Tribes push new gaming initiative

California tribal leaders are redoubling their efforts to get a new gaming initiative before voters next spring after the state Supreme Court ruled Monday that most Indian casinos are operating there illegally.

Meanwhile, federal authorities are wrestling with the potentially explosive prospect of enforcing a judge's order to shut down tribal casinos operating illegally.

The order was stayed pending the California high court's ruling. The stay expires Oct. 6, and one of the attorneys who argued successfully against Proposition 5 said the next few steps could have "far-reaching political ramifications" extending to the very heart of Indian sovereignty.

Federal marshals are wary about the political repercussions that could ensue if they march onto Indian reservations to seize slot machines and table games deemed illegal. Among affected casinos are Indian operations in Palm Springs and Riverside County, where tribes began offering banned games after a federal court ruled that state law doesn't permit slots.

The tribes took the action after former California Gov. Pete Wilson refused to negotiate compacts permitting Nevada-style slots and table games. He argued that such games violated state law, and urged federal prosecutors to move against casinos offering them.

The California Supreme Court agreed with Wilson on Monday, ruling that Proposition 5 would allow casino games that violate the Golden State's Constitution.

"The government was threatening to bring in federal marshals and threatening to close some casinos down, but backed off pending the state court's action," said David Anders, a gaming analyst with Credit Suisse First Boston. "This could be a very contentious situation."

Neither federal officials nor tribal leaders have signaled their intentions about the affected casinos. Richard McCracken, counsel for the giant Hotel Employees & Restaurant Employees union, known in Las Vegas as the Culinary Union, said attorneys gathered in Sacramento Monday to receive the court's ruling speculated on a wide range of scenarios that could develop depending on what federal and tribal leaders do.

Meanwhile, some Indians, forewarned that Proposition 5 would probably be found unconstitutional, have already begun circulating petitions to put a new initiative before voters March 7.

The new proposal would correct the specific Proposition 5 clauses the high court found defective, allowing tribes to offer certain table games, slot machines and lotteries and requiring voter approval for further restrictions on Indian gaming.

The tribes must submit the signatures of 670,000 registered voters to the California secretary of state by mid-September to qualify for the March 7 ballot.

Mark Nichols, chief executive of the Cabazon Band of Mission Indians, told reporters he doesn't anticipate any trouble gathering enough signatures. Proposition 5 passed with 63 percent of the vote last November, indicating widespread support of tribal gaming among California's populace.

But Theodore Olson, a Washington, D.C., attorney representing homeowners and small business people opposed to Proposition 5, said the new initiative faces some significant challenges.

"The first time around, the tribes told everybody this wouldn't change the prohibition against casino-type gambling," Olson said. "Now they'll have to admit it will do that.

"Secondly, it's not clear they can use an initiative measure to force the state to enter into compacts. Third, federal law allows tribes to enter into gaming compacts to the extent that other citizens of the state are also allowed to do that. I think it will be a serious problem if they try to carve out casinos only for Indians.

"Finally, it isn't very well known that they are able to acquire additional property which can then be added to a reservation and become a casino site. Many homeowners don't want casinos in their neighborhoods.

"The tribes were very successful in deflecting questions about these issues in their first public-relations campaign," Olson said. "It isn't certain they'll be as successful this time around."

McCracken noted that the court's decision on Proposition 5 struck down the entire initiative, but said tribes have the right to sue California in federal court over any alleged bad faith by the state in negotiating compacts with tribes.

While previous federal courts have ruled states have "sovereign immunity" in such negotiations, they are allowed to waive that immunity. "What the court found was that this initiative waived that immunity," McCracken said.

The hotel union participated in the lawsuit to overturn Proposition 5 because it "contained a provision requiring the governor to sign a compact without negotiation, and didn't provide any protections for workers or consumers," he said.

"There are 10,000 or so workers in California tribal casinos and almost all of them are non-Indians who have no protection under federal or state law," McCracken said. "They can be subject to sexual or racial harassment, and no one can do anything about it.

