Law & Principles
Stitt defends small tribes’ gaming compacts
November 18, 2022
In a recent federal court filing, Gov. Kevin Stitt’s administration argues that gaming compacts negotiated with four smaller Oklahoma tribes in 2020 remain legally valid under the federal Indian Gaming Regulatory Act (IGRA) even though the Oklahoma Supreme Court later ruled the compacts were not allowed under state law.
The legal action is the latest in a multi-year effort by Stitt to alter the landscape of casino gambling in Oklahoma so smaller tribes receive greater financial benefit from gaming activity even as the state government receives a larger share of revenue from casino gambling.
“Simply put: Congress’s comprehensive regulatory framework sets forth detailed procedures that had to be followed by the compacting parties and the Secretary to put a compact into effect, and those procedures were all followed,” stated the memorandum of law filed on behalf of the Stitt administration. “The four compacts are thus valid and effective as a matter of federal law.”
In 2020, Stitt negotiated new gaming compacts with four Oklahoma tribes: the Comanche Nation, Otoe-Missouria Tribe, United Keetoowah Band of Cherokee Indians (UKB) and Kialegee Tribal Town (KTT).
Those compacts were submitted to and approved by the office of the U.S. Secretary of the Interior in June 2020 (the Comanche Nation and Otoe-Missouria Tribe) and September 2020 (the UKB and KTT Tribes).
However, the new compacts were opposed by some of the state’s largest tribal governments. A state lawsuit related to the new compacts resulted in an Oklahoma Supreme Court ruling that declared the compacts were not legal under state law in part because some referenced the possibility of future forms of gambling, such as sports betting, that are not currently legal under Oklahoma law.
The Cherokee Nation, Choctaw Nation, and Chickasaw Nation have asked a U.S. District Court to declare the U.S. Secretary of the Interior should not have allowed the four smaller tribes’ compacts to receive federal approval.
The Stitt administration filing argues the secretary’s approval remains valid under federal law, saying that “state-law disputes over the Governor’s authority to negotiate Tribal-State compacts cannot render invalid a compact that already has taken effect under federal law.”
Under the federal Indian Gaming Regulatory Act, the U.S. Secretary of the Interior has 45 days to review and approve or disapprove a state-tribal compact. Should the secretary issue no recommendation, the compact is considered approved.
The Stitt administration noted all four state-tribal gaming compacts went through that process, and that the Cherokee Nation and other entities argued at that time that the Comanche and Otoe-Missouria compacts were not legal. Even so, the U.S. Secretary of the Interior did not reject the compacts. A similar process occurred with the UKB and KTT compacts.
The Oklahoma Supreme Court decision occurred after the conclusion of the 45-day window for federal review. The Stitt administration argues the state court’s ruling does not negate federal approval of the compacts, and that negating federal approval now could generate far-reaching problems for tribal governments across the country.
“Plaintiffs’ reading of IGRA suffers from the additional flaw that it would undermine Congress’s core purposes in enacting the statute,” the Stitt administration filing states. “Under Plaintiffs’ view, state legislatures and courts effectively can exercise indefinite veto power over Indian gaming, regardless of whether or when an approved compact goes into effect under federal law. And they can do so without any participation by the contracting Tribe or the Governor. Allowing this kind of collateral attack on class III gaming agreements would undermine Congress’s purpose in IGRA by creating serious finality problems and disrupt the reliance interests of Tribes and others.”
The Stitt administration’s memorandum of law noted that tribes “would hardly be willing to undertake the expense of building and operating class III gaming facilities if they knew that federal approval for gaming under IGRA could be pulled out from under them at any time. Yet Plaintiffs’ view would undermine Congress’s scheme by giving States the ability to disavow their side of the agreement at any time. Notably, this would apply equally to Tribes already involved in developing and running class III gaming, which may have been operating for years under federal approval.”
The memo noted that federal courts dealing with other types of Indian-law cases have held that “certain agreements remain valid under federal law even if the agreement is later found to violate state law” and that federal courts have similarly held comparable interstate compacts “are not subject to invalidation based on a later state-law determination.”
The Oklahoma Supreme Court held that some of Stitt’s gaming compacts violated state law because they included provisions dealing with forms of gambling, such as sports betting, that are not currently legal under Oklahoma law. However, the Stitt administration noted that the U.S. Secretary of Interior permitted a 2014 compact between the Commonwealth of Massachusetts and the Mashpee-Wampanoag Tribe that included similar provisions related to Internet gaming even though Internet gaming had not been authorized under Massachusetts law at that time.
