6 Myths About Tribal Gaming in the USA

Tribal gaming in the United States began developing in the 1970s, though (of course) games of chance existed among Native American cultures long before.

The Seminole tribe of Florida became the first to open high-stakes gaming on a reservation. In 1975, under the leadership of Howard Tommie, the Seminoles installed high-stake bingo operations.

Since then, 240 tribes have followed suit, opening and operating over 470 gaming operations.  Collectively, tribal gaming is the primary revenue maker in American gaming, eclipsing Nevada and New Jersey combined in annual revenues.

In 2015, 474 tribal gaming operations accrued revenues of $29.9 billion, up 1.5% from the previous year.  Thirty-one, or 6.5%, of these operations accounted for 45% of total revenue ($13.4 billion).

Over the past several years, there has been a noticeable increase in total revenues generated by fewer, and larger, operations.

Tribal gaming revenues contributed 43% of all legalized commercial gaming revenues in the United States in 2012.  US commercial gaming generated $37.3 million.  Tribal gaming generated $27.9 million.

This article will focus on tribal gaming in the United States by exploring six of the most common myths and realities.

MYTH #1: Indian Gaming is a Benefit Program Created by the Government for Indians.

This misperception may arise from the legal debates that developed around reservation gaming.

Chronic poverty has long been a reality of American tribal reservations.  Tribes, such as the Florida Seminole and the Cabazon in California, saw gaming as a last attempt to create income.

These pioneering attempts were immediately thwarted by state political powers and the private interests they represented. The Cabazon and Seminole were forced to exact lawsuits against the respective state governments.  Both tribes won in court.

These victories led to modifications in state and federal legislature which would allow gaming to occur unmolested on tribal reservations. Specifically, tribal gaming came under the jurisdiction of federal law.  Individual states no longer had a voice.

A 1988 ruling by Congress enacted the Indian Gaming Regulatory Act (IGRA).  The IGRA is sometimes seen as a government benefit program designed to create income opportunities for selected reservations.

But tribal gaming had been in place over a decade before the creation of the IGRA.  The IGRA was a compromise reached by the government with both gaming tribes and the interests of the US commercial gaming empire.

This control took the form of government regulations, which included the creation of classes to distinguish between modes of tribal gaming.

Indian country did not support the IGRA.

Those not familiar with the finer details and history of tribal gaming may mistake the IGRA as a government-led initiative that either planted the notion or permitted gaming on reservations.

But tribal gaming was a tribe-led initiative, ratified in the US court system.  The subsequent IGRA was a treaty of sorts that was superimposed on tribal sovereignty.

MYTH #2: Revenues from Tribal Gaming are not Taxable.

This myth likely stems from the unique governing relationship that the more than 500 native tribes have with the US government.  Legally, American tribal communities are sovereign nations.  As such, they are not bound to certain American tax laws.

American tribal individuals are required to pay federal taxes on income and capital gains.  They are not required to pay taxes on moneys earned from land allotment.  Neither do they pay state or corporate licensing fees, individually or collectively, on revenues generated on reservations.

But revenue earned off reservations is taxable per normal American tax laws.

Therefore, there is some truth to this myth.  Because they operate on tribal land, tribal casinos are exempt from paying corporate income tax.

Also, certain tribal governments have the power to extract taxes, including sales tax, on all financial transactions under their jurisdiction.  As such, some reservations experience more taxation than others.

The myth of non-taxability of tribal gaming revenues is sometimes associated with a narrower perception that considers reservations as tax-drains and pools of corruption.

The reality is more complex.  Though exempt from income taxes, tribal casinos do indirectly contribute to federal coppers, in significant ways.

For example, in 2013, tribal gaming contributed over $13.6 million to various levels of government.  This took place through compact and service agreements and certain state taxes.

Tribal casinos also generate taxable economies – for example, employees and businesses that do business with casinos pay taxes.

Furthermore, tribal governments made over $100 million in charitable contributions to other tribes, neighboring state and local governments and non-profit and private organizations.  Thus, tribal gaming was directly responsible for the saving of thousands of jobs in effected jurisdictions.

MYTH #3: Indian Gaming is Commercial, For-Profit Gaming.

On the surface, and in operations, there appear to be many similarities between tribal gaming and its commercial cousin.

The largest tribal casino is the Potawatomi Bingo Casino, located in Milwaukee, Wisconsin.  At 780,000 square feet, this casino is the largest employer in Milwaukee Country. Housing 3,100 slot machines, the Potawatomi hosts over 4 million visitors annually.

