Seven months into his tenure, California Governor Arnold Schwarzenegger has become a gambling man, turning to casino revenue to fill gaps in his state’s budget. Currently, Schwarzenegger is negotiating with California Native American tribes, allowing them to add an unlimited number of slot machines to their operations in exchange for giving the state a cut in the action. The new agreements, which are expected to become official in the coming month, could yield jackpots for some companies.

“Four Native American tribes in California have reportedly reached a tentative agreement with the governor in the current compact renegotiation and gaming expansion talks,” said Marc Falcone, gaming analyst at Deutsche Bank. “While the governor has not released official word, reports out of California indicate that the tribes would be granted unlimited slots, doing away with the current cap of 2,000.”

Without an official announcement, it’s impossible to say exactly how the deal will look, but the change in approach could bring a windfall for the state. According to Falcone, under the tentative agreements reached this week, the state could see $1 billion from the four tribes, with $250 million a year after that, plus more, if other tribes sign on.

One thing is already clear: Schwarzenegger wants to expand gambling so his state can profit from it. In his new budget, the governor had a $500 million line item for revenue generated from tribal casinos, but in order to get the money, he had to reverse the state’s historical opposition to gaming.

If You Can’t Beat ‘Em…

After spending years unsuccessfully fighting tribes in courts, California’s about-face is remarkable.

In the early 1980s, the state fought against the bingo jackpots that were popping up on tribal lands, but in 1987, the U.S. Supreme Court ruled that the state couldn’t stop the tribes, which are considered sovereign nations, from offering gaming. In 1988, Congress passed the Indian Gaming Regulatory Act, which allowed states and tribes to set up compacts governing gaming on a case-by-case basis, creating a regulatory framework.

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