Introduction to Gaming
Jennifer L. Carleton
Kate Lowenhar-Fisher
Association of Corporate Counsel Luncheon
June 29, 2010
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A Very Brief History of Gambling in the United States
 Gambling has been popular in the United States since colonial
times (esp. racehorses, dice, card games and lotteries)
 The original 13 colonies used lotteries to raise revenue and build
some of the nation’s finest universities
 For most of the 18th and 19th centuries, commercial gambling was
illegal in the U.S., but it flourished anyway (esp. in the West)
 Casino gambling was legalized for a brief period (1820’s-1830’s)
in New Orleans
 Nevada, which became a state in 1864, legalized commercial
gambling operations in 1869, but there was no real regulation
 In 1909, anti-gambling forces succeeded in outlawing commercial
gambling. Just two years later, social games were legalized again
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The Modern Era of Gambling
 In 1931, construction on Hoover Dam begins, and Nevada
legalizes commercial casinos. The modern era of casino
gambling begins
 There is no real regulation. Local officials issue licenses in
exchange for fees paid per game. The fees are split among
municipal, county and state coffers
 In 1945, the first state license is required, and fees are based on
the percentage of gaming win estimated by the Nevada Tax
Commission
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Unsavory Elements
 Many of the first casinos in Las Vegas are financed by mobsters
 Perhaps the most famous is the Las Vegas Flamingo, which
Bugsy Siegel opens in 1947. Despite his extensive criminal
record, Bugsy receives a gaming license
 The Flamingo helps to make Las Vegas the destination for high
rollers
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The 1950’s: Criminal Crackdown
 The Kefauver Committee (U.S. Senate) holds hearings
to investigate the criminal influences on the gambling
industry
 The committee finds widespread evidence of criminal
elements and “skimming”
 The nation is on the verge of a federal prohibition on
gambling
 The committee’s findings lead to a crackdown on and
cleanup of the casino industry
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Nevada Regulatory Framework
 Nevada creates the State Gaming Control Board in 1955.
Licensing of a casino owner is a privilege revocable by the state
 Nevada creates the Nevada Gaming Commission in 1959. The
NGC is independent of the Nevada Tax Commission, and its
primary function is to establish and administer gaming
regulations. The NGC and GCB (the NGC’s enforcement arm)
develop extensive application and investigation procedures to
screen gaming license applicants
 1967 and 1969: Nevada passes corporate gaming laws to
eliminate obstacles to the direct involvement of corporations in
the casino industry. Casino operators now have greater access
to capital through legitimate debt and equity markets. Public
companies may acquire casinos
 1973: Harrah’s Entertainment is traded on the NYSE
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State Regulation of Gambling
 Up until 1976, the law governing commercial casino gambling in
states outside Nevada is the criminal law
 In 1976, a referendum passes in New Jersey
to legalize casinos in Atlantic City.
New Jersey becomes the second state
to legalize casino gambling.
The New Jersey Casino Control Act
passes in 1977, and the first New Jersey
casino, Resorts International, opens in 1978
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Regulation Regulation Regulation
 About 10 years later, many other states follow...
 Every state has its own, unique regulatory framework
 All state regulatory frameworks have in common the objective of
ensuring the integrity of the gambling games and the suitability of
those who control and operate commercial casinos
 Rigorous internal controls (operational, accounting, etc.)
 Comprehensive personal and financial background investigations
of individuals associated with gaming
 Local license required for gaming (and liquor)
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Gambling in the U.S. Today
 Some form of gambling is currently legal in almost every state.
Gaming tax revenue!
