National Indian Gaming Commission
Attn: Vannice Doulou

February 28, 2018

Page 5

Subsection (2) of the proposed definition of management would provide a
nonexclusive list of activities as examples. The list is largely based on language the
NIGC quoted with approval in a 2010 declination letter ("2010 Letter").> Proposed §
502.25(2) provides:

Management includes, but is not limited to, planning, organizing,
directing, coordinating, or controlling:

(a) the daily operations;

(b) the maintenance of a facility or facilities;

(c) the training, supervision, direction, hiring, firing, retention,
compensation (including benefits) of any employee (whether or
not a management employee) or contractor;

(d) any employment or working policies, procedures, or practices;

(e) the hours or days of operation;

(f) any accounting systems or procedures;

(g) any advertising, promotions or other marketing activities;

(h) the purchase, lease, or substitution of any gaming device or
related equipment or software, including player tracking
equipment;

(i) the vendor, type, theme, percentage of pay-out, display or
placement of any gaming device or equipment;

(j) the budgeting, allocation, or conditioning of payments of the
gaming operation's operating expenses; or

(k) the supervision of construction or improvements.

The proposed list of example management activities includes all of the prohibited
management activities listed in the 2010 Letter as well as new activities at paragraphs (a),
(b), and (k). The Tribe is concerned that the language of paragraphs (a), (b), and (k) is
vague and overly broad, provides the NIGC with too much discretion, and does not
provide contracting parties with greater clarity. If it determines to go forward with this
new regulation, the Tribe urges the NIGC to reconsider the inclusion of these paragraphs
in their current form.

Paragraph (a) provides that management includes activities related to "the daily
operations." The Tribe recognizes that the Seventh Circuit has noted the need for a tribe
to maintain control over the "daily operations" of a gaming facility.° However, the Tribe

5 Letter from Penny J. Coleman, Acting General Counsel, National Indian Gaming Commission to Kent E.
Richey, Faegre & Benson LLP (Feb. 23, 2010) (determining a loan document successfully precluded the
lender from exercising management control by prohibiting the lender from engaging in a nonexclusive list
of management activities) [hereinafter "2010 Letter"].

6 Wells Fargo Bank, N.A. v. Lake of the Torches Econ. Dev. Corp., 658 F.3d 684, 697 (7th Cir. 2011).

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National Indian Gaming Commission
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February 28, 2018

Page 10

The draft regulation also addresses the assignment of tribal rights, which can also
be considered part of the analysis of how much control a third party is given over the
gaming operation. The draft regulation provides:

7. the provision or assignment of Tribal rights to the third party,
including, but not limited to:

a. the third party's right to access to records or financial
information regarding the gaming operation or part thereof;

b. the right to place gambling devices that are controlled by a
third party in the gaming operation or part thereof; and

c, the grant of a security interest in the gaming operation.

Factor 7(a) has been addressed by courts in the context of management contracts,
rather than sole proprietary interest.” Factor 7(b) and 7(c) have been clearly addressed
by the NIGC in the preamble to existing regulations.’

Factors 5 and 7, addressing third-party right of control in a gaming operation,
largely codify existing standards but do not necessarily bring additional clarity. In fact,
the regulations introduce greater uncertainty by providing that any one of these factors in
isolation, regardless of other provisions of a contract, would be sufficient basis for
finding a violation of the sole proprietary interest mandate. This is a significant departure
from the NIGC's current approach, and the Tribe recommends that the NIGC instead
continue to rely on its existing guidance.

3. The Term of the Relationship

The NIGC's proposed list of factors includes consideration of the term of the
relationship. The draft regulation provides:

6. the term of the relationship between the Tribe and the third party,
including but not limited to, the cost or difficulty in terminating the
relationship[.]

members would also be inconsistent with the IGRA.").

22 Lake of the Torches Econ. Dev. Corp., 658 F.3d at 697-98 (finding that a tribe maintaining control over
financial and accounting records weighs against determining an agreement was a management contract).

23 58 Fed.Reg. at 5804 provides: "An agreement whereby consideration is paid or payable to the gaming
operation for the right to place gambling devices that are controlled by the vendor in such gaming operation
is inconsistent with the requirement that a tribe have the sole proprietary interest. Regarding collateral for
loans, a tribe may not grant a security interest in a gaming operation if such an interest would give a party
other than the tribe the right to control gaming in the event of default by a tribe."

