Economic Development and Government

Gun Lake Casino stops annual payments to state

At issue is Michigan’s launch of Internet lottery sales a year ago.

August 21, 2015
| By Pete Daly |
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The Michigan Economic Development Corp. is planning staff cuts after the tribal owners of Gun Lake Casino stopped paying the state a portion of its slot machine gambling profits, as was stipulated in the compact made with the state.

The Match-e-be-nash-she-wish Band of Pottawatomi Indians, which owns the Gun Lake Casino south of Grand Rapids, refused to make a $7 million payment in June because the state introduced Internet-based lottery sales in August 2014.

A representative of the tribe sent the following statement to the Business Journal on behalf of the Gun Lake Tribe’s Tribal Council:

“The Tribe and the state began discussing this matter prior to the introduction of Internet lottery sales. At that time, it was clear that Internet lottery sales would result in elimination of the Tribe’s state revenue-sharing payments.

“Clearly, when the Tribe and the state negotiated our gaming compact, we discussed Internet lottery. Both parties agreed that if the state introduced Internet lottery sales or expanded other forms of electronic gaming to social clubs within the Tribe’s market area that the Tribe would not have to make state revenue sharing payments. The state has decided to offer Internet lottery sales and electronic gaming within the Tribe’s market area.

“Despite these events, the Tribe feels that a resolution to this disagreement is possible, which is why it made a state revenue sharing payment in December 2014 even though it was not required to do so.

“The Tribe would like to emphasize that it has established a good working relationship with Gov. Rick Snyder’s administration and has every intention of resolving this matter amicably for the benefit of all parties.”

The tribe has not stopped making its annual payments to the local governments in Wayland Township where the casino is located. The spring payment, covering October 2014 through March 2015, was almost $1.7 million.

All tribal casinos in Michigan agreed in their original compacts with the state government to pay a portion of their slot machine profits to the Michigan Strategic Fund or the MEDC in return for pledges by the state that competing gambling would not be allowed in their market regions. They also pay a smaller percentage to the local communities in which they are located.

MEDC CEO Steve Arwood said last week the agency is reorganizing to “address a significant shortfall in operating revenues,” which he says will have a negative impact on staffing. The agency currently has about 300 employees.

Arwood’s statement also noted there will be a $15 million reduction in business and community development incentives in the MEDC budget in the fiscal year starting Oct. 1.

The MEDC said it receives about $60 million a year from the Indian casinos in Michigan.

The last payment to the state government by Gun Lake was last fall, in the amount of $7,030,280. The local community’s revenue sharing board received $1,672,209 at that time. Since Gun Lake Casino opened in early 2011, it has provided more than $60 million in state and local payments.

In the past, other Michigan tribes stopped making slot revenue payments after contending lottery games or non-tribal casinos in Detroit violated exclusivity guarantees in their agreements with the state.

According to the Michigan Gaming Control Board website, the June report on casino payments to the Michigan Strategic Fund or MEDC shows that six of the 12 tribes in the state with casinos stopped making those payments in 2000. They are the Bay Mills Indian Community, Grand Traverse Band of Ottawa and Chippewa, Hannahville Indian Community, Lac Vieux Desert Band of Lake Superior Chippewa, Saginaw Chippewa and Sault Ste. Marie Tribe of Chippewa Indians. However, all tribes still make their local payments.

In 2008, the state settled litigation with two tribes — Little River Band of Ottawa Indians and the Little Traverse Bay Bands of Odawa Indians — sparked by the state lottery’s Club Keno game, which had been introduced in 2004. The tribes made gaming compacts with the state in 1998 and claimed those were violated by the introduction of Club Keno.

Under the settlement in 2008, the slot machine revenue paid by the tribes was reduced to 6 percent in most cases. In return, the tribes agreed to change the revenue-sharing agreements in their compacts so that gaming exclusivity would no longer be measured on a statewide basis but instead on a more limited area for each tribe — generally, nine to 10 counties in the immediate vicinity of each tribe’s casino. The agreement also stipulated that lottery and other similar activities by the state will not be considered to be new commercial gaming unless they involve large-scale use of electronic machines.

The announcement released jointly March 21, 2008, by then-governor Jennifer Granholm and the two tribes also noted $52 million had been paid into escrow by the tribes during the dispute. Under the settlement, the funds escrowed by each tribe were divided evenly between the Michigan Strategic Fund and the tribe.

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