Governor voices frustration, suggests tribal gaming fees as high as 25%
Gov. Kevin Stitt proposed Oklahoma tribal gaming fees as high as 25% Thursday as he went public with his frustrations over what he described as an unwillingness of tribes to listen to his proposals for resolving an impasse in tribal gaming compact talks.
Tribes in Connecticut, New York and Florida all pay some fees as high as 25%, Stitt said, adding he doesn't see why Oklahoma tribes should pay the state fees that are much lower.
Fees proposed by Stitt would be more than quadruple the 4-6% graduated rates Oklahoma tribes currently pay on Class III slot machine type games, and more than double the 10% rates tribes pay on table games.
Representatives of the tribes immediately challenged the reasonableness of Stitt's request.
"There's about 14 compacts out of 306 compacts that states have with tribes in this country ... that have a revenue share rate of between 20 and 25%," said Stephen Greetham, senior legal counsel for the Chickasaw Nation. "The maximum rate in our compact is 10%. That puts us among the company of 92% of the other compacts that have a rate around that or less."
More than 100 of those compacts have a rate of 0%, according to data provided by tribal officials.
Stitt insisted that a substantial rate hike is warranted.
"This affects education. This affects mental health. This affects roads and bridges," Stitt said.
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"I don't think there's any difference when we pull a slot machine in Oklahoma or you pull a slot machine in Connecticut that we should be that different in our exclusivity fees," Stitt said. "I'm asking Oklahomans to stand with me on this issue and let's sit down and have a productive conversation and get a good deal for the future of Oklahoma."
Stitt, who described himself as a proud member of the Cherokee Nation, insisted the current dispute is "not about the tribes," but about the "casino industry."
The governor reiterated the state's position that the current 15-year tribal gaming compacts expire Jan. 1, which is at odds with the tribes' position that the compacts automatically renew at that time.
An inability to resolve that disagreement to date has prevented meaningful rate negotiations.
Stitt pointed to an Oct. 28 meeting that state negotiators attended at the request of tribal leaders as an example of the unwillingness of tribes to consider state proposals.
"We were asked to talk about arbitration. We were asked to present our plan," Stitt said. "And the state was kicked out of that meeting before we could present our plan. They would not listen to our plan."
Stitt said a few days later the state received a letter from the tribes saying that arbitration was off the table with no suggestion about how to resolve the impasse.
"The fact of the matter is they have refused to communicate with me," Stitt said. "That's why I'm going directly to the Oklahoma people to let them know what's happening."
Greetham told The Oklahoman Wednesday afternoon that tribes are "willing to have a conversation on rates," but tribes believe there are better ways to generate more revenue for the state.
"What our response is going to be is we think it makes more sense to grow the base, rather than raise the rates. We think there are opportunities. There are gaming products that other markets are authorizing that we can't play here," he said.
Greetham identified sports betting as a new revenue possibility for the tribes and state that tribal leaders are anxious to explore because they create a "win-win" opportunity.
Stitt said Thursday that allowing tribes to conduct sports betting and Internet gaming is a possibility.
"At this point, everything is on the table," Stitt said. "That's designed to be part of the negotiation process."
While Stitt and tribal representatives talked publicly about rates Thursday, actual negotiations haven't gotten to that point because of the disagreement over the threshold issue of whether the current gaming compact expires Jan. 1 or will automatically renew for another 15-year term, officials said.
It's a critical issue because of the leverage it creates in the negotiation process.
Tribes contend if they agree the compacts expire, their gaming operations in Oklahoma could be halted after Jan. 1. Many tribes rely on gaming revenues to fund the bulk of their tribal services.
On the flip side, if state negotiators were to agree the compact automatically renews for 15 years, it raises the question of whether tribes could force the state to leave exclusivity rates unchanged simply by refusing to consider a request by the governor to negotiate a rate hike.
Greetham said it's not quite that simple. He noted terms of the compact give either side the right to request rate changes within 180 days of Jan. 1 and said tribes would have a legal obligation to negotiate in good faith. The state could potentially sue the tribes if state officials believed tribes were not complying with that requirement.
Matthew Morgan, chairman of the Oklahoma Indian Gaming Association, said tribes are united in their stance that the compacts automatically renew.
Greetham said he believes the state and tribes may be able to resolve the rate issue if they can get beyond the current sticking point.
"The tribes have never refused to engage with the state on a rates discussion," Greetham said. "They've just refused to allow renewal to be used as a a gambit, or a game piece, in those talks. ... There's actually a legal framework that applies to what's an appropriate revenue sharing."
The ability to absorb a rate increase would differ among tribes, Greetham said.
"I say this as (a representative of) the tribe that pays the most of any of the tribes — you've got to leave the smaller tribes alone," Greetham said. "If you're going to want to try to increase the rates, you've got to look at the tribes that have already matured their markets. That's not illegitimate. Are the tribes going to go there? I don't know."
Tribes would take great offense to any attempt to say or imply that they have somehow not been doing enough for the state, Greetham said.
When the initial compact was being discussed in 2004, the big issue was coming up with a new revenue source to save the state's horse racing industry, Greetham said, noting that has been accomplished.
"If you go back to 2004 when the state was trying to figure out how much it would make out of the revenue share provisions from tribal gaming, the amount the state projected was $55 million a year," Greetham said.
If that projection were to be adjusted for inflation, the state was expecting to receive about $850 million over the 15-year term of the initial compact, he said.
In actuality, tribes have already provided the state with nearly $1.6 billion in revenue sharing payments, or about 187% of the amount originally projected, he said.
In fiscal year 2019 alone, tribes paid the state more than $148 million in exclusivity fees, records show.
Under existing compacts, tribes pay monthly exclusivity fees based on a sliding scale for Class III electronic games, like Las Vegas-style slot machines. For the first $10 million in revenue, tribes pay 4% to the state. For the next $10 million, the payment is 5%, and for revenues in excess of $20 million, the payment is 6%. On table games, tribes pay 10% of the monthly net win.
Greetham said he believes tribes could make a case that rates should be lowered, but quickly added, "I don't think they have any interest in that. ... I don't think that's politically advisable."
What happens if the state and tribes fail to resolve their differences is unclear.
"This is going to cause extreme uncertainty if we don't have a new compact before Jan. 1, 2020," Stitt said. "There's things that the state can do. There's things that the federal government can do if you are operating Class III gaming without a contract. ... There's moves that the state could make, but that's not my wish. My wish is ... to sit down and have productive conversations and get this behind us."
Greetham said if Jan. 1 arrives without a new agreement being reached, it is the intention of the tribes to continue operating as normal. Unless there is a court order, he said he doesn't expect that to change.
"If the state ever wants to have a legit negotiation about rates and how we can support the industry in a mutually beneficial way going forward, we will be happy to go to that table," he said. "If there's going to be this continuing squabble about renewal, it's only doing damage to the relationships."