Revenue sharing provisions in tribal-state compacts are a legal "grey" area.  IGRA is very clear that states can't tax tribal gaming, or charge tribes a fee to engage in Class III gaming.  But the Interior Secretary has taken the position that tribes and states can negotiate revenue sharing provisions, in which the state gets, well, a fee -- but the tribe gets something from the state, too.  Typically, what the tribe gets is some form of exclusivity (like the state's promise not to legalize commercial casinos) or some additional benefit (like new games, or additional machines).  The limits on this approach are less than clear.

One of the reasons that revenue sharing remains a grey area is that there is very little case law to indicate what is permissible revenue sharing under the Secretary's interpretation, and what would cross the line into an illegal fee or tax under IGRA.  Why, despite the controversy over revenue sharing, isn't there much case law?  Thank the U.S. Supreme Court's decision in Seminole Tribe for that one -- tribes can't sue the state to challenge a revenue sharing demand unless the state agrees to be sued.  As you might guess, generally speaking, states don't like to be sued.

Ah, but California has consented to suit, and that state has given us the most informative case law about revenue sharing.  In 2003, the U.S. Court of Appeals for the 9th Circuit decided In re Indian Gaming Related Cases, which set some guidelines for what is permissible revenue sharing and what is a demand for an illegal tax or fee.  Since then, the Rincon Indian Band has filed a suit in federal court challenging Gov. Schwarzenegger's demands for revenue sharing in exchange for allowing the Band to operate more slot machines.  The Band wanted to increase its slots from 1600 to 2500; the state would agree to the increase only in exchange for an additional $37.9 million.  In the case, the state's own economic expert -- well respected economist and gaming studies scholar Bill Eadington -- concluded that the additional 900 machines would bring in about $39 million in profits, leaving the Band with $1.7 million compared to the state's $37.9 million.  The district court found the disparity "unreasonable."  The district court's decision in the Rincon case is important because it builds on the Indian Gaming Cases, providing clarity in revenue sharing negotiations, not just in California but across the country.  Wait to see what happens on appeal . . . .

Read more: Rincon Decision Could Change Compact Negotiations