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February 28, 2018

Page 7

authority to review and approve management contracts.? In contrast, the statute requires
that tribal gaming ordinances include a provision that mandates that "the Indian tribe will
have the sole proprietary interest and responsibility for the conduct of any gaming
activity."!° We note that courts have ruled that NIGC rulemaking authority is limited to
those areas over which IGRA has authorized the agency to regulate. See Colorado River
Indian Tribes v. Nat'l Indian Gaming Comm'n, 466 F.3d 134 (D.C. Cir. 2006).

If the NIGC decides to proceed with codifying a definition of sole proprietary
interest, the Tribe has significant concerns about the draft regulation. The proposal
would add to the compliance regulations at Part 573 a new provision codifying a non-
exclusive list of factors that the Chair would consider in determining whether IGRA's
sole proprietary interest mandate has been violated. The draft language provides that the
existence of any of the factors listed, "including only a single factor," may be considered.
The Tribe is concerned that the proposed definition is vague and that it would provide the
agency complete discretion in determining whether a contract violates the sole
proprietary interest mandate. Further, allowing the NIGC to determine whether a
contract violates the mandate based on a single factor is a significant departure from
current practice, in which the agency evaluates factors "in the aggregate." |!

The proposed definition of sole proprietary interest mirrors the three factors the
NIGC currently examines: (1) the financial benefit to the third party; (2) the right of
control provided the third party; and (3) the term of the relationship.'* We discuss these
categories below.

1. The Financial Benefit to the Third Party
The draft regulation lists several factors related to assessing whether the financial
benefit to the third party violates the sole proprietary interest mandate:
1. whether the Tribe received the primary benefit of its gaming revenue;

2. the amount of revenue paid or given to the third party or kept by it;

3. whether the third party received or was entitled to the gaming revenue
for no return service, or asset provided to the gaming operation; [and]

925 U.S.C. § 2711.
195 U.S.C. § 2710(b)(2)(A).

" City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 830 F.Supp.2d 712, 723 (D. Minn.
2011), affd in part, rev'd in part, 702 F.3d 1147 (8th Cir. 2013).

2 See Bettor Racing, Inc. v. Nat'l Indian Gaming Comm'n, 47 F Supp.3d 912, 925 (S.D. 2014), aff'd 812
F.3d 648 (8th Cir. 2016) (citing NIGC audit report); City of Duluth v. Nat'l Indian Gaming Comm'n, 89
F.Supp.3d 56, 65 n.8 (D.D.C. 2015) (citing NIGC audit reports); City of Duluth v. Fond du Lac Band of
Lake Superior Chippewa, 830 F.Supp.2d at 723 (citing NIGC notice of violation).

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February 28, 2018

Page 6

is concerned that this language is vague. It does not provide any additional clarity
regarding the types of activities the agency will consider to be operating the daily
operations of a gaming facility, and therefore this language provides uncertainty to
contracting parties.

Paragraphs (b) and (k) address facility maintenance and the supervision of
construction or improvements. Again, the Tribe is concerned with the lack of detail
provided, resulting in regulatory language that is both vague and overly broad. As
written, the draft regulation could require tribes to obtain NIGC approval of contracts
with third parties to provide routine, non-gaming-related maintenance such as grounds
keeping, janitorial, and physical plant services. In its current form, the definition could
also apply when a tribe hires a contractor to construct a facility or expansions and
renovations. The definition could be interpreted to require that tribes have such
construction agreements approved by the NIGC as management contracts. The NIGC
has previously contrasted the role of developers with those of management, and it has not
found management functions to exist when a contractor is in charge of constructing and
developing a casino when not in charge of the casino's operations after opening.’ No
such distinction is included in the proposed language regarding supervision of
construction and improvements. Further, the new definition could call into question the
validity of existing contracts governing maintenance, construction, and development.

