The ongoing dispute between Gov. Kevin Stitt and tribal governments that operate casinos has primarily centered on one question: Did state-tribal gaming compacts auto-renew for another 15-year term on Jan. 1 as the result of continued slot machine gaming at two horse racetracks?

A lawsuit filed on Dec. 31, 2019 by the Cherokee Nation, Chickasaw Nation, and Choctaw Nation asked a federal court to declare the compacts have auto-renewed because Remington Park racetrack in Oklahoma City and Will Rogers Downs in Rogers County were given the right to continue slot machine gaming onsite for another year by a vote of the Oklahoma Horse Racing Commission on October 17, 2019.

The three tribal governments claim the commission’s action fulfilled all compact requirements for auto-renewal and tribal governments “therefore have a right under Federal law to continue their conduct of Class III gaming activities under their Compacts on and after January 1, 2020.”

But in a response filed on behalf of Stitt and the State of Oklahoma this week, the state says that claim is based on a false understanding of gaming compacts’ provisions.

The state’s filing notes gaming compacts say auto-renewal occurs only if racetracks (called “organization licensees”) are allowed to conduct electronic gaming “pursuant to any governmental action of the state or court order following the effective date of this Compact.”

However, slot machines at racetracks were authorized “by Oklahoma voters pursuant to State Question 712,” which was approved in 2004, and not by any subsequent action of the state or court, the filing notes.

Thus, the state argues, “Neither the State nor a court has authorized organization licensees or others to ‘conduct electronic gaming in any form other than pari-mutuel wagering on live horse racing’ following the effective date of any of the Gaming Compacts.

“Because the condition precedent for automatic renewal has not been met, the Tribes’ Gaming Compacts expired on January 1, 2020,” the brief continues.

As a result, the state argues all Class III (“Las Vegas-style”) gaming now occurring at tribal casinos is illegal and will remain so until new compacts are negotiated.

Although both Remington Park and Will Rogers Downs are tribally owned entities today, they are still considered commercial, non-tribal facilities for the purposes of gaming compact agreements, which authorized the racetracks as the only non-tribal casinos legally allowed in Oklahoma at the time. (Both racetracks were owned by other entities when gaming compacts were signed in 2005 and have subsequently been sold to tribal entities.)

Stitt has argued the rates paid by tribal governments for geographic monopolies on casino gaming should be increased. Tribal governments currently pay the state of Oklahoma fees of 4 percent to 6 percent on slot machines, and 10 percent on other games.

Tribal casinos in other states pay rates of as much as 25 percent, and a 2015 report by the United States Government Accountability Office found that 44 percent of the 276 tribal gaming compacts nationally had rates of 10 percent or more.

In a public letter, Stitt recently indicated that fees may be lower for smaller tribes operating casinos far from population centers, while larger tribes with major facilities near urban areas could face higher fees under potential renegotiation.

“I believe that a new compact should more equitably allocate fees among tribes,” Stitt wrote. “It should include protections to require vendors not to exceed national market rates. And it should address changing market conditions.

“The past 15 years have proven the exclusivity promised by the State to be more valuable than anyone anticipated,” Stitt continued. “But that value has not been enjoyed equally by all tribes or shared appropriately with the State. Increasing fees at the highest market revenue levels to better support our public schools and mental health services while reducing fees to benefit the tribes operating smaller gaming operations ought to be a topic for discussion.”

The three tribal governments suing the state have conceded that exclusivity rates are subject to renegotiation. In their lawsuit, the tribal governments acknowledge that a provision of current state-tribal gaming compacts allows “the parties to seek to renegotiate” portions of the agreement that “address revenue-sharing and the ‘substantial exclusivity’ in gaming rights that the State promised the Tribes in order to justify such revenue sharing.”

The state’s filing also cites a joint August 28, 2019 letter signed by compacting tribal governments that acknowledged state government could seek renegotiation of casino exclusivity fees.

That letter stated, “We continue to look forward to a substantive proposal from the State regarding that part of the compact which may be renegotiated. We will consider such a proposal, however, only when the State of Oklahoma affirms the automatic renewal” of gaming compacts that contain the current low rates.

Even as tribal casino operators have balked at renegotiating casino rates in Oklahoma, many are pursuing or have pursued gaming opportunities in other states with far higher tax rates. Most notably, the Choctaw Nation is seeking to open a casino in suburban Chicago. Illinois’ wagering tax starts at 15 percent and ramps up to 50 percent on revenue over $200 million. The tax on table games in Illinois starts at 15 percent and rises to 20 percent.

Similarly, the Quapaw Tribe and Cherokee Nation reportedly spent more than $6 million on a successful initiative campaign to legalize four casino sites in Arkansas. The Quapaw have since received one of the available licenses, and the Cherokee Nation and Choctaw Nation are competing for another. The tax rate on Arkansas casinos is 13 percent of the first $150 million of net casino gaming receipts and 20 percent on receipts above $150 million.