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OLR Research Report


March 10, 2010

 

2010-R-0144

KENO QUESTIONS

By: Veronica Rose, Chief Analyst

You asked us to prepare some questions on keno for a hearing that includes representatives from the Attorney General's Office, Division of Special Revenue, and Mohegan and Mashantucket Pequot tribes, among others. We have included some background information on the issue.

ISSUE BACKGROUND

Connecticut's State-Tribal Revenue-Sharing Agreements

The principal question surrounding the introduction of state-run or state-authorized keno is whether it would violate the state's revenue-sharing agreements with the Mohegans and Mashantucket Pequots. The answer appears to depend on the interpretation of certain phrases in the agreements. The two major issues appear to be whether (1) keno is a “commercial casino game” and (2) the state is an “other person” under the agreements. Because there is no Connecticut or controlling federal court ruling on these precise questions, we are unable to provide a definitive answer.

Under separate agreements with the state, the Mohegans and Mashantucket Pequots have agreed to pay the state 25% of their gross slot machine revenue “so long as no other person (emphasis ours) within the State lawfully operates . . .[any] commercial casino games.” If the Connecticut Lottery Corporation (CLC) falls within the definition of “other person” or the proposed keno game is a “commercial casino game,” authorizing it may violate the agreements, thereby relieving the tribes of their obligation to continue making payments to the state. State law prohibits CLC from introducing any games that would violate the agreements (CGS 12-807).

Neither state law nor the state's agreements with the Mohegans and Mashantucket Pequots define “commercial casino games.” And the gambling literature suggests a lack of consensus.

Keno in Other Jurisdictions

Several jurisdictions have concluded that the type of keno games they offer are permissible lottery games under their laws. These include the District of Columbia, Maryland, Massachusetts, New York, and Rhode Island. But some states, including Idaho and Wisconsin, prohibit keno on the grounds that it is more like a casino than a lottery game (Idaho Const. Art. III-20 & Wis. Const. Art. IV 24(5)(c)).

Select Court Rulings on Keno

Both the California Supreme Court and a federal district court in South Dakota have ruled that keno is not a lottery game (Western Telcon v. California State Lottery, 13 Cal. 4th 475 (1996)); Sisseton-Wahpeton Sioux Tribe v. U.S. 804 F. Supp, 1199 (D.S.D.1992)). But the rulings are not binding on Connecticut courts. In Western Telcon, the California Supreme Court ruled that the keno game offered by the California State Lottery (CSL) was not a lottery game because it pitted bettors against CSL, which as banker, bet against each participant. Also, the game did not offer a prize by chance, which is characteristic of lottery games. Instead, CSL could win all the bets and never pay a prize, or it could lose all the bets and pay a prize to each participant.

In construing Michigan state-tribal agreements that gave two tribes gaming exclusivity provided no “other person” was authorized to conduct commercial casino gaming, the court ruled that the phrase “other person” did not apply to state-run club keno games because the state was one of the parties to the agreements. Thus, regardless of whether keno was a commercial casino game, the state could operate it without violating the agreements (State of Michigan v. Little River Band of Ottawa Indians et. al, 2007 U. S. Dist. Lexis 31213 (W. D. Mich. (2007)). (The court did not rule on whether the game was a commercial casino game.)

Federal Regulations

Federal regulations define keno as a class III game (casino type game) for purposes of the federal Indian Gaming Regulatory Act (IGRA), which means that Indian tribes may conduct keno only under negotiated state-tribal compacts (25 CFR 502. 4(a)(2)). IGRA provides a statutory framework for resolving jurisdictional, regulatory, and legal issues about gaming on federally recognized Indian reservations (25 USC 2701 through 2721).

Governor Rell's Proposal

In 2009, Governor Rell proposed that the state introduce keno as a way to help balance the state budget. The Connecticut Division of Special Revenue, which must approve lottery games, contends that keno is a lottery game that would not violate the state-tribal agreements. On the other hand, the attorney general, in a 2009 opinion, said:

there is no clarity in the statute, no ruling from our state courts, no unanimity in other state courts, and most important, no relevant specific facts as to the operation and structure of the proposed game or even what type is proposed. Because rulings are divided and details are lacking, and there are different types of keno games, we cannot predict what courts would conclude about the type of keno contemplated in the Governors' budget revisions. . . .A court might conclude that the parties never contemplated the state operating casino games, including Keno, within the state while receiving 25 percent of slot machine revenue from the Tribal casinos. Similarly, the state could contend that Keno is not a 'commercial casino game,' but a court might disagree because clearly some types of Keno are prevalent in casinos, including the tribal casinos in Connecticut (June 1, 2009).

Published reports suggest that both tribes would view state-authorized keno as a violation that would jeopardize their revenue-sharing agreements with the state.

QUESTIONS

General

1. What is the basis for the claim that keno is a lottery game?
What is the basis for the claim that keno is a casino game?
What are the elements or characteristics that make keno a casino or lottery game?

2. Who is the typical keno player?

3. What states offer keno as a lottery game?
Which of them have agreements similar to Connecticut
's revenue-sharing agreements with the Mashantucket Pequots and Mohegans?

4. The attorney general has indicated that the state should amend its revenue-sharing agreements with the tribes before introducing keno. Have there been any concerted efforts to involve the tribes in keno discussions?
What is the tribes
' position?

5. What state entity or official is authorized to negotiate with the tribes?
What provisions should the state include in an agreement?
What would the state be willing to offer the tribes?
What would constitute a binding agreement?

6. If keno is a casino game and the state approves it, what impact would this have on the state's revenue-sharing agreements with the tribes?

Fiscal Impact

1. How has the revenue from keno compared to revenue projections in the states that have introduced the game?

2. How have keno sales impacted traditional lottery sales in other states?

3. How does the revenue projection for keno compare to the slot machine revenue the state receives from the tribes?

4. After years of uninterrupted growth, gambling revenue is declining. Did this decline factor into the revenue projection for keno in Connecticut?

5. If the court rules that keno violates the MOUs, how much would it cost the state?
Would the state experience a net revenue loss?

Legal Issues

1. What recourse would the state have if it approves keno and the tribes withhold slot machine payments?

2. Apart from withholding slot machine revenue, what recourse would the tribes have if the state authorized keno?
Can they seek an injunction against the state prohibiting it from offering keno?

3. Can either the state or tribe seek a declaratory judgment asking the court to declare whether state-authorized keno would permit the tribes to withhold slot machine revenue?

4. If the tribes withhold slot machine payments and the state sues them, how long might a court take to decide the issue?
What court would have jurisdiction?
Is this the type of case that could be “fast-tracked” through the courts?

5. If the state introduces keno and the court rules that it is a casino game, would the legislature repeal the law?
Would the MOU be nullified permanently even if the state repeals the law, thereby releasing the tribes from any future payment?

Compulsive Gambling

1. How addictive is keno when compared to other forms of gambling? What has been other states' experience with problem gambling when they introduced keno?

2. The governor has proposed significant reduction in funding for gambling treatment services. How does one reconcile this reduction with the proposal to introduce yet another form of gambling?

Municipal Impact

1. Towns neighboring the casinos receive a percentage of MOU revenue to offset the impact of the casinos. Have there been any discussions to provide a percentage of keno revenue to these towns if the tribes discontinue MOU payments?

2. What type of locations would the Lottery Corporation consider licensing to offer keno games?

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