More broadly, the Tribe is also concerned that the proposed definition of
management focuses only on management activities and does not include any assessment
of payment structure, contract terms, the ability to assign or subcontract responsibilities,
or other indicators of management that are listed in Bulletin No. 94-5 or other NIGC
guidance.’ This raises concern that the NIGC could in the future find that a contract
provides for management of a gaming operation if any one of the above-listed activities is
contracted out to a third party regardless of the overall structure of the contract and its
other provisions. If the NIGC determines to go forward with this regulation, the Tribe
recommends that it be revised to reflect that the agency's determination of whether a
contract is a management contract includes an assessment of the entire contract, not
merely a focus on potential management activities.

B. Defining Sole Proprietary Interest

Even if it decides to go forward with the comprehensive new regulations it has
proposed, the Tribe recommends that the NIGC refrain from codifying a definition of
sole proprietary interest and instead continue to rely on existing guidance and address the
issue through the declination letter process. IGRA provides the NIGC with express

7 See Letter from Penny J. Coleman, Acting General Counsel, National Indian Gaming Commission to
Lester J. Marsten, Law Offices of Rapport and Marsten 4-5 (Feb. 26, 2009).
8 See Bulletin 94-5 at 2-3.

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National Indian Gaming Commission
Attn: Vannice Doulou

February 28, 2018

Page 9

types of contracts is arbitrary because higher fees may be reasonable for other types of
services.

2. The Right of Control Provided the Third Party

Factor 5 focuses on the right of control provided a third party and contains several
sub-factors to consider. The draft regulations provides that the NIGC may consider:

5. the right of control provided to the third party or exercised by it,
including, but not limited to:

a. whether the Tribe was excluded from the premises of the
gaming operation or part thereof;

b. whether the third party operated the gaming operation or
part thereof as the proprietor;

c. whether the third party possesses the right to seek a judicial
appointment of a receiver over the gaming operation;

d. whether the Tribe and third party created a joint venture;
and

e. whether a third party, third parties, or individuals possess
stock ownership in a gaming operation[.]

The list provided in Factor 5 seeks to codify existing guidance, but it is not clear
that this codification brings any additional clarity to contracting parties. Factor 5(a) and
5(b) are addressed in the text of IGRA. Factor 5(a) echoes IGRA's requirement that
management contracts provide for access to daily operations by appropriate tribal
officials, but the draft regulation would assess this issue in the context of sole proprietary
interest rather than management contracts.'’ Factor 5(b) simply restates IGRA's sole
proprietary interest mandate.'® Factors (c),!° (d),° and (e)"! are already clearly addressed
by existing NIGC guidance.

725 U.S.C. § 2711(b)(2).

18 25 U.S.C. § 2710(b)(2)(A).

1 NIGC declination letters have repeatedly cited Wells Fargo Bank, N.A. v. Lake of the Torches Econ. Dev.
Corp., 677 F.Supp.2d 1056 (W.D. Wis. 2010), aff'd 658 F.3d 684 (7th Cir. 2011) (holding a contract was a
management contract because a lender could seek receivership). See, e.g., 2010 Letter, supra at 5—7.

?° Letter from Penny J. Coleman, Acting General Counsel, National Indian Gaming Commission to
Wallace Coffey, Chairman, Comanche Tribe of Oklahoma, et al. at 4 (Sep. 20, 2005) (quoting 46
Am_Jur.2d Contracts § 57 that "a proprietary interest or control may be evidence of a joint venture" and
stating that "if a joint venture is found to exist it would be further evidence that [a tribe] did not hold the
sole proprietary interest in the gaming operation.")

21 58 Fed.Reg. 5802, 5804 (Jan. 22, 1993) ("[B]ecause IGRA specifies that a tribe (not its members) must
have the sole proprietary interest, stock ownership in a tribal gaming operation by individual tribal

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February 28, 2018

Via Electronic Mail

National Indian Gaming Commission
Attn: Vannice Doulou

1849 C St. NW

Mailstop #1621

Washington, DC 20240

Via email: Vannice_Doulou@nigc.gov

Re: | Comments on Proposed Changes to the Management Contract Process and
Draft Regulations Defining Management and Sole Proprietary Interest

Dear Commissioners:

On behalf of our client, the Kickapoo Traditional Tribe of Texas (Tribe), we
submit these comments regarding the National Indian Gaming Commission's (NIGC)
proposed changes to the management contract process and draft regulations defining the
statutory terms "management" and "sole proprietary interest".

