Showdown at Hand Over Indian Video Gaming Boom : Gambling: Officials target major equipment supplier and outside casino manager. Tribes insist devices are legal.

When video gambling machines started popping up in California’s Indian gambling halls in 1991, San Diego County sheriff’s officials thought they could halt use of the “electronic slots” by raiding three reservations and seizing 288 of the devices.

It was a bad bet.

Three years later, while authorities continue to insist that the machines are illegal in California, at least 16 of the state’s tribes have them. And nowhere has California’s emergence into the age of casino gambling been more evident than in San Diego County. Today, competing television ads openly tout the Las Vegas-style gambling on the same reservations raided in 1991, except that these days they feature more than 2,300 of the high-tech moneymakers--as many as the famed Mirage hotel.

The machine gambling has become so widespread--and profitable--that wagering at tribal casinos is expected to pass the $1-billion-dollar mark in the state this year.

But after three years of unbridled growth and official inaction amid a tangle of legal cases, a showdown finally appears to be at hand over the slot-type gambling--mostly pitting authorities against the tribes and their non-Indian casino managers, but also pitting factions of law enforcement against each other.

* In March, police in Los Angeles and Ventura counties seized records and computer boards from the offices of a Chatsworth business that supplies gambling machines to several tribal casinos, including the Barona Big Top here, a circus-themed addition to a bingo hall long run by the Capitan Band of Mission Indians. This one reservation now has more than a thousand of the flashing, beeping machines that offer electronic versions of poker, keno and the old classic slot game, in which players try to win “progressive” jackpots by matching three spinning symbols--diamonds, gold bars and the like.

* In May, a federal grand jury in Los Angeles indicted the outside managers of another casino, on the Morongo Reservation, on racketeering charges that carry up to 20 years in prison. The charges spotlighted the astounding economics of the machines: Federal prosecutors said the 140 installed at Morongo, a fraction of the number at some other reservations, generated $10 million in the last year--and that principals in the management firm, E. C. Investments Inc., may have skimmed millions of the take from the Palm Springs-area tribe.

* The head of the National Indian Gaming Commission, created by Congress to oversee tribal gambling, promptly said that more indictments could follow, especially of “non-Indians who are, in fact, ripping off the tribes.” Then on June 16, top representatives of the four U.S. attorney’s offices in California met in San Francisco to coordinate a campaign against the machines, which had become “of great concern to us,” said Michael J. Yamaguchi, the U.S. attorney for Northern California.

Just two weeks after the unprecedented meeting, however, the U.S. attorney in San Diego, Alan D. Bersin, announced his own agreement with the three tribes that have led the move into the machine age--an agreement far more conciliatory than the hard-line approach supported by his colleagues.

Under the June 30 pact, sealed by handshakes during a tour of the reservations, tribal leaders promised to temporarily halt expansion of their casinos. Bersin, in turn, pledged to take no action against the controversial devices pending the outcome of the tribes’ three-year court battle to force the state to accept the video gambling, now before the U.S. 9th Circuit Court of Appeals.

Bersin said Monday that even the Wilson Administration, which has steadfastly opposed the machines, should welcome the deal because the tribes agreed that if they lose in court “there would be a withdrawal” of the devices.

“The point is we’re talking about very extensive operations,” he said. “To the same extent one would not shut down the business of a defense contractor pending final adjudication, nor should we in this context.”

But while the local pact was applauded by tribal leaders, it enraged other law enforcement officials around the state, along with Anthony J. Hope, the Washington-based chairman of the National Indian Gaming Commission, the top regulator in the field. He accused Bersin of naively “endorsing . . . illegal gambling” for years to come by taking a hands-off stance while drawn-out appeals of tribal lawsuits are argued to the U.S. Supreme Court. “He can’t do that!” Hope declared.

Hope said Monday he may soon seek $250-a-day fines, per machine, against tribes using the devices without state approval--meaning daily sanctions of more than $250,000 for some.

Yet despite such threats, almost monthly a new tribe gets into the electronic slot business, seeking a share of the take from the gambling devices that generally earn from $100 to $400 a day. At that rate, they pay for themselves in weeks and then each brings in profits of $100,000 or more a year.

Over Memorial Day weekend, the Santa Ynez Band of Mission Indians unveiled 210 machines on its reservation in Santa Barbara County in time for the prime tourist season in adjoining Solvang. In a Northern California resort, a band of Pomo Indians is putting finishing touches on an 18,000-square-foot casino alongside sparkling Clear Lake--the third casino in remote Lake County alone, where the crowds that fish for bass each morning create the alluring promise of a new Lake Tahoe.

“For Indians, these machines bring in more revenue than anything else,” said Dan Tucker, chairman of the Sycuan Reservation outside El Cajon, which has the glitziest of the San Diego County gambling halls.

But after recent events, Tucker acknowledged, “We’re at the edge of a situation that could go either way.”

