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DoJ’s Internet Gaming Green Light to States is 'No Big Deal for Tribes'

Cash-strapped states grappling with big budget deficits may welcome a Justice Department opinion that they can offer online lotteries and gaming, but tribes greeted the news with a virtual shrug of the shoulders, according to Indian gaming experts.

The Justice Department released a legal opinion stating that the 1961 Wire Act prohibits online betting only for sporting events and contests, not lotteries. The opinion has caused a flurry of interest in states looking to bolster revenues in the face of a projected collective budget gap of at least $40 billion, according to Bloomberg BusinessWeek. In Connecticut, for example, Gov. Dannel P. Malloy welcomed the Justice Department news. Malloy has talked about the need to increase state gaming revenue especially with shrinking revenues from the state’s two signature Indian casinos—the Mashantucket Pequots’ Foxwoods Resort Casino and the Mohegan Tribe’s Mohegan Sun—and the prospect of competition from expanded gaming in nearby Massachusetts and Rhode Island. "Obviously, gaming is an important part of our economy. It appears that [online] interstate and intrastate gaming is going to be allowed,” Malloy told the Hartford Courant. “It appears that the only thing the Justice Department has ruled is off the table is sports betting, with the exception of horse betting. So with that one exclusion, everything is up for consideration by the states."

Last year, Internet gaming reportedly generated more than $25 billion worldwide with $7 billion in wagers from U.S. bets on Internet sports, poker, and other casino games with 10 million U.S. citizens playing poker online.

Melissa Riahei, general counsel of the online gaming firm U.S. Digital Gaming, told The Hill that the Justice Department “has finally confirmed what we believed in Illinois to be true all along—that intrastate gambling is an issue that is within the sole discretion of a state to regulate, as it deems appropriate.” Riahei, general counsel of the Illinois Lottery from 2007 to 2010, said states can now “comfortably” begin to implement Internet gaming programs to generate revenue to fund “essential government services.”

That won’t be as easy or quick as Riahei implies, according to Indian gaming expert Joe Valandra. Before moving ahead, Valandra told ICTMN states have to pass legislation to allow Internet gaming and that may present some barriers, Valandra said. “I don’t think (the Justice Department opinion) is a big deal for the tribes because there’s only one state that has enabling legislation and that’s Nevada. Other states have talked about it, but haven’t passed anything. It has to go through a whole legislative cycle before any state besides Nevada will be able to offer intra-state online poker,” Valandra said. A citizen of the Sicangu Lakota, Valandra is principal owner and president of VAdvisors, LLC, chairman and CEO of Tehan Woglake, Inc., and former chief of staff of the National Indian Gaming Commission. “It’s something I’m sure the tribes in general are looking at but I don’t think it has any particularly negative implication in and of itself.”

The IGRA allows for tribes to conduct whatever level of gaming a state conducts so if a state legislature approves online lottery sales and/or gaming then all federally acknowledged gaming tribes in that state will be able to offer Internet gaming as well. It’s not clear at this point what impact online gaming would have on brick-and-mortar casinos.

Another Indian gaming expert who spoke on condition of anonymity agreed with Riahei’s assessment that states already have the authority to conduct online lotteries and gaming within their borders. "So the Justice Department opinion means nothing to the nations,” he said.”Congress already passed the law saying that states can have intra-state gaming—the Unlawful Internet Gaming Enforcement Act.” The law, known by its unwieldy acronym UIGEA, was passed in 2006 as part of the SAFE Port Act and essentially prohibits using wire transfers or credit cards for online gaming. But a paragraph of UIGEA confirms that neither states nor tribes are constricted by the act. “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”

So why have the states waited so long to jump into online lottery other than in limited ways such as the New York Lottery's Subscription program? “Because they’re afraid, especially after the poker prosecutions,” the source said, referring to the shut down of three of the largest illegal online poker sites last spring. “And beyond that they have a lot of potential opposition within their own states. Even California and Illinois can’t get anything passed," he said, referring to unsuccessful attempts to pass online gaming in California and expanded brick-and-mortar gaming in Illinois.

