Internet Gaming – Are Native American Tribes In or Out?

Tribes and the New Internet Gambling
 
By I. Nelson Rose
 
On February 9, 2012, I testified before the U.S. Senate Committee on Indian Affairs on what impact the recent Department of Justice (“DoJ”) announcement would have on tribal gaming.
 
The DoJ’s surprise gift for the states, announced two days before Christmas, came from federal prosecutors, who had changed their position on the reach of the Wire Act. From now on, the Wire Act would only be used against interstate sports betting.
 
This amounted to an abandonment of the federal government’s main weapon in its war of intimidation against illegal Internet gambling.
 
But, it also means the states are now free to legalize every other form of gambling online. And, the states themselves can enter into compacts allowing interstate and even international pooling of players and wagers.
 
In preparing my remarks and written statement for the Senate Committee, I started with the thought that perhaps this would be a gift to tribes as well. I knew that the Indian Gaming Regulatory Act (“IGRA”) limited Class II gaming – poker and bingo – to Indian lands. But, I thought that if a state leglized Class III Internet gambling, including lotteries and casino games, tribes could demand compacts that would allow them to also take bets online from anyone in the state. And maybe there was an argument that Internet poker was not really the form of poker defined as Class II under IGRA, since it did not involve real “cards.”
 
But the more I researched the issue, the more I came to realize that current law simply does not anticipate tribes taking bets off-reservation.
 
There is an express exemption in IGRA for tribal lotteries from the federal anti-lottery statutes. But this only proves Congress intended to allow tribes to send lottery tickets across state lines and through the U.S. Mail. The statutes do not necessarily indicate Congress intended to allow sales off-reservation.
Tribes also can clearly operate off-track betting (“OTB”), even though the races are taking place on non-Indian lands. But even though states have to agree to compacts allowing their tribes to operate OTBs, it is not clear that states would have to allow tribes to accept wagers from bettors who are not physically on Indian land. A majority of states allow remote betting conducted by state-licensed OTBs through Advanced Deposit Wagering (“ADW”), where players fund their accounts in advance over the phone or through the Internet. Even though a state might agree to tribal ADWs, that does not mean it had to.
 
The Unlawful Internet Gambling Enforcement Act (“UIGEA”) expressly allows tribes to take bets across state lines for inter-tribal Internet gambling, Class II or III. But, again, gambling is limited to bettors who are physically on Indian lands.
 
I think courts would find tribes could demand compacts if states legalized Internet lotteries, casinos, sports betting and other Class III gaming. But, again, the bettors would have to be on Indian lands.
So, if a state legalized Internet poker, tribes could also set up their own Internet poker sites. As a Class II game, they would not need a tribal-state compact. But players could only participate if they were on Indian land. If a state allows people to play poker on a computer from home and office, why would they drive two or three hours to play the same game on a computer on a reservation?
 
And if a state permits Class III gaming online – Internet lotteries, casinos and, in a few states, sports betting – the tribes can demand the right to operate the same gambling under a compact. The state would have to give in. But it could again limit participation to patrons physically on the tribes’ lands.
 
This does not mean that tribes are prohibited from taking bets off-reservation. They can, but if and only if the state agrees. And unlike Class III gaming under IGRA, the tribes cannot sue a state for bad faith if it refuses to negotiate. Legally, this means that even if the state itself is taking bets over the Internet, tribal betting not on Indian lands is merely a privilege, not a right.
 
Most states will probably go with issuing a small number of licenses for Internet gambling, starting with poker. Tribes are thus going to be forced into competing against powerful and wealthy landbased and online operators for a license.
 
But the bigger risk for tribes comes from state lotteries. A governor and state legislature could easily decide that there is more money to be made by having the state run the poker and even casino games themselves, rather than issuing licenses. With conventional state lotteries, tribes can at least ask to be lottery retailers. But, if the state lottery is the monopoly operator of Internet gaming, there won’t be any other retailers.
 
Online poker probably won’t particularly hurt tribal casinos. At the Senate Committee hearing, the Poker Players Alliance made a good point, that only 1% of tribal casino income comes from poker. And many poker players want to play in live games with real cards. There is something fundamentally different in playing face-to-face, rather than against avatars.
 
But tribes should be worried about state lotteries selling instant tickets online. Without formally asking for the right to operate an Internet casino, a state lottery could bring competing games into every home. Put a scratcher on a video screen and it is virtually indistinguishable from a slot machine.
 
Some players will still want to go to casinos, for all the things that casinos can offer. But if the patrons’ main interest is being able to make a lot of fast bets on a slot machine, they may decide to do that from home.
 
Some tribes can protect their gaming operations from the coming explosion of online competition. Every state, and in fact, every tribe in every state, has a unique legal history and set of laws spelling out its relationship with the state where the tribe is located. A few tribes are fortunate enough to have compacts that are already in place that give them some protection from the state expanding competitive legal gambling. For these tribes, they will at least no longer have to pay millions of dollars for an exclusive right that they will no longer have.
 
Other tribes have the political and financial muscle to ensure that if the state legalizes Internet gambling, it will be through licensing and those tribes will get the licenses. Foxwoods and the Mohegan Sun are the two largest employers in the state of Connecticut. If, and when, Connecticut legalizes online gaming, there will be only two operators: the Mashantucket Pequots and the Mohegans.
 
The big losers will probably be small casinos operated by tribes far from population centers. In states like California, these already compete against larger casinos, closer to cities; racetracks, cardclubs and bingo halls in better locations, and a state lottery. Internet gambling will not only bring gambling into patrons’ homes, it is not even clear that a tribe could prevent a state-operated game from competing for players on the reservation.
 
Only Congress can protect remote tribal casinos. Of course, any attempt to expand Indian gaming rights will undoubtedly be met with strong opposition from most of the states. And this Congress has not exactly been quick to act on anything.
 
But the states are acting. In 1962, there were no legal state lotteries in the U.S. It took more than 45 years before almost all the states made lotteries legal.
 
Internet years are like “dog years.” Developments now happen so fast, that it won’t take four decades before Internet gambling is legal in almost every state.
 
And many tribes may be out of luck.
 
END
 
© 2012, I. Nelson Rose. Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments, industry and players. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.