*

Although the current showplace of Indian gambling is 3,000 miles away, the industry’s explosive growth had its roots in California. A legal fight between the Cabazon band and Riverside County a decade ago produced a U.S. Supreme Court decision--and a federal law--declaring that tribes could offer high-stakes versions of any gambling legal in their state.

The first results were cavernous bingo halls that drew thousands of customers by offering $50,000 jackpots while competitors--charity games--were limited to $250 prizes. In California, nearly 100 reservations and small rancherias also were free to offer poker and off-track betting, other forms of gambling indisputably legal here.

From the start, however, gambling promoters pushed tribes to offer more extensive wagering. After all, Las Vegas was not built on bingo but on faster-paced money-makers such as blackjack, craps . . . and slots.

Where that term used to mean the “one-armed bandits” with levers on the side and rotating reels, a new generation of machines allows players to simply touch a screen to set the lemons and other symbols spinning. Or gamblers can wager as little as 25 cents at poker machines that offer a 500-1 payoff for the top hand, a royal flush.

Guided by computer programs to dole out just enough winners to keep customers glued to their seats, such machines account for 68% of the gross in Atlantic City casinos and a remarkable 82% in Laughlin, Nev., the blue-collar gambling town on the Colorado River.

“Slot machines are easier for new gamblers to adapt to,” said William R. Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada at Reno. Lower labor cost “also is a very important part. . . .”

“The point is that if you have the option to introduce slot machines, you’re certainly going to do so.”

But in many states, such as California, laws explicitly ban casino gambling. As a result, a legal cat-and-mouse game began in 1991 at the onset of negotiations of compacts between tribes and the state called for under the federal Indian Gaming Regulatory Act. Atty. Gen. Dan Lungren said he would never agree to the use of the machines. Some tribes began using them anyway.

That October, a San Diego County sheriff’s task force raided the Sycuan, Barona and Viejas reservations and seized the 288 machines. Similar raids were staged in Lake and Fresno counties.

A torrent of litigation followed: U.S. District Judge Marilyn Huff refused to return the machines to the San Diego reservations, but said the raids were improper because only federal authorities had criminal jurisdiction over tribal gambling. Federal prosecutors, however, were not ready to join the crackdown--they wanted guidance from the fledgling National Indian Gaming Commission.

By the time the Washington-based commission came out against the use of machines without state approval, California’s tribes were back in court to force Sacramento’s hand. They argued that technology used in the California Lottery’s own keno game had “opened the door” for tribal use of electronic slots. In a ruling that emboldened the tribes, a federal judge in Sacramento agreed and ordered the state to negotiate in good faith with them. The state quickly appealed.

Although the legal fight is far from resolved--the 9th Circuit appellate judges are expected to issue their opinion any day now--many of the state’s tribes felt vindicated. In came more machines. By the hundreds.

In a few years, they had become impossible to resist, largely because of a role model across the country, in Connecticut.

There, after a court fight and hard lobbying, the Mashantucket Pequot tribe won the full range of games for its Foxwoods Casino, in exchange for sharing 25% of the slot revenue with the state. Today, 3,051 gambling machines anchor a casino-hotel-entertainment complex.

Drawing 140,000 customers a week, Foxwoods earns more than $1 million a day from its slots, accounting for most of the $650-million profit that will make it the most successful casino in the world this year.

Although the totals are far lower in California, tribal officials at Cabazon and Viejas say machines account for 75% of their revenue.

Cabazon reports that $63 million was wagered last year at its casino in Indio. Officials will not disclose the net profit, but it was enough to fund a child care center, a museum, free housing and $60,000 payments to each of the 30 tribe members.

At the Viejas Casino & Turf Club in Alpine, 30 miles east of San Diego, the 1,000 machines generate about $100 each per day, a public relations agent said--meaning they should bring in $36 million in the next year.

Then there’s Sycuan, once a rocky square mile of wasteland outside El Cajon. Its casino handled $120 million in wagers last year, earning $11 million for the tribe, according to chairman Tucker.

With 230 machines, Sycuan is outnumbered by its San Diego County rivals, but heavy traffic means each machine earns $300 a day.

“Every other business gets to use computers and new technology,” Tucker said, “but Indian tribes haven’t been allowed the opportunity to move into the 20th-Century electronic age.”

The debate often gets mired in semantics. Tribal officials painstakingly avoid using the term slot, pointing out that the machines used here don’t pay out coins, for instance, but credits. Some machines--video pull-tabs--are downplayed as mere electronic “dispensers” of the lottery ticket-like cards sold at bingo halls.

John James, the Cabazon chairman, complained that the way state and federal officials look at it, “even a Coke machine is a slot machine. . . . You put money in, you get something back.”

But Hope, the federal regulator, has grown tired of what he sees as a word game--and many tribes’ flouting of the law. “I was in Barona two months ago. I saw a lot of machines. All illegal,” the commission chairman said.

Hope applauded the May 11 Morongo indictment as “heroic work” by federal prosecutors in Los Angeles at a time when some of their counterparts elsewhere are reluctant to scrutinize tribal gambling for fear they will be accused of picking on a historically abused group.