 Forms of legalized gambling include commercial casinos, parimutuel wagering, Native American casinos, racinos, charitable
gaming and lotteries
 Gambling over the Internet is a hot topic in the U.S. Although
some debate still exists regarding whether certain federal laws
prohibit all forms of interstate Internet gambling, it is the current
view of the U.S. Department of Justice that all forms of interstate
Internet gambling are illegal
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Indian Gaming Case Study –
Intellectual Property License Agreement
▪ Representation of Nevada casino operator in negotiation of
a License Agreement to rebrand the flagship resort property
of a western Indian nation
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Challenges
 Negotiation with Tribal Subsidiary
 Enforceability of Agreement
 Federal Approval
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Negotiation with Tribal Subsidiary
 Corporation formed under Tribal law
 The Tribe operates its hotel and casino through a corporation formed under Tribal
law
 The authority of the Tribal Corporation to negotiate and execute the License
Agreement with the Nevada casino operator was unclear
 Both parties to the License Agreement needed to address the possibility that
changes in Tribal law could impact their available rights and remedies
 Applicable Law/Organizational Documents
 Tribe’s Constitution
 Gaming Compact between the Tribe and the State
 Tribe’s Corporate Code
 Tribal Corporation By-laws and Articles of Incorporation
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Opinions of Counsel
 License Agreement required Tribal Corporation’s General Counsel to opine that:
 The Corporate Board had authorized the execution of the License Agreement
 The Corporate Board possessed the authority to execute the License Agreement
 Execution of the License Agreement did not require the consent or authorization of
the Tribal Government
 Execution of the Agreement and performance under the Agreement by the Tribal
Corporation did not violate any Tribal laws, orders, or agreements
 No governmental consents were necessary for the Tribal Corporation to execute
or perform under the Agreement
 The choice of State law to govern the License Agreement did not violate Tribal law
 License Agreement required the Tribe’s Counsel to opine that:
 There were no actions, suits, proceedings or investigations pending or threatened
against the Tribe affecting the ability of the Tribal Corporation to perform under the
License Agreement
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Changes in Tribal Law - Options
 Noninterference Agreement to be executed by the Tribe, pursuant to
which the Tribe would agree not to take any legislative action that
would have an adverse effect on the Tribal Corporation’s ability to
perform its obligations under the License Agreement, or which would
materially impair the Licensor’s rights under the License Agreement
 Contract provision addressing the effect of a change in Tribal law
that prejudiced the Licensor’s rights under the License Agreement,
including the right to payments due
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Enforceability of Agreement
 Indian Tribes and their wholly-owned subsidiaries enjoy sovereign immunity
from suit, unless that immunity is waived
 In order for the provisions of the License Agreement to be enforceable
against the Tribal Corporation, the Tribe must waive the Corporation’s
sovereign immunity from suit
 Applicable Tribal law
 Is the Corporate Board empowered to act independently to waive the
Tribal Corporation’s immunity?
 Are there any limitations or restrictions on the ability of the Tribe to
waive the immunity of the Tribal Corporation? (i.e. choice of law or
venue restrictions)
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Waiver of Sovereign Immunity
 Tribal Court
 The Tribal Corporation could not be sued, even in the Tribe’s own
courts, without a waiver of its sovereign immunity
 Does the Tribe have a well-established trial and appellate court, as
well as published case law?
 Federal Court
 A waiver of sovereign immunity that would allow for claims to only be
brought in federal court is not likely to be enforceable
 A Tribe is not a “citizen” of any state for purposes of diversity
jurisdiction; however, the incorporation of a Tribal entity pursuant to
state law can create diversity for purposes of federal jurisdiction
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Waiver of Sovereign Immunity (cont’d)
 Governing Law. “The License Agreement shall be governed by general
contract law principles and commercial law as adopted in the State. Any
claims permitted to be asserted under the limited waiver of sovereignty
provisions of the License Agreement shall be adjudicated in, and each
party hereby consents to jurisdiction and venue of, any federal court
located within the State and, in the event federal courts do not have
jurisdiction, then any State court where venue is proper.”
 Waiver Authority. “The Council of the [Tribe] has authorized
________________ to negotiate and execute a limited waiver of
sovereign immunity of [the Tribal Corporation] and the [Tribe] as it
applies to the License Agreement within the parameters set forth above.”
