraging coupled with a deep recession coupled with the relative instability of the financial services industry, tribes, through no fault of their own, are finding themselves with limited financial flexibility. … As this economy continues to remain soft and credit availability remains scarce, even to the commercial gaming industry, pressure will be mounting on tribes to address debt issues, lender concerns and the problems they will encounter in finding solutions that are satisfactory to both their business needs and the needs of their tribal governments.”
Jackson also points out that “Tribal financing opportunities will become even more difficult due to the growing risk-aversion by bank and bond investors who are much less willing to look at out-of-the-ordinary financing; the worldwide consolidation of the commercial banking industry coupled with the financial state of most commercial banks will result in fewer options for tribes to obtain financing; and the reduction or elimination by most major banks of their gaming finance departments will make financing more difficult, more expensive and more restrictive.”
And what happens if a tribal government is unable to meet its financial obligations? A recent article co-authored by former NIGC Commissioner Tom Foley with his Pace/Minnesota partner Kevin Quigley and Bill Fisher of the Gray Plant Moody law firm raised a number of questions of concern to both tribes and creditors holding substantial Indian gaming debt:
• Do U.S. bankruptcy laws apply to tribal gaming debt restructuring?
• What impact will tribal sovereignty and gaming laws have on restructuring attempts?
• How will the Indian Gaming Regulatory Act and regulations adopted by the National Indian Gaming Commission interplay with “usual” debt work-out negotiations?
• What will be the impact on tribal per capita payments to tribal members?
• How will revenue-sharing agreements under tribal-state compacts be affected?
These concerns and questions are not only challenging, they are unprecedented. But they also offer an opportunity to rethink financial structures and obligations and to rebuild them so that they are stronger and more efficient.
At the end of “A Tale of Two Cities” we find Madame DeFarge sitting in her rocking chair and knitting, knitting, knitting and watching as Paris crumbles around her, a luxury that tribal governments and tribal gaming cannot afford.
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Jana McKeag is president of Lowry Strategies and a former commissioner of the National Indian Gaming Commission. She is a member of the Cherokee Nation of Oklahoma and a graduate of Gettysburg College and Harvard University.
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