The Los Angeles team handled the sensitive prosecution by avoiding targeting the Native Americans themselves--through a raid, for instance--and instead focusing on the outside suppliers and gambling promoters who may be earning just as much, or more, from the disputed gambling. Among the allegations in this case is that the outsiders cheated the tribe in the process.

Federal prosecutors said the management firm first persuaded the Morongo tribal council to lease, rather than buy, 140 video keno, poker and “pot-o-gold” machines.

That is an arrangement sometimes preferred by tribes because they would not absorb the loss if the machines were seized. But a study by the Interior Department’s inspector general in Michigan and Wisconsin suggested that such arrangements are virtual giveaways by the tribes. It found 13 leasing contracts for video gambling machines that could have been purchased for $3.2 million--and instead were being rented for $40.3 million.

In Morongo’s case, this provided a way for the casino operators to increase their take above the 30% of the profit called for in a 1992 management contract, according to the indictment charging E. C. Investments Inc. and four individuals with illegal gambling, racketeering and money laundering.

Without telling the tribe of their personal interest, the defendants allegedly set up a company with a post office box and a bank account in Washington, D.C., to buy machines for about $5,000 each and lease them to the casino--for another 25% to 30% of the net.

With the machines taking in more than $10 million, the group received $3.3 million in lease payments between April 27, 1993, and May 1, 1994, according to the indictment.

Assistant U.S. Atty. Jonathan Shapiro said the tribe cooperated fully and that the charges were part of “an extensive and ongoing investigation,” suggesting that there may be more to come.

Already under review are records seized in March from San Fernando Valley and Ventura County locations that enabled a Chatsworth firm, SSK Game Enterprises, to supply video slots to Barona and several other tribal casinos. Hit were wood shops that made the cabinets, offices turning out computer boards and trucking firms that carted the equipment.

The operation “was having slot cabinets shipped without the computer boards installed until they arrived on Indian land to avoid violating California Penal Code statutes,” according to a search warrant affidavit filed by Los Angeles Police Detective William D. Westermann, a veteran gambling investigator.

Attorneys for SSK predicted that authorities would find no wrongdoing.

Whereas the Morongo indictment “cries out for relief . . . if you believe that these people lied to the Indians and, in effect, defrauded them,” the Valley firm had no management relationship with the tribes, said attorney Jon Artz.

Tribal leaders also called the Morongo case an anomaly.

“Give Morongo a little credit. . . . The bottom line is that the reservation caught these people,” said David Dominguez, chairman of the Santa Ynez tribe, which had hired Morongo’s management firm to open its casino Memorial Day weekend, but “terminated the contract” after the indictment.

“We’re going to be the operators,” Dominguez said, adding that the indictment did not deter the tribe from leasing--with an option to buy--210 gambling machines.

“We’re going to generate some income for this whole Valley.”

That is one point not in dispute--the machines bring in the cash.

*

To be sure, the setting of the Barona Big Top, which opened in January, will never be confused with the Vegas Strip. It is situated above San Diego’s eastern suburbs, off a winding, two-lane road that crosses open cattle country.

But when you pull up, a valet parks your car. Inside, attendants push change carts over black-and-fuschia carpeting. Other casino workers offer free beverages to gamblers. There are uniformed security guards and cameras everywhere, an ATM machine so players can replenish their funds, a cash cage, a buffet line offering reasonably good, cheap food. And everywhere, gamblers are perched on stools, feeding machines $5 and $20 bills, pushing buttons and watching the screens flash with a crazy assortment of symbols.

One of the hypnotic trappings of Las Vegas is missing--the sound of coins clanking into steel buckets. Instead, large payoffs are signaled by the click-click-click of credits registering on the payoff window of each machine, which spits out a small white ticket. A floor attendant then cashes the ticket.

The extra step hardly seemed to bother a housewife planted at a video poker machine on a recent afternoon. She had arrived with $100 and, 6 1/2 hours later, was holding $300 in fives.

“I just sit here and lose myself,” she said as she played another round of poker.

The sound resembled a machine gun as the cards came up on the screen, rat-a-tat-tatt. She got four of a kind and won another $50.

The video slots are a big winner for her and the tribe--at least for the time being.

Electronic Gambling

At least 16 California Indian reservations or rancherias feature electronic gambling machines.

Reservation or Rancheria County Number of Machines 1. Barona San Diego 1,000-plus 2. Cabazon Riverside 300 3. Chicken Ranch Tuolumne 100 4. Colusa Colusa 200 5. El-Em Lake 55 6. Jackson Amador 150 7. Morongo Riverside 140 8. Redding Shasta 200 9. Robinson Lake 230 10. Rumsey (Cache Creek) Yolo 200 11. San Manuel San Bernardino 288 12. Santa Ynez Santa Barbara 210 13. Sycuan San Diego 230 14. Table Mountain Fresno 250 15. Trinidad Humboldt 99 16. Viejas San Diego 1000

Source: Reservation officials