Who Would Be Winners, Losers if Prop. 5 Passes?

Californians are being whipsawed by a barrage of competing television commercials over Proposition 5--sometimes pitting Native Americans against one another in a costly battle to shape the future of gambling in the state.

For all the passionate debate over the Indian gaming initiative--with such popular buzz phrases as Indian sovereignty and Indian self-sufficiency--the vote’s outcome will not have an immediate impact on many Californians. But it will have broad, long-term implications.

If the hotly contested measure is approved on Nov. 3, lawsuits contesting its constitutionality will be filed swiftly, perhaps stalling its implementation for years. Judges might allow existing casinos to maintain the status quo in the meantime.

If Proposition 5 fails, the tribes’ only option--other than to brace for the seizure of their slot machines by federal authorities--will be to adopt Gov. Pete Wilson’s existing guidelines, which limit the type and number of gambling machines in their casinos. In the meantime, they probably would seek other avenues--perhaps a state constitutional amendment, which is more than they are seeking now--to protect their gambling halls.

Among those watching the battle most avidly are gamblers who are picky about the type of machines and table games they pump money into. Homeowners may fear a casino will be built down the street, although that would require federal and state approval, and technically could happen even if Proposition 5 is defeated. Nevada casinos already worry that slot machine enthusiasts will be sated in California, costing Vegas hundreds of millions of dollars in lost revenue. And the measure would affect how much money the California tribes make.

A central question is how closely should Indian casinos be regulated: with little state supervision, as Proposition 5 calls for, or more tightly, under guidelines already established between some tribes and the governor?

In the long run, analysts say, passage of the Indian-spawned initiative would not only spark more and larger Indian gambling halls, but also could trigger an increase in gambling off reservations.

With the measure’s approval, racetracks, card clubs and even neighborhood taverns will mount political pressure on the state Legislature to allow them to have video gaming devices as well. They are now banned by state law from having electronic gaming--which Indians are allowed, under federal law, if the state conducts it for itself. In California, tribes operate electronic games they say mirror the state Lottery.

That racetracks and other businesses will want more gambling activities for themselves, if Indian gaming spreads, is inevitable, said University of Nevada economist Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming.

“When groups are adversely affected by more competition from Indians, they’ll want a level playing field,” he said. “This scenario hasn’t confronted the California Legislature before. There is the potential for the expansion of casino-style gaming beyond Indian reservations in California. It’s a slippery slope.”

That possibility might set well with state politicians, who could then tax that new gambling revenue. Indian gambling revenue, however, is beyond their reach.

Rules and Regulations

Opponents of Proposition 5 point out that limited gambling on California’s Indian reservations is already legal, so the initiative is not necessary as a way for tribes to tap revenue.

Gov. Wilson and the Legislature saw to that earlier this year by approving casinos at 11 reservations, and more tribes can join the list if they agree to Wilson’s terms.

But 31 tribes with casinos have rejected the governor’s conditions. Because the tribes are operating casinos without state blessing, the U.S. attorney’s office has threatened to seize their electronic gaming machines, but because of ongoing litigation, that has yet to occur.

The tribes have written their own casino regulations, in the form of Proposition 5, and are asking state voters for approval. The measure attempts to force Wilson to approve compacts written unilaterally by the tribes.

If it becomes law, it would preserve the type of reservation gaming they now offer, while introducing little state regulation.

Nevada casinos have almost exclusively bankrolled the No on 5 campaign, contributing about $15 million through Sept. 30 to fight the initiative. They fear California gambling halls will sap their business.

Several gaming industry observers, including Bear, Stearns & Co. analyst Jason N. Ader, have predicted that if Proposition 5 is approved, Nevada casinos may in time lose more than $400 million a year in revenue. Nevada Gov. Bob Miller worries that casinos in his state underestimate the potential repercussions of Proposition 5.

On the flip side, it is widely held that some Nevada businesses will profit by Indian casinos--either as slot machine vendors or by managing casinos in California.