The Kickapoo Traditional Tribe of Texas is a federally recognized Indian tribe
that presently has 1,002 enrolled members. Our Tribe’s reservation is located southeast
of the City of Eagle Pass, in Maverick County, Texas, in close proximity to the U.S.-
Mexico border. The KTTT Reservation consists of 125.43 acres, with nearly 1,400
additional acres in fee-to-trust status. The Tribe’s gaming facility operates as the
“Kickapoo Lucky Eagle Casino” and is fully owned, managed, and controlled by the
Kickapoo Gaming Authority, LLC, a Tribal entity. While the Tribe is working diligently
to establish a diverse economic development portfolio, the backbone of its economic
development and growth is its gaming operation.

While the Tribe appreciates the NIGC's commitment to protecting tribes from
"gamesmanship," it is concerned that the current draft regulations, if adopted in anything
like their current form, will bring greater uncertainty to contracting parties, slow the
contract-review process, and may call into question existing contracts. As discussed
below, the Tribe urges the NIGC to make major clarifications to the draft regulations
regarding the management contract review process and the definition of management. It
also recommends that the agency refrain from codifying a definition of sole proprietary
interest in its regulations.

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National Indian Gaming Commission
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February 28, 2018

Page 11

Consideration of the term of a contract is consistent with the NIGC's current
approach to reviewing contracts to determine whether they violate the sole proprietary
interest mandate. However, the Tribe is concerned that, as written, Factor 6 is vague.
Nothing in the draft regulation provides guidance to contracting parties regarding how the
term of a contract will be assessed in order to determine whether the sole proprietary
interest mandate has been violated. The Tribe is also concerned the provision is arbitrary.
As the draft regulation is written, the NIGC could find that a contract violated the sole
proprietary interest mandate based solely on the length of the contract. Without
guideposts in the regulation, the agency would have total discretion in evaluating the
impact of the term of the relationship. This would be a significant departure from current
NIGC practice, which assesses the length of the contract in combination with other
factors.

Conclusion

Although the Tribe supports the NIGC's desire to bring greater clarity to the
contract-review process, the language of the draft regulations is troubling in many
respects. If the Commission goes forward with comprehensive new regulations, the Tribe
is concerned that many provisions are vague, overly broad, and/or arbitrary. The Tribe
believes that, as currently drafted, the provisions, if promulgated, would introduce greater
uncertainty, stall the contract-review process by increasing requests for declination
letters, and may call into question existing contracts. Even if the NIGC decides to go
forward with comprehensive new regulations, the Tribe strongly recommends that the
agency preserve the existing guidance and framework for addressing sole proprietary
interest concerns and refrain from codifying a definition of sole proprietary interest.

Sincerely,

HOBBS, WV DEAN & WA

By:

Ze P!

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National Indian Gaming Commission
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February 28, 2018

Page 8

4. whether the amount of revenue given to an approved or unapproved
management contractor or kept by it exceeds the statutory cap set forth
in IGRA for management contractors[.]

All of these factors are focused on whether a third party has too great of an interest in a
gaming operation and whether the tribe is receiving a reasonable benefit from its bargain.

Factors 1 and 2 raise concern because they are vague. Factor 1 addresses whether
a tribe receives the "primary benefit" of its gaming revenue, but it is not clear how
primary benefit would be measured. One of the purposes of IGRA is to ensure that a
tribe is the "primary beneficiary of the gaming operation."'? Restating this primary
beneficiary language here, without any further detail, does not increase clarity regarding
assessment of the sole proprietary interest mandate or provide information about how the
NIGC will assess whether the tribe is the primary beneficiary. Similarly, factor 2 says
the NIGC may consider "the amount of revenue" the third party receives, but provides no
guideposts for what will be considered reasonable or what other circumstances might be
considered in this analysis, such as the amount of revenue in comparison to risk, capital
investment, or other factors. Without any greater specificity, these portions of the draft
regulation give too much discretion to the NIGC. They are likely to create more
uncertainty rather than clarifying the standards the NIGC will use in assessing
compliance with the sole proprietary interest mandate.