Stitt’s legal argument echoes the views of Otoe-Missouria Tribe leaders. After the Oklahoma Supreme Court issued its ruling declaring the compact was illegal under state law, Otoe-Missouria Tribe Chairman John R. Shotton declared, “The Oklahoma Supreme Court doesn’t have jurisdiction to invalidate our compact when state and federal law dictates that our compact is legal.”
Shotton said the tribe would “continue to operate under the remaining terms of our compact pursuant to the severability clause of the compact, and we will refrain from operating any game that is not authorized under state law.”
Stitt Seeks Significant Reforms
The four gaming compacts at the center of the case could change the landscape of casino gaming in Oklahoma, and significantly benefit smaller tribes that currently have limited resources, if they are allowed to take effect.
For the state, the compact agreements with the Kialegee Tribal Town (KTT) and the United Keetoowah Band of Cherokee Indians (UKB) would double the current top “exclusivity” fee rate tribes pay on Class III (“Las Vegas” style) games from 6 percent to as high as 13 percent.
The current top fee rate of 6 percent is well below the fee rate paid by tribes in many other state markets, and experts say the amount of money the state of Oklahoma typically receives in exclusivity fees is far below the market rate for casino licenses elsewhere.
According to the state Office of Management and Enterprise Service’s Oklahoma Gaming Compliance Unit’s Annual Report for fiscal year 2022, the 33 tribes operating 133 Class III casinos paid the state of Oklahoma a combined $191.5 million in tribal gaming exclusivity fees that year. In contrast, a single casino license in other states can generate $300 million to $400 million for a state.
Oklahoma tribes have sought to or have expanded into casino markets in other states in recent years even though they would pay higher fees or tax rates, including in Arkansas, Missouri and Illinois. The casino rates in those states range from 13 percent to 50 percent.
At the same time, Stitt’s proposed gaming compacts would create new opportunities for tribes that are often left on the edges of the state’s current casino market. Many smaller tribes have been financially marginalized in part because prior compacts limited their casinos to remote locations.
The reality that Stitt’s compacts would increase market competition and benefit smaller tribes was stressed in a November 2021 memorandum filed by the Cherokee, Chickasaw, Choctaw, and Citizen Potawatomi nations in the case.
The larger tribes argued that “market participants suffer an injury in fact when the government frees their competitors from regulatory requirements” and “increase competition in the marketplace.”
The larger tribes noted that the four gaming compacts Stitt has negotiated would “increase competition for gaming revenue in the markets in which” the Cherokee, Chickasaw, Choctaw, and Citizen Potawatomi nations “compete, including the Oklahoma and Dallas-area markets, reducing Plaintiff Nations’ share of gaming revenue in those markets.”
The larger tribes’ filing stated that more competitors “give gaming patrons more choices of where to gamble which spreads gaming revenue thinner,” and that “development of new gaming facilities in the Oklahoma City metropolitan area, as envisioned by the Agreements, would have an outsized effect on all Plaintiff Nations’ gaming revenue because that is ‘a critical source of present and future gaming revenue for all the Plaintiff Nations.’”
Data on exclusivity fees contained in the Oklahoma Gaming Compliance Unit’s Annual Report for fiscal year 2022 showed that 68 percent of Class III gaming revenue was generated at casinos owned by only three tribes: the Cherokee Nation, Chickasaw Nation, and Choctaw Nation.
Overall, roughly three out of every four dollars spent on Class III casino gambling in Oklahoma during the 2022 budget year was spent in a casino owned by just four of the 33 Oklahoma tribes that operate such facilities.
The financial disparity between the tribes at the top and the dozens below them can be stark.
The 12 casinos operated by the Cherokee Nation paid the state an average of $1.4 million per casino in exclusivity fees. The Choctaw Nation paid $1.9 million per casino while the Chickasaw Nation paid $3.2 million.
In contrast, the Comanche paid over $575,000 in fees per casino, while the Otoe-Missouria Tribe paid only a little over $293,000 per casino.
Neither the Kialegee Tribal Town nor the United Keetoowah Band of Cherokee Indians currently operate casinos in Oklahoma. The two tribes’ compacts would allow them to open casinos near metro areas, which could threaten the market dominance long enjoyed by the Cherokee, Chickasaw, and Choctaw nations.
The compact Stitt negotiated with the Otoe-Missouria Tribe provided for exclusivity fees of 8 percent for proposed new facilities in Noble and Payne counties and a 12-percent rate at a proposed new casino in Logan County.
The compact with the Comanche Nation provided for an exclusivity fee of 13 percent for a proposed Love County casino, 12 percent for a proposed Cleveland County casino, and 8 percent for a planned Grady County casino.
Stitt has referred to the state’s prior gaming compacts, which were mostly developed shortly after the 2004 legalization of Class III casino gaming in Oklahoma, as “well-meaning, but ineffective, systems that end up benefiting only a few.”