So far, the largest financial contributors to the No on 5 campaign are the Hilton Hotels Corp., Circus Circus Enterprises and Mirage Resorts, three of the biggest gaming companies in Las Vegas. Each has contributed more than $4 million to fight Proposition 5.

Mike Sloan, senior vice president of Circus Circus, acknowledges that some casino companies may join ranks with California tribal casinos if Proposition 5 wins. “They may adopt the philosophy, ‘If you can’t beat ‘em, join ‘em,’ ” he said.

Beyond the economic impact, Sloan said, Nevada casinos are concerned that “the existence of unregulated gambling in California presents a threat to the regulated gaming industry, and opens up the prospect of the wholesale legalization of casino gambling in California, which would present a problem” to Nevada.

Mark Macarro, chairman of the Pechanga tribe near Temecula and a prime spokesman for the Yes on 5 side, bristles at suggestions that Indian gaming is unregulated or would be so if the ballot measure is approved. Reservation casinos are regulated by tribal commissions, Macarro said.

The notion that Proposition 5’s approval could lead to political pressure to approve non-Indian gambling in California is, Macarro said, “a theoretical possibility, but one that we have no control over and have no interest in.”

The California tribes that operate gambling halls have poured more than $40 million into the Yes on 5 campaign. More than half of that has come from just one small tribe--the San Manuel, which operate a casino in the San Bernardino suburb of Highland. Tribal casinos generated more than $600 million in net revenue in 1997--most of it from slot machines, which they vigorously want to preserve.

Those tribes believe their armless and coinless slot machines are more attractive to gamblers, and thus more lucrative for their tribal governments, than are the hybrid lottery-based, faux-slot machines that Wilson will allow in casinos, but that have not yet been consumer-tested.

If Proposition 5 wins and survives court challenge, experts say, California should brace itself for more--and possibly huge--casinos.

“Casino companies that want to maximize their trade name and do cross-marketing will pour hundreds of millions of dollars into California,” said I. Nelson Rose, a Whittier Law School professor in Costa Mesa and a recognized expert on gambling law. “There’s no reason you won’t have--particularly in the Palm Springs area--massive casino resorts.”

There is virtually no chance, however, that Indian casinos will sprout up in areas that are not now held in reservation trust--as a No on 5 commercial has suggested.

“That commercial, with casino signs popping up like mushrooms, is complete rubbish,” said Rex Hackler, spokesman for the Bureau of Indian Affairs. “A tribe would have to get [federal] approval to bring new land into trust for gaming purposes, and that’s only happened once since the Indian Gaming Regulatory Act became law in 1988. And in that case [in Wisconsin], it was with everyone’s blessing.”

Sharing the Wealth

Many tribes may still eschew gambling because their reservations are too isolated to make it profitable, but would still profit, under either Proposition 5 or a Wilson-compact scenario.

Under Proposition 5, nongaming tribes will receive up to 2% of other tribes’ casino profit, but the total amount is not known. Under Wilson’s terms, nongaming tribes can lease their allocation of slot machines to other tribes, and earn up to $995,000 a year.

Much of the debate over Proposition 5 can be boiled down to deciding how freely tribes should be allowed to operate casinos.

The Yes on 5 side claims the issue is no less fundamental than their very sovereignty. Some have been operating casinos for 10 years without the governor’s permission--as bingo halls that later introduced video gaming devices and card games.

The No on 5 side--including some tribes that operate casinos--say Indian sovereignty allows tribes to negotiate compacts with state government in which both sides come to mutually acceptable terms.

Some of these tribes worry that if Proposition 5 wins, wholesale gambling may eventually take hold in the state, weakening their now-exclusive marketplace.

Federal law requires that Indian tribes and states strike government-to-government agreements, called compacts, that define how casinos are regulated and operated. But aside from that directive, there is little direct federal oversight of casino operations; Congress says that is for the state and tribes to determine.

