Helpful Hints for Submitting a Management Contract and Obtaining the Chairman's Approval

I. INTRODUCTION

The Indian Gaming Regulatory Act (IGRA or Act) was signed into law on October 17, 1988, to regulate gaming on Indian lands. Pursuant thereto, an Indian tribe may enter into a management contract for the operation and management of a gaming facility, subject to the approval of the National Indian Gaming Commission (NIGC or Commission).

The NIGC, which was established by the IGRA, is comprised of a Chairman appointed by the President, and two associate members appointed by the Secretary of the Interior. The Chairman, on behalf of the Commission and subject to an appeal to the full Commission, has the power to approve management contracts for class II gaming and class III gaming.

NOTE: A management contract that has not been approved by the Chairman of the NIGC is void. Therefore, no action should be taken under any management contract until it has been approved by the Chairman.

II. THE APPROVAL PROCESS

The NIGC staff reviews each management contract and recommends to the Chairman that he approve or disapprove. The review is comprehensive; the length and amount of time it takes is dependent upon several factors including the completeness of each submission, the responsiveness of the parties, the degree to which the submission meets the requirements of the law, and the Commission's backlog. The suggestions in this document are provided to help submitters obtain approval in the shortest time possible.

First-in First-out

The Commission normally processes submissions on a first-in, first-out basis. This applies to original submissions as well as to resubmissions and supplemental submissions. Because there is always a wait to cue up a submission for processing, the number of resubmissions and supplemental submissions the parties must make directly affects the amount and length of time required for processing.

People

It is critical to the process that both parties (the tribe and the contractor) have key people involved. For the tribe this should include the Chief/Chairman, the tribe's attorneys, and the tribe's internal and external accountants. For the contractor, this should include a senior executive/partner of the contractor, its attorney, and its accountant.

Communications

Communications between the parties and the NIGC staff is another key to efficient processing. The NIGC staff will meet with the parties whenever such direct communication is the more efficient way to share information. At other times, the telephone, the fax, and the mails are used. To this end, it is important to keep the NIGC informed as to who the key contacts are, their addresses, their telephone numbers, and their fax numbers.

III. SUBMISSION REQUIREMENTS

Before the NIGC commences a detailed review of a management contract, it must first determine that the tribe and the management contractor submitted the management contract in accordance with the regulations at 25 C.F.R. § 533.3.

Under that regulation, the tribe and the management contractor must submit:

  1. A management contract with original signatures.

    The regulations define a management contract 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. (See 25 C.F.R. § 502.15).

    A collateral agreement is defined as:

    any contract, whether or not in writing, that is related, either directly or indirectly, to a management contract, or to any rights, duties or obligations created between a tribe (or any of its members, entities, or organizations) and a management contractor or subcontractor (or any person or entity related to a management contractor or subcontractor). (See 25 C.F.R. § 502.5)

    The management contract includes all exhibits or attachments to the contract which must be submitted.

    The management contract must contain a representation that the contract as submitted to the NIGC is the entirety of the agreement among the parties. The tribal letter, as described below, should reference the actual contract cite where this representation is contained.

  2. A letter, signed by the tribal chairman, setting out the authority of an authorized tribal official to act for the tribe concerning the management contract.

    The letter should also reference the authority under which the tribal official can act, as described below.

  3. Copies of documents evidencing the authority for the authorized tribal official to act for the tribe. Often this evidence is a tribal resolution and a copy of a tribe's constitution.

  4. A list of all persons and entities who have a financial interest in, or management responsibility for, the management contract. This would include:

    1. Persons: (1) with management responsibility for the management contract; (2) who are directors of a corporation that is a party to the management contract; and, (3) who are among the ten persons who have the greatest direct or indirect financial interest in the management contract.
    2. Entities with a financial interest in a management contract.

  5. For each person and entity listed in 4, the management contractor must submit the information required under 25 C.F.R. Part 537. For management contracts involving class II gaming:

    1. Each person must complete an Office of Personnel Management (OPM) application form and the NIGC attachment to that form. These forms are available from the NIGC. Please call (202) 632-7003 to receive these forms.
    2. For each entity, the management contractor must submit an entity application. Please see the Background Investigation Entity Application Checklist for the required items.

  6. A three (3) year business plan which sets forth the parties' goals, objectives, budgets, financial plans, and related matters.

    The financial plans must include financial projections for the first three (3) years, at a minimum. It is recommended that the projections be for the entire term of the contract. The projections must:

    • be prepared in accordance with Generally Accepted Account Principles (GAAP);
    • include depreciation and interest expense as separate line items;
    • calculate "Net Revenues," as defined at 25 C.F.R. § 502.16; and,
    • contain cash flow statements for both the tribe and management contractor.

    If the management contract is for an existing operation, the parties must also submit income statements and sources and uses of funds statements for the previous three (3) years.

  7. If the management contract term is more than five (5) years, but does not exceed seven (7) years, a justification detailing why the capital investment and financial projections require that term. Under IGRA, the Chairman must be satisfied that the management contract term is required. The justification may also include other applicable reasons as to why the term is required.

