The National Indian Gaming Commission was warned last month that its review of tribal casino agreements with non-Indian investors was having a "chilling effect" on the $16 billion industry.

In one of their last actions as the leaders of the Senate Indian Affairs Committee, retired Sen. Ben Nighthorse Campbell and Sen. Daniel Inouye expressed concerns about a number of the NIGC's practices. A two-page December 15 letter suggested that the agency was overstepping its authority by reviewing certain casino contracts.

Campbell, who retired last month, and Inouye, who recently stepped down as vice-chairman of the committee, said they were prompted to write due to complaints from "a number" of tribes. The two senators are known for championing Indian causes.

The letter, however, focused on an increasingly controversial aspect of the Indian gaming industry: the non-Indian investors who finance casino projects in exchange for a share of gaming revenues or other considerations. NIGC Chairman Phil Hogen, a Bush administration appointee who has sought to expand the government's oversight of tribal casinos, is worried that these deals are escaping federal review.

But Campbell and Inouye told Hogen that he may be headed in the wrong direction. "As you well know, for many tribes entering the gaming arena, their only means of providing compensation to those who are involved in the start-up and development of gaming enterprise," they wrote, "is to commit a percentage of future net revenues to pay for these non-management agreement."

NIGC's scrutiny "is having a chilling effect on those ... who would otherwise come forward to assist tribes in the development of their gaming operations," they asserted.

The warning comes several months after the NIGC acted on an agreement between the Chickasaw Nation, an Oklahoma tribe with a large gaming enterprise, and Multimedia Games (MGAM), a leading supplier of casino machines. In an April 22 letter, the agency's top lawyer said the agreement was subject to review under the Indian Gaming Regulatory Act (IGRA).

The deal requires the tribe to devote approximately 80 percent of the floor space at its Winstar Casino near the Texas border for MGAM's machines, plus share 30 percent of gross revenues from those machines with the company. MGAM financed the facility, and has done so for other Chickasaw casinos.

NIGC's concern stems from a requirement in IGRA that tribes maintain "sole proprietary interest" in their casinos. A review of MGAM's agreement could violate this provision.

But Campbell and Inouye suggest the NIGC has decided to apply this level of review to "lending, development, and equipment lease agreements which provide for a percentage of net revenues" without prior notice.

"Apparently, the sole proprietary interest standard is being applied with no notice or guidance having been published that would inform tribal governments and the public that seeks to do business with the tribes of this new standard," the letter states.

Campbell and Inouye also chastised the NIGC for issuing decisions through letters from the agency's general counsel "that are not subject to administrative or judicial review." "We have every reason to believe that these complaints are accurate and also pose serious considerations of due process," they wrote.

Despite the suggestion that tribes are being negatively affected by the NIGC's practices, there is little to suggest that, at least in the case of the Chickasaw Nation. The tribe has more gaming facilities than any other tribe in the country and is expanding with multi-million dollar projects.

On the other hand, MGAM has seen better days. Following the NIGC's letter in April, the company's stock price plunged 15 percent. Other NIGC actions also have hurt the company's shares.

Get the Letter:
Campbell-Inouye to Phil Hogen (December 15, 2004)