Factors 3 and 4 appear designed to codify existing standards. Factor 3 considers
whether a third party is profiting from gaming revenue without providing anything in
return to a tribe. The NIGC has previously expressed concern that the sole proprietary
interest mandate is violated when fees are not reasonably tied to service rendered.'* The
NIGC has stated, for example, that "[d]evelopment fees that are tied to the operation's
profits and fail to reasonably relate to the service provided, or the risk undertaken, can
look more like a stake in the business rather than mere payment for services rendered."!
However, factor 4 requires compliance with IGRA-imposed statutory caps on revenue to
a management contractor. IGRA provides that generally a management contract
providing for a fee based on a percentage of net revenues may not exceed 30%, although
upon the request of the tribe the Chair can approve a contract with up to a 40% fee if the
capital investment required and income projections justify the higher percentage.'° The
Tribe is concerned that applying the cap applicable to management contracts to other

13.25 U.S.C. § 2702(2).

'4 See, e.g., Letter from Penny Coleman, Acting General Counsel, National Indian Gaming Commission, to
Dan Jones, Chairman, Ponca Tribe of Oklahoma at 3-4 (Sep. 23, 2008) ("[W]e are concemed that [the third
party's] fees for its services may violate IGRA's sole proprietary interest mandate because they do not
appear to be reasonably related to the service provided.").

'S Id. at 4,

1625 U.S.C. § 2711(c)(1)-(2).

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Page 4

513. The Tribe supports this simplification of the process. However, it is concerned with
the NIGC's draft language that states that unpaid background investigation bills "may
result in an approved contract being voided or cause a pending contract to be
disapproved." The Tribe does not agree that the NIGC has authority to void an existing
contract (to which it is not a party) based on the management contractor's failure to pay a
background investigation bill. To provide clarity or certainty, the NIGC should not
threaten the status of already approved contracts. Rather, contracts should be approved
or disapproved on their merits, and debts should simply be collected in accordance with
the Part 513 regulations.

II. Proposed Definitions of Management and Sole Proprietary Interest
A. Defining Management

Subsection (1) of the NIGC's proposed definition of management would codify
NIGC Bulletin No. 94-5 by adding the following at 25 C.F.R. § 502.25(1): "Management
means planning, organizing, directing, coordinating, controlling, or the performance of
any one of these with respect to all or part of a gaming operation."* The Tribe notes that
codifying this definition of management does not provide further clarity to contracting
parties, who already rely on Bulletin No. 94-5. The Tribe does not think there is any
need to make the proposed regulatory change. If adopted, the new regulation may cause
confusion rather than bring clarity.

However, if the NIGC moves forward with codifying this definition, the Tribe
recommends that it amend the definition to clarify that a management contract does not
include a contract that is between a tribe and an entity wholly owned by the tribe. The
NIGC has long recognized that section 2711 of IGRA "does not apply to instrumentalities
owned and operated completely by [a] tribe."? Thus, the NIGC has stated that "[tJhe
tribal government is free to create a separate arm, branch, or wholly-owned corporation
to manage its business ventures. IGRA permits a tribal instrumentality to run the gaming
operation, provided that the central tribal government authorizes such and still requires
the tribe to handle all regulatory functions."* The NIGC should revise any new
regulation defining "management contract" to include this clarification.

? Bulletin 94-5 currently provides: "Management encompasses many activities (e.g., planning, organizing,
directing, coordinating, and controlling). The performance of any one of such activities with respect to all
or part of a gaming operation constitutes management for the purpose of determining whether any contract
or agreement for the performance of such activities is a management contract that requires approval."

3 Letter from Penny J. Coleman, Acting General Counsel, National Indian Gaming Commission, to George
Blanchard, Chairman, Absentee Shawnee Tribe of Oklahoma at 2 (Sep. 1, 2009).

4 Id.; see also Letter from Lawrence S. Roberts, General Counsel, National Indian Gaming Commission, to
Raymond Etcitty, General Counsel, Navajo Nation Gaming Enterprise at 1 (Dec. 15, 2010) ("[BJecause
Navajo Nation Gaming Enterprise is a wholly owned tribal enterprise, the agreements are not management
contracts within the meaning of IGRA and do not require the approval of the NIGC ....").