  8. If the management contractor's fee is more than 30% of net revenues, but does not exceed 40% of net revenues, a justification detailing why the capital investment and financial projections require that fee. Under IGRA, the Chairman must be satisfied that the rate is required. The justification may also include other applicable reasons as to why the rate is required.

The NIGC will review a management contract submission to determine if the above documents are submitted. If a tribe and/or a management contractor did not submit the required documents as described above, the parties will be sent a submission deficiency letter. The parties will be given 30 days to submit the missing documents. A detailed review of the contract will not begin until the submission requirements are satisfied. Once all of the submission requirements have been satisfied, the management contract will be reviewed for compliance with 25 C.F.R. Part 531 (See Section IV).

IV. CONTENT REQUIREMENTS

A gaming management contract will be reviewed by the financial and legal staff of the NIGC for compliance with the content requirements under 25 C.F.R. Part 531.

The following helpful hints regarding certain content requirements are based on problems encountered in previous management contract reviews:

  1. Responsibility for Specific Functions

    A management contract must clearly assign each identified function to either the tribe or the management contractor under 25 C.F.R. § 531.1(b)(1)-(16). Responsibility cannot be shared between the parties. One party must be responsible.

  2. Accounting Provisions.

    The contract must include all six items listed under 25 C.F.R. Part 531.1(c)(1)-(6).

    The accountants for both the tribe and the management contractor should review the entire contract for compliance with GAAP. Although a management contract must state that the accounting procedures must permit the preparation of financial statements in accordance with GAAP, often management contracts have contained provisions that violate GAAP. An example of this might be the treatment of depreciation in the computation of net revenues in the management contract.

  3. Access.

    A management contractor must give the appropriate tribal officials immediate access to the gaming operation, as required under 25 C.F.R. § 531.1(e). A management contract cannot place any limitations on access.

  4. Guaranteed payment to a tribe.

    A management contract must provide that the tribe will receive a specific minimum guaranteed monthly payment that has preference over the retirement of development and construction costs. This payment can be in addition to the tribe's share of revenues from the gaming operation or as an advance against future net revenues (if the net revenues after the management contractor's fee are not more than the guaranteed amount). A management contractor must guarantee this payment and may not charge interest on any advance.

  5. Development and Construction Costs.

    A management contract must contain a maximum dollar figure for the recoupment of development and construction costs. This dollar figure should be sufficient to cover the projected costs plus an additional amount for possible overruns.

    If the development and construction costs will be more than the maximum dollar figure in a management contract, the parties must submit a modification to the NIGC increasing the dollar figure. Until a modification is approved, additional funds in excess of the maximum dollar figure should not be advanced.

  6. Term Limit.

    Under IGRA, a management contract term cannot exceed five (5) years, unless the capital investment and income projections require a longer term, not to exceed seven (7) years. At the latest, the term must commence when the gaming operation opens to the public.

  7. Management Contractor's Fee.

    A management contract must detail the method of compensating and reimbursing a management contractor. If the compensation is based on a percentage fee, that fee may either be (1) not more than 30% of net revenues if the NIGC Chairman determines that such percentage is reasonable; or, (2) not more than 40% of net revenues if the NIGC Chairman is satisfied that the capital investment and income projections require the additional fee.

    Net revenues means

    gross gaming revenues of an Indian gaming operation less (1) amounts paid out as, or paid for, prizes; and, (2) total gaming-related operating expenses, excluding management fees. (See 25 C.F.R. § 502.16.)

    If a management contractor's fee is based on a percentage, the total compensation cannot exceed the approved percentages. If a tribe plans to pay a management contractor a percentage fee plus fixed payments for training or employment services, that contract must also contain a total percentage cap on all compensation that does not exceed the permitted maximums.

  8. Dispute Provisions.

    A management contract must, at a minimum, contain the framework for resolving the three types of disputes outlined in 25 C.F.R. § 531.1(k)(1)-(3).

  9. Interest in Real Property

    A management contract may not transfer or, in any other manner, convey any interest in land or other real property, unless specific statutory authority exits and unless clearly specified in writing.

    In most cases, a management contractor may not place a lien on the actual gaming facility or other real property associated with the gaming operation. Generally, a majority of fixtures become part of the real property and should not be included as collateral used to secure loans.

V. RESOURCES AVAILABLE

The above hints are intended to assist tribes and management contractors when drafting a management contract. The parties should use this in conjunction with the regulations and checklist, both of which are available elsewhere on this WEB site.

The NIGC has developed a checklist that enumerates each contract content requirement and a place for the cite where the management contract satisfies that requirement. We suggest that the tribe and management contractor jointly complete this checklist prior to submitting the contract.

Also, the NIGC staff is available to meet with the parties to discuss additional questions they may have.

To receive a copy in the mail, please send your request to the NIGC at 1441 L Street, NW, 9th Floor, Washington, DC 20005.

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1441 L. Street NW Suite 9100, Washington DC 20005   Tel.: (202) 632-7003   Fax: (202) 632-7066    Email: info@nigc.gov