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Best of Chris Sieroty

Gaming Guru

Chris Sieroty
 

Court decision could have wide-ranging effect on tribes, casinos

25 June 2012

A lawsuit seeking closure of the tiny Gun Lake casino in Michigan could have a major effect on the nation's Indian casino market, an industry that posted $26.73 billion in revenue in 2010, according to Casino City's Indian Gaming Industry Report.

Analysts say this week's U.S. Supreme Court decision to remand the case to the U.S. Court of Appeals could make it more difficult to fund tribal casino projects or even delay some projects until the matter is settled. The $160 million resort targeted in the lawsuit is in Wayland Township, 20 miles south of Grand Rapids. It was developed and is managed by Las Vegas-based Station Casinos LLC.

"The decision has the potential to change how the federal government takes land into trust for tribes," said Steven Light, co-director of the Institute for the Study of Tribal Gaming Law and Policy at the University of North Dakota. "It's potentially a huge problem for expansion of gaming for recently recognized tribes."

Casino opponent David Patchak challenged the way the federal government took 147 acres in trust for the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, also known as the Gun Lake Tribe, so it could build a casino.

The tribe announced plans for a casino shortly after being formally recognized by the federal government in 1999.

Patchak, who opposes the development because of its land use impact, argues the land could not legally be placed in trust under the Indian Gaming Regulatory Act of 1988 because the tribe was not recognized in 1934. Light said the high court's decision "lines up with the Carcieri (versus Salazar) decision of 2009," in which the Supreme Court held that only tribes "under federal jurisdiction" in 1934 are eligible to have land taken in trust on their behalf.

The federal government's ability to make land-in-trust decisions is crucial for tribal casino operations because if the land can't be held in trust, it's ineligible for Class III gaming that includes slot machines, blackjack, craps and roulette.

In a three-page report, Michael Paladino, senior director with Fitch Ratings in New York, wrote the ruling could have several key "credit implications for the gaming" industry. It's unclear how many casinos would be affected.

He said it is likely to result in increased challenges from anti-gaming interests regarding land-into-trust decisions as it lengthens the statute of limitations on judicial review to six years from 30 days. Casino operators faced with competition from tribal operations could benefit from a longer regulatory process.

"Raising capital for Native American casino projects could become more difficult (and) expensive as investors are likely to have heightened concern about potential challenges regarding land-into-trust decision," Paladino wrote.

Station Casinos executives declined comment on the high court's decision. The gaming company developed the 76,000-square-foot Gun Lake casino and manages it through MPM Enterprises LLC, in which Station Casinos is a 50 percent partner.

The company earns an annual management fee equal to 30 percent of net income over the seven-year contract.

Paladino noted that a separate $433 million tribal casino project between Station Casinos and the Federated Indians of Graton Rancheria in Northern California is not affected by the Patchak lawsuit. The U.S. Department of the Interior's land-into-trust approval for that tribe was authorized by Congress in the Omnibus Indian Advancement Act of 2000.

A state compact that would allow the Graton Rancheria to operate the casino awaits Interior Department approval, though earth moving started Monday. The casino is on 254 acres in a affluent area of Sonoma County about 43 miles from San Francisco. Station Casinos expects construction on the 535,000-square-foot project to take 18 to 24 months. The 100,000-square-foot casino will operate up to 3,000 slot machines.

Station Casinos also has a development and management agreement with the North Fork Rancheria of Mono Indians, whose casino near Madera, Calif., was approved by federal officials last year and will be built on trust land. The deal requires Gov. Jerry Brown's support by Sept. 1 for planning to continue.

Light said it remains to be seen whether Patchak prevails in court.

"The growth of tribal gaming has been remarkable in the last 25 years," Light said. "There have been blips along the way. I wouldn't classify this as a blip. We don't know yet what will happen."