Another impressive and legendary tribal-run casino is the Foxwoods Resort Casino, in Ledyard, Connecticut, on the Mashantucket Pequot Indian reservation.

Home to 6 casinos, the entire resort boasts an area of 9,000,000 square feet.  Inside, the gaming visitor has access to over 380 gaming tables dedicated to blackjack, roulette, craps and poker.  There are over 4,700 slot machines and bingo halls accommodating 5,000 players.

Onsite amenities at the Foxwoods include restaurants, including a Hard Rock Café, 2,266 hotel rooms and a two-story arcade for children and teens.

Even with these two examples, you can see that the casinos found on reservations are in no way second class to those operated in Nevada or New Jersey.  They are mammoth and exquisite operations that offer all the services and entertainments – not to mention the games – that gamblers have come to expect in casino hotspots around the globe.

You might assume, based on these impressions, that tribal casinos are commercial operations, comparable to those found on the Las Vegas Strip or near the boardwalk in Atlantic City.

Yet, there are real differences between tribal and commercial casinos.  These differences range from ownership and operations to dispersion of revenues and profits.

By the Community and for the Community

Unlike commercial casinos, tribal casinos are community owned and operated.  Using the Foxwoods as an example, gaming began in 1986, when Malaysian casino entrepreneur, Lim Goh Tong, opened a bingo hall.

The Mashantucket Pequot tribe took over operations in 1992, and expanded the hall into the massive gaming resort the Foxwoods has become.

Since casinos are owned and run by the tribe, the casino is used to generate profits for tribal members and programs.  Due to the nature of the tax laws tribal casinos operate under, most of the revenues are paid directly by the casino.

Location

Tribal casinos are restricted to reservations.  Since roughly 200 of the 550-plus legally recognized tribes in the United States do not, in fact, possess their own land, not every tribe has potential for opening its own gaming operations.

Theoretically, US commercial casinos may open a casino anywhere permitted by state law.  Reservations account for just 2.5% of total dry land area in the US.  Therefore, reservation casinos are more limited in location potential than their commercial counterparts.

Return to Player

It is common among states that allow legalized gambling for there to be state-directed monitoring of licensed casino’s return to player averages.  The return to player (RTP) is the average percentage of moneys gambled that turn into winnings.

Typically, the RTP can be as high as 95% or more, depending on the game and location.

Some tribal casinos are not required by their corresponding state to report RTP figures.  In this way, they are different from commercial casinos.

But tribal casinos do have reputations to maintain, particularly in this information-laden society where word gets around quick.  And there have been rare occasions in which a tribal government has closed a casino that was not generating sufficient RTP.

Tax

US commercial casinos and gaming operations are susceptible to revenue taxation.  Indeed, the primary argument used by pro-gaming governments typically hinges on the ability for taxes generated by commercial casinos to boost social programs and spending dramatically.

US commercial casinos pay over $38 billion annually to local, state and federal governments.

Tribal casinos, though, are not under US corporate income tax laws and therefore do not pay tax on gaming revenues.

But they are expected to pay tax on revenues accrued from off-site visitors.

These tax laws reflect the legal sovereignty status of Native tribes in the United States.

You can take from this that, from the visitor perspective, there are little practical differences between what one might expect from a commercial or reservation casino experience.

It is what happens with the money after it enters reservation coffers that accounts for the major differences.

MYTH #4: Tribal Gaming is not Regulated.

The regulation of tribal gaming is overseen by the Indian Gaming Regulatory Act, signed into effect by Ronald Reagan in 1988.  The IGRA monitors the spending of gaming revenues in 5 specific areas:

1. To fund tribal government operations or programs.
2. To provide for the general welfare of the tribe and its members.
3. To promote tribal economic development.
4. To donate to charitable organizations.
5. To help fund operations of local government agencies providing services to tribes.

The myth of non-regulation may stem from various social perspectives on reservation realities. Yet, one source of confusion may involve the various tiers or “classes” of which Indian gaming operations may fall under.

There are 3 classes of Indian gaming, as prescribed by the IGRA.

Class I refers to social gaming, which typically involve celebrations and other cultural events.

Class II refers to bingo, pull tabs and other non-bankcard games.

Both Classes I and II completely fall under the jurisdiction and governance of the respective tribal government.  But Class II may also involve some oversight by the National Indian Gaming Commission (NIGC).

The games that fall under these classes are except from federal casino regulation standards.

