Ruling May Let Tribes Offer Slot Machines

In a ruling that may throw California wide open to Las Vegas-style casino gambling on Native American lands, a state appeals court has ruled that the state Lottery keno game’s Quick Pick feature is the legal equivalent of a slot machine--a decision that may mean the state cannot bar Indian tribes from operating their own slots.

The unanimous ruling by the state 2nd District Court of Appeal in Los Angeles, issued without fanfare March 17, steps up the pressure on Gov. Pete Wilson to negotiate agreements with California tribes that would significantly expand the range of gaming activities they may offer.

Wilson has steadfastly refused to accommodate any further growth of gaming in the state. As recently as Sept. 30, in a bluntly worded message to the Legislature, he said: “I remain emphatically opposed to the proliferation of casino gaming in this state.” State officials are expected to ask the court to reconsider its ruling--a step that virtually never succeeds--and then appeal to the state Supreme Court.

The ruling has broad economic, political and social ramifications for California and the West.

Sentiment is already growing within the Legislature for some expansion of gambling in California. Assembly Speaker Willie Brown (D-San Francisco) openly favors the establishment of full-scale casinos. Other proposals making their way through the legislative pipeline include one to strengthen oversight of the state’s 256 legal card clubs and others that would open California’s non-Indian gaming market to experienced casino companies with operations in other states.

The court ruling is almost certain to complicate efforts to stem the proliferation of illicit slot machines in California’s Indian casinos. About 8,000 slots are operating in about 20 locations, and state and local officials have been waging a losing cat-and-mouse game aimed at intercepting the machines as they are transported from manufacturers to reservations. The ruling could sap enforcement efforts.

Moreover, an expansion of tribal gaming in the state could cut deeply into the casino business in Las Vegas, Reno, Lake Tahoe and Laughlin, Nev., where California residents represent as much as 30% of the market. Concerned about the possible market drain and eager to position themselves in potentially lucrative California locales, several top casino operators--including Caesars World and Harrah’s--have entered into joint ventures with California tribes to develop casinos.

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Many of these projects have been designed on the assumption that the remaining barriers to full-scale casino gambling in California will come down. California’s newest casino--opened last month in Indio by the Twentynine Palms Indian band in conjunction with Elsinore Corp., a Las Vegas casino operator--was constructed with wiring for slot machines, but without the machines.

Hooking up the slot machines would take no longer than “a couple of weeks,” James White, Elsinore’s chief financial officer, said Tuesday.

“Once this state opens up, this is a tremendous market,” said I. Nelson Rose, a prominent gaming attorney in Los Angeles who is a minority investor in the Indio casino. “If there are already 8,000 machines operating illegally, you could have a market for 50,000 machines legally.”

At issue in the Court of Appeal’s ruling was a 1993 lawsuit brought against the California State Lottery by an association of thoroughbred horse trainers and a company that operates several pachinko parlors in the state.

The horsemen contended that the lottery’s keno game terminals, through which customers place wagers at retail locations, are slot machines and thus illegal under California law. In keno, a player selects up to 20 numbers from 1 to 80, hoping to match them against numbers drawn by state lottery computers in Sacramento every five minutes. Keno accounted for about $392 million of the lottery’s total revenue of $1.93 billion in 1994.

The court found that the keno game’s Quick Pick feature, in which the computer selects random numbers for the player, is the equivalent of slot machine play. But it also held that the state’s 1984 lottery act, which specifically legalized keno, supersedes any other state law.

Thus, it said, in this case the machines are legal.

“This is a major, significant change in state law,” said Deputy Atty. Gen. Manuel M. Medeiros, who represented the state lottery in the lawsuit. “It’s the first time a court opinion has allowed slot machines in California” since the machines were banned by law in 1911.

The decision’s impact is made more far-reaching by the provisions of the federal Indian Gaming Regulation Act of 1988.

That law says a state must allow Indian tribes within its borders to conduct any gambling activities that are otherwise legal within the state. The law empowers the states to negotiate compacts, or written agreements, with the tribes governing how their games will be regulated, how revenues will be distributed and other such issues.

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The more than 20 California tribes interested in running casinos have maintained for years that Wilson has improperly refused to negotiate such compacts with them. The tribes complain that the governor’s position has deprived them of their rights, because even if the courts rule that slot machines must be permitted, they cannot be installed until a compact is reached.

“The tribes are pretty frustrated right now,” said Jerome L. Levine, a Los Angeles lawyer who represented the California-Nevada Indian Gaming Assn. before the Court of Appeal. “They feel the ball really is in the governor’s court, and he has refused to meet with them or allow negotiations.”

Thus far, Indian tribes have legally been permitted to offer only bingo, poker and other minor games of chance in California. They specifically have been prohibited from offering slot machines or so-called “banking” games, in which the player pits his or her money against the house, as in a Nevada-style blackjack game.

Some legal authorities maintain that the Court of Appeal’s ruling may also open California tribal lands to banking games. Although the thoroughbred trainers argued that the state lottery was a banking game, the court did not specifically rule on that issue.

Still, the ruling has state officials scurrying for ways to fend off its broader implications.

Failing a successful appeal by the state, the only course available to foes of expanded gambling may be to remove keno, or at least the Quick Pick option, from the lottery’s offerings.

Stripping authorization of keno or Quick Pick from the 1984 lottery act would require a two-thirds vote of each house of the state Legislature. Indeed, some legal analysts argue that such a change may have to be placed before the voters in a statewide referendum, because the lottery--including a specific reference to keno--was legalized by voter initiative as Proposition 37 in 1984.

In any event, some legal observers say the court ruling may make it harder for Wilson to hold back the tide of expanded gambling in California.

He “will undoubtedly try to stall,” Rose wrote in a recent newsletter. “Unfortunately for him, most of his major defenses have already been blown away.”