Defeats Don’t Mean the Dealing’s Done

Gambling will continue to boom in California and rancor over the issue is sure to rise, despite voters’ overwhelming rejection Tuesday of two initiatives that would have fueled rapid casino growth, consultants, casino executives and others said Wednesday.

Representatives of card clubs and horse tracks, which tried to gain slot machines by sponsoring Proposition 68, vowed to press their agenda, even though they spent $27 million on the failed measure. Proposition 68 captured a mere 16.3% of the vote.

And a handful of Southern California Indian tribes, hoping to enlarge their 2,000-slot machine casinos, also were unbowed, even though their measure, Proposition 70, attracted only 23.9% of voters. The tribes, led by the Agua Caliente Band of Cahuilla Indians, shelled out $30.6 million for the campaign.

“We know [card rooms and tracks] are going to revisit the issue, and we’ll revisit it, too,” said Deron Marquez, chairman of the San Manuel Band of Mission Indians, one of the main funders of Proposition 70. The initiative would have allowed tribes unlimited expansion of casinos on their reservations.

Meanwhile, construction is underway on half a dozen new and enlarged casinos -- and more is in the offing.

Gov. Arnold Schwarzenegger, after making good on his promise to “demolish” Propositions 68 and 70, said Wednesday that he is negotiating with five Native American tribes that want to enter the casino business or expand existing operations. In his campaign against 68 and 70, Schwarzenegger said he alone should negotiate with tribes over their gambling businesses.

“We are going to negotiate with the Indian gaming tribes, but we’re going to do it the right way,” Schwarzenegger said at a post-election news conference.

The Republican governor has sought up to 25% of tribes’ gambling revenue. In exchange, he would permit the tribes to expand beyond the current maximum of 2,000 slot machines and maintain exclusive rights to operate Nevada-style gambling in California.

He also requires that tribes agree to other conditions aimed at protecting the environment, casino workers and customers. Several Native American bands, seeing casinos as their way to wealth, are prepared to make such concessions.

“The Schwarzenegger administration has not skipped a beat,” said attorney Rob Rosette, who represents three tribes engaged in talks with the administration and other tribes that hope to get into the casino business.

Rosette said he represents Native Americans who are seeking land for casinos, though he declined to be more specific. “There are tribes that have a legitimate claim to off-reservation land. I wouldn’t call them urban markets. But I would say they would be very nice sites.”

Card rooms and racetracks, for their part, may become more aggressive. David Townsend, the lead consultant for the Yes on 68 campaign, said executives of those enterprises are willing to negotiate with the governor and tribes toward a “global solution” that would give his clients a piece of the lucrative slot machine business. California Indian casinos generate an estimated $6 billion a year.

But Townsend also said tracks and card rooms are “prepared to engage in all levels of the political process.”

“They are prepared to fight in the courts,” he said. “They’re prepared to start working on another initiative.”

Tracks already have sued to overturn compacts struck by Schwarzenegger and five tribes this year. Under that deal, tribes won the right to unlimited expansion in exchange for financing a $1-billion state bond, to be used for transportation. Until the suit is resolved, the state could have difficulty marketing the bonds to investors.

Another front is in the Legislature. At the end of this year’s lawmaking session, lobbyists for tracks and card rooms persuaded lawmakers to block approval of the state’s first Nevada-style casino in an urban center, the Bay Area city of San Pablo.

Schwarzenegger had been prepared to allow the Lytton Band of Pomo Indians to transform a card parlor into a casino with 5,000 slot machines. The tribe agreed to pay the state as much as 25% of its casino revenue.

The governor says federal law leaves him little choice but to negotiate with Lytton, something his predecessor, Gray Davis, declined to do. Schwarzenegger has said he intends to press for approval of the project once the Legislature reconvenes next year. Some lawmakers, particularly those from the Bay Area, remain skeptical.

“I am very concerned about having gambling casinos as a major piece of the state’s economic development strategy. I think we can do better,” said Assemblywoman Loni Hancock (D-Berkeley). “No family ever gambled its way to economic security and I don’t think the state can either.”

In the view of some experts, the election results strengthened Schwarzenegger’s hand and weakened that of the card rooms, tracks and tribes that backed Propositions 68 and 70.

“This was not a defeat. This was annihilation,” said Garry South, a consultant to the consortium of tribes that raised more than $40 million to fight Proposition 68. That measure would have allowed 11 card rooms and five tracks to split 30,000 slot machines.

Tribes that backed Proposition 70 did not fare much better. The defeat was a sharp reversal of votes in 1998 and 2000, when more than 60% of Californians approved ballot measures legalizing slot machines, blackjack and other casino games on Indian reservations.

“People don’t feel obligated to give them more, more, more,” South said. “Now the state is in a pickle and it is their turn to give back.”

Tribes that backed 70 are not without options. San Manuel Chairman Marquez said his tribe has “never closed the door” on negotiations. But he added that “there is no urgency on our side.”

The tribe’s compact with the state authorizing the group’s 2,000 slot machines remains in effect until 2020, long after Schwarzenegger will be out of office. “We are fine where we sit,” Marquez said. “If the governor wants to have conversations that are meaningful, we are willing.”

Other tribes spurn the Schwarzenegger deals but still hope to expand beyond the 2,000-slot machine maximum allowed under deals struck by Davis in 1999.

One option involves installing machines that look and operate much like slot machines but, according to manufacturers and tribes that purchase them, are more akin to legal lotteries or bingo games. The manufacturers and tribes contend the devices don’t meet the definition of Nevada-style machines and cannot be regulated by the state.

Attorney Rosette predicted that the much of the expansion in coming years could involve the video lottery or bingo-like machines. His law firm has represented tribes in other states that won cases allowing them to install the video lottery devices.

It’s not clear whether such devices are legal in California. Atty. Gen. Bill Lockyer is “conducting a legal review” to determine their legality, Lockyer spokesman Nathan Barankin said. Depending on his finding, the Schwarzenegger administration could sue to have the machines declared illegal.