What happens when Casinos don’t pay the government?

It doesn’t take an industry expert to understand the immense money-making potential of a well-placed casino. For that reason, legislators almost always take a piece of the pie in exchange for casino operation. This is how the gambling industry is able to boast big time benefits for worthwhile causes such as education, infrastructure and job development. In many cases, these profit sharing agreements come with special benefits for casino operators that make the deals worthwhile. In the case of the Gun Lake Casino in Michigan, one of these benefits was a non-compete clause with the state government.

On Tuesday, the Native American tribe that operates the casino made headlines as it continued to refuse payment of the $7 million dues required by its profit sharing agreement. According to the tribe, the payment is being withheld because the state recently violated a 2007 compact stating that the casino can cut the sharing payments by 50 percent if the state lottery operates electronic games of chance. According to the Gun Lake tribe’s leadership, it has two outstanding issues. First, Michigan operates an internet lottery. Second, the state’s pilot program that placed new electronic pull tab machines into social clubs around the state directly competes with the casino’s slots.

innrprofit19082015Michigan launched its new online lottery on August 11, 2014, and it has registered approximately 160,000 users in its first year of operation, including nearly $16 million in revenue. Earlier this year, the state also initiated a pilot program that placed about 40 electronic pull tab machines into social clubs. State officials consider these machines electronic gaming, further demonstrating the conflict of interests highlighted by the Gun Lake tribe.

The new machines are operated by the Michigan Charitable Gaming Commission, with net winnings going to the Michigan National Guard. While they may look and sound like slot machines to the casual observer, the state insists that it’s what’s on the inside that counts. Unlike slot machines, the social club machines utilize pull tabs to announce winnings.

In the past, the Gun Lake Tribe has averaged payments of more than $13 million each year to the Michigan Economic Development Corporation, normally split into two payments made every six months. Because the tribe withheld the June payment, the agency will be required to cut staff in order to balance a current revenue shortfall.

The recent actions of the Gun Lake Tribe follow a similar trajectory to many of the other tribal casinos currently operating in Michigan. In total, half of the tribes with casinos in the state discontinued revenue sharing payments in 1999 after Michigan allowed three private casinos to open in the Detroit area.

Despite this precedent, the tribe feels that a resolution to the current disagreement remains possible. For this reason, the tribe made a state revenue sharing payment in December 2014 even though it was not legally required to do so. Moving forward, the two sides will look to emphasize their established working relationship in order to resolve the matter amicably and to the benefit of all parties. For employees of the state’s economic development corporation, this resolution can’t come quickly enough.


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