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February 28, 2018

Page 3

management contract to exceed IGRA's mandated limitations ... will be processed as a
new contract in accordance with 25 C.F.R. Part 533."

The Tribe is concerned that although the NIGC appears to be proposing these
regulatory changes for a narrow purpose, the proposed language could be applied more
broadly. For example, we understand that an amendment extending a management
contract beyond IGRA's time limits will be processed as a new contract, but the language
in the draft regulation could be interpreted to require special justification for any
amendment extending an existing management contract beyond five years. Further,
based on this new regulatory language the current prohibition on a contract term over
seven years could be construed to prohibit any management contract from being renewed
for a period beyond seven years. The Tribe recommends the NIGC reconsider the
language of the proposed regulatory changes governing amendments in order to limit any
unintended consequences to tribes' ability to extend and renew contracts.

C. Background Investigations

The NIGC has proposed a series of changes to the Part 537 regulations governing
background investigations for "persons" or "entities" with an interest in a management
contract. The draft regulations would amend existing regulations to provide that only
persons or entities with at least 10% interest in a management contract would be required
to have a background investigation, although the NIGC would retain the discretion to
investigate any other person or entity with an interest in the contract. The Tribe supports
these changes, which will ensure that the NIGC is only requiring background
investigations of persons and entities with a significant interest in a management contract.

The draft regulations also extend the Chair's ability to reduce the amount of
information required for background investigations. Current regulations provide that the
Chair may reduce the scope of information for the following entities: tribes, wholly
owned tribal entities, national banks, or institutional investors meeting certain
requirements. The draft regulation adds that the Chair may also reduce the scope of
information required for these entities or for "individuals associated with" these entities.
It is not immediately clear, however, whether the Chair also has the authority to reduce
the scope of information for "persons" associated with the listed entities if those entities
do not have a 10% or more financial interest in a management contract. For instance, it is
not clear whether the Chair could reduce the scope of background requirements for
persons with 10% or more financial interest in a management contract if the individual
person is associated with a tribe, wholly owned tribal entity, national bank, or certain
institutional investor. The NIGC should clarify the application of this provision.

The draft regulations also eliminate the requirement that the management

contractor post a deposit to cover the costs of background investigations and provide that
any unpaid bills will be processed in accordance with debt collection regulations at Part

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Page 2

I. Proposed Changes to Management Contract Review Process
A. Collateral Agreements

The NIGC proposes to amend the definition of a collateral agreement at 25 C.F.R.
§ 502.5. Currently, that section provides that a collateral agreement is "any contract ...
that is related ... to a management contract."! The draft regulation would specify that a
collateral agreement is "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) or between a tribe (or any of its members,
entities, or organizations) and any other third party." While there may be value in the
NIGC clarifying that collateral agreements are agreements to which a tribe is a party, the
Tribe is concerned that this proposed language is vague and not properly limited in scope.

Specifically, the proposed language could be construed to include agreements to
which a tribal member, but not the tribe itself, is a party. As proposed, the draft
regulatory language does not limit the definition of collateral agreements to those
agreements over which a tribe has control. If the Commission decides to go forward with
a regulatory revision, the Tribe recommends that the proposed language be amended to
remove the phrase "or any of its members" in order to limit the definition of collateral
agreement to agreements to which the tribe is a party.

The Tribe is also concerned that the proposed language does not define "entities"
or "organizations." The Tribe recommends that the NIGC define these terms in any new
regulation, but limit their scope to entities and organizations that are wholly owned and
controlled by a tribe.

B. Amendments

The draft regulations are intended to provide that an amendment can no longer be
used to extend a management contract beyond the five-to-seven year time limit in IGRA.
Consistent with IGRA, § 531.1(h) currently requires that management contracts have a
five-year time limit, except that the Chair may authorize a contract term of up to seven
years if the Chair is satisfied that the capital investment required and income projections
for the particular gaming operation require additional time. The draft regulations would
change the effect of this provision to provide that the calculation of these time limits
"shall include any future amendments that affect the term of the relationship." Current §
535.1(c)(5) requires that a request for an amendment approval provide a justification for a
term limit between five and seven years, and the draft regulation would add language to §
535.1(a) providing that "[a]n amendment that causes the previously approved

125 CER. § 502.5

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