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New DOJ Position on Internet Gaming Creates Both Uncertainty and Opportunities for Tribes

The Justice Department's position on the legal status of Internet gaming has shifted dramatically, with major implications for Indian country. On December 23, 2011, the Justice Department announced that it had reversed its long-held position on the applicability of the federal Wire Act of 1961 to internet gaming. Instead of a bar to all forms of internet gaming, the Department stated in letters to Senators Harry Reid (D-Nevada) and Jon Kyl (R-Arizona) that the "Wire Act only applies to the transmission of bets or information assisting in the placing of bets or wagers relating to sporting events or contests." It does not, according to the Department, apply to other forms of online gaming, such as lottery games.

While there are still a number of issues to be resolved, the immediate result of this new interpretation of the Wire Act is likely to be a push by state lotteries across the country to begin offering games online. Prior to December 23, many states were reluctant to move forward with state-sanctioned internet gaming due to concerns that such efforts would result in a confrontation with the Justice Department over the applicability of the Wire Act. Now that the uncertainty about the Wire Act has been resolved (at least for this Administration), many state lotteries, some of which have been laying the groundwork for offering games online for several years, may move quickly to implement such games. In addition, some states are considering legislation to allow commercial entities to offer games online. As a result, it is probable that Indian tribes will be forced to address internet gaming issues at the state level rather than the federal level. This situation presents both uncertainty and opportunities for tribes.

One of the greatest uncertainties is the level of competition that tribes may face in the near future from games offered online by state lotteries and other entities operating under state law. Of note, some state lotteries are reportedly taking the position that they can offer games online under existing law. It is likely that at least some lotteries will offer games online that look and play like casino games, including slot-style games and various card games. Some state lotteries are even contemplating offering internet poker. Further, unless carefully crafted, state internet gaming legislation could open the door for internet gaming parlors. In short, tribes could face severe competition from state-authorized online gaming.

Another uncertainty is the compact implications of state-sanctioned internet gaming. While the advent of such games may allow some tribes to reduce or end exclusivity payments under tribal-state compacts, other compacts are less clear about whether internet gaming would violate exclusivity. In other cases, whether there is a violation of exclusivity may turn on the specific types of games offered online.

Further uncertainty is presented by the need to develop an appropriate legal framework for tribally operated intra-state internet gaming. While the Indian Gaming Regulatory Act (IGRA) governs all gaming on tribal lands, tribes may need to navigate a hybrid legal framework that involves the IGRA, other federal laws, tribal law and state law if bets are accepted from beyond tribal lands.

Tribes also must deal with the uncertainty of potential federal legislation that could further alter the legal framework for internet gaming. While tribes have focused significant attention on federal internet gaming legislation, it appears unlikely that such a bill will pass this year. However, such legislation could pass eventually. Thus, tribes may be forced to make investment decisions about internet gaming prior to knowing the ultimate regulatory and competitive landscape.

While these and other uncertainties are significant, a state-level approach may provide tribes with important opportunities. For example, some tribes have significant political clout at the state level. This is especially true in states where tribes make large exclusivity payments under their compacts. Such tribes could be well-positioned to help craft state legislation that would allow them to offer games online while also protecting existing tribal brick-and-mortar gaming facilities.

Tribes also may be able to enjoy a better competitive position in a state-wide rather than a national internet gaming market. It has been reported that some of the major commercial gaming companies would prefer a federal authorization for internet gaming, since it would be easier for them to dominate a national market with their brand recognition and marketing resources. In contrast, tribal casinos generally have much better brand recognition at the state level.

Finally, some tribes may have the opportunity to begin offering some forms of internet gaming based on existing compact or tribal gaming ordinance provisions. Of course, each tribe will need to review its own compact, gaming ordinance and other applicable laws to determine its rights with respect to internet gaming.

In sum, tribal leaders have a number of critical issues to consider in the months ahead, including whether and how to deal with state policy makers to make sure that tribal interests are protected in any effort to implement intra-state internet gaming. While the situation in each state is different, it does seem likely that legalized internet gaming in at least some parts of the United States will become a reality in 2012.

Joseph H. Webster is a partner with the law firm of Hobbs, Straus, Dean & Walker, LLP in Washington, D.C.