Class III games are the games that do not fall under the other two classes.  Class III games typically involve bankcard games (blackjack) and slot machines and, essentially, all gaming typically located in casinos (roulette, poker etc).  Class III games are regulated by the IGRA.

(You can read more about the differences between Class II and Class III slot machines here.)

The nature and content of such regulation of Class III games depends on the content of the tribal-state compact between the tribe and associated state.  But stringency is typically a feature of such compacts.

The extent of regulation that reservation gaming falls under is not limited to the IGRA.

Tribal governments, Congress, the Interior Department plus the NIGC and individual tribal-state compacts all take active regulatory responsibilities that pertain directly to gaming operations and the distribution of revenues from same.

Indian gaming is also under the potential jurisdictions of law enforcement agencies, including the IRS and FBI.

Due to the nature of these governing organizations it is safe to suggest that most if not all of the focus of governmental regulation is on the Class III games.

MYTH #5: Tribal Gaming Has Made all Native Americans Wealthy, and the Economic Benefits of Tribal Gaming Have Had Little to No Real Effect for Most Tribal Members.

Big payouts and big numbers are eye-catchers and therefore the darling of common, popular media.  Nowhere is this truer than in the otherwise obscure subculture of gambling.

Tens of thousands of slot machines are played, and won on, every day by visitors to American casinos.  Yet a payout in the seven figures will be sure to create headlines and talking points nation-wide.

The same is true with tribal gaming.

Here’s an example:

Take the Shakopee Mdewakanton Tribe, in Minnesota.

The Shakopee reservation has a population of approximately 460 Native Americans.  The tribe owns and operates 2 casinos – Mystic Lake and the Little Six Casino.  Gaming revenues from these two sites are near $1.4 billion, annually.

The payout to individual members is reported at over $1 million.  Perhaps needless-to-say, the employment rate on the reservation is below 1%.

The Mystic Lake Casino Hotel is built on a man-made lake and is the 4^th largest casino in Indian Country.

Per figures which were made known during a divorce proceeding of tribal members, monthly payouts reach $84, 000 per member.

The healthy endowment from gaming has enabled the tribe to act as generous contributors to local state and tribal governments.  Since 1996, the Shakopee tribe has donated over $243 million and has lent out over $500 million.

Another example of extreme riches is the Florida Seminoles.  Not only one of the first tribes to develop high-stakes reservation gaming, the Seminoles are one of the first to become a bullish corporation.

The tribe made headlines in 2006 when it purchased the Hard Rock Café chain from Rank Group PLC for $965 million.  The deal included the 120 Café sites, 4 Hard Rock Café Hotels and 2 Hard Rock Live! Concert venues.  Not to mention historical, rock-related memorabilia.

The collection of rock memorabilia includes 70, 000 individual pieces and is considered to be the largest in the world.

Figures from the late 1990s indicated that each of the 2000-2500 Seminole tribe members typically received $18,000 annually from casino earnings.  Thus, a family of four would receive $72,000 in payouts, plus whatever individual incomes provided.

Yet, while these numbers are impressive, and certainly paint a picture of prosperity and solved economics, the reality is not uniform across Indian country.

A new study by the Indian Gaming Law Journal shows different realities, even for those tribes that operate flourishing gaming facilities.

Per the study, 59% of tribes that experienced an increase in poverty between 2000 and 2010 were those that gave payouts directly to members from casino revenues.  This compared to 29% of tribes that did not.

In other words, over half of the tribes that benefitted from casino riches experienced an increase in reservation poverty.

This is not to say that the payouts from respective casinos are meager or inadequate.  There is a social impact.  They can remove the motivation to gain work-related skills. When such jobs become available they sometimes go unstaffed because members can cover living expenses without working.

Gaming tribes that have succeeded the most in curtailing or eliminating unemployment on their reservations have invested casino revenues into business ventures, rather than direct payments.

The Jamestown S’Klallam in northern Washington state eliminated poverty entirely by investing revenues into business diversity.  For example, the tribe harvests huge molluscs for export to Chinese markets.

Other tribes invested in manufacturing and harvesting to put significant dents into local unemployment.

Some tribes saw casino earnings double over the time frame in the study, reaching an annual take, in real dollars, of $2.7 billion.  Yet, simultaneously, the mean poverty rates of these same tribes climbed from 25% to 29%.

One tribe, the Siletz, saw poverty rates jump from 21% to over 37%.

Still, for tribal governments raking in hundreds of millions of dollars annually from successful casinos, direct payments are difficult to cut.  Alternative plans require time, sound strategy and skill to bring into fruition.