Nevertheless, some tribes are preparing for the day when states will legalize online gaming by offering free gaming online now. The California Online Poker Association, a coalition of card rooms in the sunshine state led by the Morongo Band of Mission Indians, recently launched CalShark.Com, an online free-play poker room to promote legalizing Internet gaming. And the Barona Band of Mission Indians started its own Barona Online Poker. The trend is catching on among tribes, according to a lobbyist for the California Tribal Business Alliance, which opposes the current gambling legislation in the state. “It’s branding, creating customer loyalty, getting a database,” lobbyist David Quintana told The Sacramento Bee. “Then when something happens to make it legal they can flip the switch from a free site to a paid site.”

The 13-page Justice Department opinion was dated September 20, but released on December 23 without explanation for the delay. The opinion responded to requests New York and Illinois in 2009, wanting to know if their proposals to sell lottery tickets online would violate the Wire Act. Enacted in 1961, long before the Internet existed, the Wire Act was part of a series of anti-racketeering laws aimed at stopping organized gambling. The Wire Act criminalizes anyone “engaged in the business of betting or wagering (who) knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.”

The Justice Department’s Criminal Division also sought clarification of the statute. The department’s Office of Legal Counsel (OLC), which issued the opinion, disagreed with the Criminal Division’s view that the Wire Act prohibited in-state lottery sales over the Internet. “Having considered the Criminal Division’s views, as well as letters from New York and Illinois to the Criminal Division . . . we conclude that interstate transmissions of wire communications that do not relate to a “sporting event or contest” . . . fall outside of the reach of the Wire Act," Virginia A. Seitz, assistant attorney general in the Office of Legal Counsel wrote.

The opinion may have disappointed Senate Majority Leader Harry Reid (D-Nevada) and Senator Jon Kyl (R-Arizona), who also received copies on Friday, December 23, according to The Hill. Reid and Kyl wrote to Attorney General Eric Holder on July 14 with their concerns about “the spread of efforts” to legalize intra-state Internet gambling and offer state-sponsored lotteries on the Internet. They said they believed that Justice’s “longstanding position” was that “all forms of Internet gambling are illegal—including intra-state Internet gambling” and asked the department to reiterate that position or “consult with Congress before finalizing a new position that would open the floodgates to internet gambling.” Neither senator could be reached for comment.

Although Kyl is not noted for supporting Internet gaming, Reid is. At the National Indian Gaming Association’s (NIGA) mid-year meeting in October, panel moderator John Harte (San Felipe Pueblo) of the Mapetsi Policy Group said there’s a strong push to legalize Internet gaming at the federal level coming primarily from the Poker Players Alliance, the American Gaming Association, from the gaming states of Nevada and New Jersey and from Reid, whose home state of Nevada would benefit from being the first to offer online gaming. “Sen. Reid made a very hard push to include Internet legislation at the end of last year and he’s continued this year. He hasn’t been very up front about it. He hasn’t introduced legislation. Even last year when he was trying to attach legislation to the Omnibus bill he never came out with a formal bill. All he had was draft legislation” Harte said, calling it a “shadow bill.”

So, although Reid may not be happy at the Justice Department’s opinion, it may play into his hand, Valandra said, because his goal is to pass federal legislation to legalize and regulate online gaming. “There is one potential political implication and that is that with this (opinion) in hand Sen. Reid can say, ‘Look, this is just like the Cabazon case. We’re going to have a bunch of different states and entities providing different kinds of services with different levels of regulations and that’s just unacceptable so we need to pass this federal legislation now.’ And I think that’s why he asked the question (in his July 14 letter) in the first place, “ ,’” Valandra said, referring to California v. Cabazon Band of Mission Indians in which the U.S. Supreme Court ruled in 1987 that the states has no jurisdiction over Indian gaming on reservations. The next year, Congress passed the Indian Gaming Regulatory Act in order to maintain some level of control over Indian gaming.