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Federal Approval
 Indian Gaming Regulatory Act (“IGRA”) - 25 U.S.C. §§ 2701 2721
 Congress vested the National Indian Gaming Commission
(“NIGC”) with broad authority to issue regulations in
furtherance of the provisions of IGRA
 All agreements related to Indian gaming must be reviewed
by the NIGC
 The relationship between the Licensor and the Licensee
cannot be deemed by the NIGC to be a “management
contract” or create an “impermissible proprietary interest”
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Management Contracts
 A management contract is defined under the NIGC regulations as “any
contract, subcontract, or collateral agreement between an Indian tribe and a
contractor or between a contractor and a subcontractor if such contract or
agreement provides for the management of all or part of a gaming
operation.”
 Management contractors are subject to a determination of suitability by the
NIGC, which involves a time-consuming, expensive and thorough
investigation
 There are mandatory provisions and substantial limitations, including fee
limits, on management contracts contained in the Code of Federal
Regulations
 Management contracts that have not been approved by the NIGC are void
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Management Contract Terms
 There is no definitive guidance on when an agreement that concerns the
operation of an Indian casino is considered a management contract
 Those provisions to be avoided include supplying operating capital, the
establishment of operating hours, the hiring, firing, training, and
promoting of employees, the maintenance of the casino’s books and
records, and the preparation of the casino’s financial statements and
reports
 Management contracts have a fee cap set a 30% of casino net revenues
or 40% of net revenues if the capital investment required and the gaming
operation's income projections justify the higher fee
 The NIGC has stated that any entity that provides planning, organizing,
directing, coordinating, or controlling services to an Indian gaming
operation is deemed to be "managing" those gaming operations
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Impermissible Proprietary Interest
 The NIGC has taken the position that no entity other than a tribe may
possess a "proprietary interest" in the tribe’s gaming activity
 This determination is fact specific and there is little guidance from the
NIGC on what constitutes a proprietary interest
 While there is no prohibition on compensation for services based on a
percentage of tribal gaming revenues, agreements containing such
compensation provisions are subject to a high degree of scrutiny by
the NIGC
 Development, financing, and operational agreements that meet or
exceed management contract caps have been found by the NIGC to
be “excessive”
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Delayed Effectiveness
 After the License Agreement was executed and submitted to the
NIGC, the NIGC provided commentary and proposed revisions
 The NIGC would not discuss or negotiate any of the provisions of the
License Agreement with the Licensor
 The License Agreement did not become effective until the date the
parties received written confirmation by an authorized representative
of the NIGC indicating that the Agreement was not required to be
approved by the NIGC
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NIGC Revisions to License Agreement
 The NIGC required amendments to the License Agreement, including:
 Deletion of most of the Licensor’s approval rights, such as approval
of a third-party management contractor and any of the Licensee’s
standard operating procedures related to gaming
 Specific limitations on the ability of the Licensor’s personnel to
consult, assist, advise or direct the Licensee in any way with respect
to matters involving gaming
 Deletion of any reference to gaming procedures or systems
 Addition of representations and warranties by the Licensor that it
would not require the Licensee to modify or supplement any of its
gaming-related management decisions or gaming-related
operational procedures
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Federal Approval
 After the License Agreement was amended to the satisfaction of
the NIGC, it issued a “declination letter” stating that the License
Agreement was not a management contract and consequently not
subject to review by the NIGC pursuant to IGRA
 This was only the second time that the NIGC has approved an
intellectual property license agreement for an Indian casino
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Our Contact Information
Jennifer L. Carleton
Shareholder
Brownstein Hyatt Farber Schreck,
LLP
100 North City Parkway, Suite 1600
Las Vegas, NV 89106-4614
jcarleton@bhfs.com
tel 702.464.7086
fax 702.382.8135
Kate C. Lowenhar-Fisher
Shareholder
Brownstein Hyatt Farber Schreck,
LLP
100 North City Parkway, Suite 1600
Las Vegas, NV 89106-4614
klowenhar-fisher@bhfs.com
tel 702.464.7013
fax 702.382.8135
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