It is easier to hand out.

And, sadly ironic is the fact that, reservation members may feel that, after over 100 years of hell at the hands of the European and American invaders, they are long overdue for payout and compensation of the kind that allows them to take life easy.

The irony is that these newfound riches may, once again, be contributing to the destruction and decimation of their societies and cultures.

MYTH #6: North American Indians Lack Business Acumen and are Sitting Ducks for Organized Crime.

The question as to whether tribal gaming could be, and is, vulnerable to manipulation or control from organized crime seems odd.

How on earth would tribal gaming not be coveted by organized crime?

Organized crime flourishes most in neighborhoods and regions that are economically depressed.  Often, in areas such afflicted, economic depression has been generational.  There has been a noticeable erosion of communities and the families therein.

Data on exactly how much revenue is generated from illicit street drugs is scarce and estimates are broad.  Some estimates suggest that approximately $200 billion to $750 billion annually is generated through illegal drugs.

In 2012, the British bank HSBC was fined $2 billion by the American government for laundering cartel money.

These are realities in broader society.

Money laundering is also a common concern for American regulatory and law enforcement bodies overseeing the US commercial casino industry.

Given just these few facts about the world, what exempts tribal casinos, individually and as an industry, from those same forces and realities?

US president Donald Trump is on record in the 1990s for stating his opinion that Indian reservations were ripe with organized crime and therefore threatened the mainstream gaming industry in the US.

Of course, Trump was speaking as someone himself heavily invested in Atlantic City casinos.

You also have examples from Canada, who has a rampant epidemic of organized crime running wild on reservations.

Canadian chapters of 1% biker gangs, like the Hells Angels, compete with other 1%’ers for a wide range of illicit activity.  Often, provincial and federal governments and ministers are afraid to involve themselves in reservation issues, afraid to be tarnished as meddlers.

Given the state of poverty and other chronic social maladies that have plagued many US reservations over many decades, it would seem there would be at least some opportunity for organized crime of a certain type to at least attempt to gain footholds in the tribal gaming industry.

Per FBI records, there is only one known case of an attempted infiltration by elements of organized crime of an American tribal casino.

In 2002, the Seminole tribe in Florida had their application to run a gambling hall in Hollywood, Florida rejected by the NIGC because too many shareholders could not pass criminal background checks.

Florida regulators and law enforcement knew for years that the tribe’s gaming interests were infiltrated by mafia, though they could not provide essential proof.  The infiltration included ties with the New York Genovese and Pittsburgh Larocca crime families.

These and many other cases are outlined in a study titled Final Project Native American Reservations and Organized Crime by John Lemon, SMSgt USAFR.  It is available freely online.

As with broader social demographics, data and evidence are scarce when attempting to measure what effect, if any, organized crime plays in tribal casinos.

But all is not lost, and revenue data shows some interesting patterns which may at least raise questions which require answers.  One potential area of interest is in the consistency of tribal gaming revenues reported over the past 10, recession-hit, years.

During and immediately following 2007-2008, many US businesses and industries suffered financial setbacks as the global financial markets crashed and burned.  The US casino and gaming industry was no different.

Data over that timeframe shows serious declines in revenue for US mainstream casinos.  It would be over several years before US commercial casinos would report revenues matching pre-recession figures.

But the tribal casino industry did not suffer the same pattern of decline.  In fact, outside of a trivial dip immediately following 2008, Indian gaming continued the established trend of modest but consistent growth each year of the recession.  Each year was a record year for revenue.

The obvious question is – how did Indian gaming escape the fate experienced by their commercial casino counterparts?

Conclusion

Tribal gaming grew up in the era of casino gaming as a popular and acceptable American pastime.  It was and remains perceived as a viable means for tribes to eradicate chronic social hazards, like poverty, on their reservations.

Tribal gaming has been a considerable success.  As is common with success stories, it has attracted enemies and misconceptions.  Both are threats not only to tribal gaming as an industry, but also to its ability to truly be a transformative force.

Tax breaks provide more profitability for casinos but also increase the likelihood for certain types of corruption.

Casino riches do trickle down to individual tribal members, sometimes outlandishly so.  Yet, even being nouveau-riche does not eliminate poverty and accompanying social and individual ills.  In fact, new riches can exacerbate same.

Tribal casinos are owned and operated by tribes and therefore their legal conditions differ significantly with those of commercial casinos.

But, as with any industry where large amounts of money are generated, tribal gaming faces challenges in managing its operations in ways that are above board and free from the tactics long associated with organized crime.