"And right now if you go into an Indian casino and think you've been cheated, you have no recourse. We felt the right way to afford protection was with true negotiations between the tribes and the states.

"So far, the tribes have wanted everything their way, and that wasn't the intent of Congress when it passed the Indian Gaming Regulatory Act," the lawyer said.

Nevada political and gaming officials generally lauded the court decision, but noted that the new initiative could pose a serious threat to this state's main industry. Analysts have estimated that widespread Nevada-style casino gaming in California could drain business from this state. California supplies about 30 percent of Southern Nevada's visitors annually, and more than two-thirds of those who gamble in Reno and Lake Tahoe casinos.

"This is very favorable news for Nevada and our most important industry," said Gov. Kenny Guinn. "But we have to be careful and keep vigilant because the executive branch in California may still have the leeway to decide on compacts with Indian tribes."

"Before Nevada gets out the champagne, we need to be sobered by the fact the tribes have already mounted a petition process to change the California constitution to allow for Indian gaming," said Jim Mulhall of the Nevada Resort Association.

The ruling "sends a clear message the Proposition 5 violated California's state Constitution," said Rep. Jim Gibbons, R-Nev. "I hope this is the beginning of the end for Proposition 5."

Casino executives such as Mike Sloan of Mandalay Resort Group and Alan Feldman of Mirage Resorts said Proposition 5 opponents need to do a better job of informing California voters about the "breadth and scope" of Indian gaming in any campaign against the new initiative.

"That should be a much more weighty matter in the minds of California voters," said Anders, the Credit Suisse gaming analyst. "I don't think they fully understood the pure scope and types of facilities that could be created under Proposition 5.

"I also don't believe they were aware of the lack of government control over gaming activity on tribal casinos and the lack of tax revenue for the state."

If past is prologue, tribal interests should have little trouble getting the signatures needed to put the new initiative on the March ballot. That will set the stage for another massive publicity campaign by the opposing sides, perhaps topping the national record $100 million spent on Proposition 5.

"Their message before was, 'Help the Indians,"' McCracken said. "And there's a lot of guilt in America about the way Indians have been treated, and rightly so.

"But they played upon the guilt feelings and never got into the specifics about what this would do. The campaign to counter that was much more complex because the opponents came from several different viewpoints.

"It will be the same with the new initiative. The unions will spin the workers' rights issue, the California racetracks a different issue, the homeowners who don't want casinos in their neighborhoods yet another issue," he said. "All the opposing groups will argue various points, and it will be tough to get the messages across."

Meanwhile, Anders saw Monday's ruling as a "modest" positive for the stocks of Las Vegas Strip casino operators. "The biggest winner will be Mandalay Resort Group, because a significant number of their customers are from California."

Mandalay Resort Group stock was the best performer among the five biggest gaming companies Monday, jumping 6 percent to $22, up $1.25. Park Place Entertainment, which has four big Las Vegas casinos, rose 56.25 cents, or 5.1 percent, to $11.625, while MGM Grand climbed $2.3125 a share, to $51.875. Mirage was up 62.5 cents a share to $14.25, and Harrah's Entertainment rose 81.25 cents a share to $24.

All but MGM Grand gave back some of Monday's gains in late-morning trading today.

Slot manufacturers, who might have enjoyed "substantial year-over-year earnings growth" from sales to California tribal casinos had the court ruled differently, "now have diminished hopes of new business opportunities," according to analyst Jason Ader of Bear Stearns & Co.

International Game Technology, the world's largest slot maker, was off 12.5 cents to $18.25 today, while Anchor Gaming was up slightly to $50.125, Alliance Gaming was unchanged at $6.50 and Casino Data Systems was up 43.75 cents to $6.625. Sodak Gaming, which distributes slots to Indian casinos across the country, was up 3.125 cents to $9.9375.

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