As reported by: The Associated Press
When they organized a $1 million fund-raiser for Gov. Arnold Schwarzenegger in February, Sacramento Kings owners Gavin and Joe Maloof's family casino business was negotiating a deal that would net them millions from running what could be one of the world's largest casinos, according to interviews and state records.

Six months later, Schwarzenegger announced a deal for a tribal megacasino that will be managed by a company partially owned by the Maloofs. The Maloof fund-raiser means that Schwarzenegger, who campaigned on a refusal to take money from Indian gambling interests, received huge contributions through those connected to gambling businesses.

George L. Maloof Jr., who runs the family's Palms Casino Resort in Las Vegas, said he discussed the deal before the fund-raiser, but said his brothers weren't involved at the time and the agreement wasn't signed until afterward.

"I can tell you right now it had absolutely nothing to do with the fund-raiser. We have never even spoken to the governor about our involvement, our business arrangement," he said. "I talk about deals all the time. That's my job. That's my area. My brothers very seldom get involved in anything to do with the casino."

The Maloofs publicly emerged only two weeks ago as players in the deal. Schwarzenegger spokesman Vince Sollitto said that's when the administration learned of their involvement as well.

Schwarzenegger announced Aug. 19 that his administration had agreed to let the Lytton Band of Pomo Indians operate 5,000 slot machines in the Bay Area city of San Pablo. The number of slots was later sliced in half and legislative approval postponed until at least December after Bay area officials objected.

"It's our understanding that the Maloofs had not even begun discussion of a management contract with the band at the time they held the fund-raising event in February," Sollitto said. He said the timing means Schwarzenegger kept his promise to avoid tribal contributions.

Bob Stern, president of the Center for Governmental Studies, said Schwarzenegger should refund the $64,505 contributed by Maloof Sports and Entertainment.

"It really now is gambling money, and it is Indian money indirectly," Stern said. "That's the problem when you make these pledges. More and more he's going to find it was easy to say I won't accept special-interest money; now he's in a position where he's defining special interests as people he doesn't agree with. It makes him sound more like a politician."

Despite once saying he didn't need special interest money, Schwarzenegger has raised campaign funds at an unprecedented pace, much of it from interests with bills passed by the Legislature and now awaiting his signature or veto.

At the time of the fund-raiser, Joe and Gavin Maloof bragged they'd raised more than $1 million for Schwarzenegger by hosting $100,000 and $25,000 per person fund-raisers before and during a Kings game in February.

Money raised during the Feb. 6 event went to Schwarzenegger's California Recovery Team fund, which the governor uses to support his various political interests. For the March 2 primary, the fund's priority was supporting Schwarzenegger's campaign for Propositions 57 and 58. Now, as he fights two gambling-related ballot issues, the California Recovery Team fund has donated $300,000 to a Schwarzenegger-controlled committee opposing those initiatives, Propositions 68 and 70.

Proposition 68 gives card clubs and race tracks 30,000 slot machines, with a third of the revenue going to state and local governments, while Proposition 70 gives tribes unlimited gambling with 8.8 percent of their revenue to the state. Either would undermine the agreement the administration reached on the San Pablo and other casinos.

If the San Pablo casino deal is approved by the Legislature and U.S. Interior Department, the Maloofs are set to collect about 20 percent of the profits from a planned 200,000 square-foot casino projected to take in $540 million a year.

State records show the two companies that will run the San Pablo casino, California Indian Gaming Development LLC and California Indian Gaming Management LLC, were registered Nov. 24, 2003. Ownership is shared between the Maloofs, gambling executive Jerome Turk, the Rumsey Band of Wintun Indians, and the Pala Band of Mission Indians. Public records don't show when the Maloofs signed on.

Turk said he "probably started talking to (the Maloofs) beginning of the year - early this year." Turk and George Maloof said it wasn't until March they were officially involved, at least a month after the fund-raiser.

George Maloof said the family has been looking for potential California gambling opportunities since it purchased the Kings in 1997. He said the family has been on good terms with officials of the Cache Creek Casino Resort operated by the Rumsey Band, who also brought Turk into the San Pablo discussions about two years ago.

Turk said he approached the Maloofs because "I wanted some support from the gaming perspective." Turk has casino experience as former owner of Las Vegas' Fitzgeralds casino and operator of the Pala Band's casino in San Diego County.

Schwarzenegger says he remains opposed to urban casinos like the one in San Pablo, and agreed only because Congress passed a law letting the tribe buy land across the Bay from San Francisco. The compact includes a clause barring any other tribal casinos within 35 miles, dashing the hopes of other Bay Area tribes and communities and giving the Maloof casino a lucrative monopoly.