If Proposition 5 wins, it will be quickly challenged as unconstitutional. Among the reasons: The measure would create a state statute, while the state Constitution--which takes precedence--bans the kinds of casinos that operate in Nevada and New Jersey. The definition of such a casino would be debated in court, and tribes would argue that, slot machines notwithstanding, their gambling halls would still not offer other Nevada casino trappings, such as roulette wheels and crap tables.

Some constitutional law experts say Proposition 5 is flawed because it dictates that the governor, as the state’s chief executive, must sign compacts with the tribes. Initiatives are intended to create law, but not mandate the governor’s executive decisions, legal experts say.

“The Legislature can’t pass a statute that would force the governor to sign something, because that is in the governor’s executive discretion,” said USC’s Erwin Chemerinsky, a constitutional law expert. “Proposition 5 attempts to similarly force the governor to sign something--a compact with a tribe--and that raises some serious separation-of-powers concerns.”

Twenty-four states have signed gambling compacts with Indian tribes--but none has been forced through the ballot box, as is being attempted in California, said the BIA’s Hackler.

The closest parallel: In Arizona, the Salt River Pima-Maricopa tribe near Scottsdale had been refused a compact by then-Gov. Fife Symington, who had signed them with other tribes. Salt River launched a “Fairness Initiative” to force the issue. It won handily in a 1996 election; Symington still refused to sign the compact, but his successor, Gov. Jane Hull, did.

How Much Regulation?

Among the many differences between Proposition 5, the gambling regulations sought by most of California’s Indian tribes, and the compacts already negotiated between Gov. Pete Wilson and 11 tribes:

Types of Video Gambling Machines

Proposition 5: The types currently in use, which do not have pull-arms or dispense coins but are still considered so similar to the ones used in Nevada that state and federal authorities deem them illegal.

Wilson’s Compacts: New-generation video machines based on the California Lottery, that are said to “look and feel” similar to the current machines, but have not yet been consumer tested.

*

Limits on Gambling Machines

Proposition 5: No limits

Wilson’s Compacts: A maximum of 975 machines at any one casino, 19,900 statewide.

*

Other Types of Games

Proposition 5: Allow video poker and video versions of such popular Las Vegas card games as blackjack.

Wilson’s Compacts: Allows neither.

*

Gambling Age

Proposition 5: 18 (same as California Lottery and racetracks)

Wilson’s Compacts: 21

*

Labor Union Representation

Proposition 5: Silent on the issue; tribes currently are not required to acknowledge or allow labor organization.

Wilson’s Compacts: Service employees are allowed to unionize, and in a labor-organizing election, the tribal government must remain neutral.

*

Customer Grievances

Proposition 5: Patrons can appeal to the casino.

Wilson’s Compacts: Dispute can be settled through outside arbitration.

Indian Jackpot

Of 104 federally-recognized Indian tribes in California, 31 operate casinos without state approval, while 11 tribes with casinos have signed compacts with the state in recent months to bring them into compliance with state law.

1. Smith River

2. Elk Valley

3. Resighini

4. Hoopa Valley

5. Trinidad*

6. Redding*

7. Pit River

8. Susanville

9. Laytonville

10. Sherwood Valley

11. Coytote Valley

12. Robinson

13. Berry Creek

14. Mooretown*

15. Hopland

16. Big Valley

17. Colusa

18. Middletown

19. Rumsey*

20. Jackson*

22. Big Pine

23. Bishop

24. Big Sandy*

25. Table Mountain*

26. Santa Rosa

27. Tule River

28. Santa Ynez

29. Chemehuevn

30. San Manuel

31. Twenty Nine Palms

32. Soboba

33. Morongo

34. Pechanga

35. Cahuilla

36. Agua Caliente

37. Cabazon

38. Pala**

39. Barona*

40. Sycuan*

41. Viejas*

42. Quechan

*Tribes that have compacts with the state of California.

**Has signed a compact with the state, but hasn’t opened a casino yet.

Source: National Indian Gambing Commission