States and Feds Race to Get Internet Gaming Legislation; Indian Country Must Be Prepared

A story about how American Indian Gaming must keep up with online gambling legislation.

Gaming experts have an urgent message for indigenous leaders: Federal legislation to legalize online gaming is coming, and if you want to protect Indian country interests, you need to get your strategy in place now.

The clock is ticking toward the lame-duck sessions of Congress in the crucial weeks after the presidential election this November. Experts say that’s when there will be the greatest risk—and greatest opportunity—for the nations, because that’s when legislation is most likely to be pushed through. During such a session at the end of 2010, Washington was abuzz over Sen. Harry Reid’s (D-Nevada) efforts to attach an online poker bill to a must-pass appropriations bill. Reid’s proposal would have harmed Indian gaming tribes and given a huge advantage to some of his biggest backers in the commercial gaming industry in Nevada. After a groundswell of opposition from the National Congress of American Indians (NCAI), Reid backed down.

Reid’s bill would have hurt tribal gaming and tribal sovereignty by, among other things, imposing federal taxes on tribal governments that operate internet poker and separating the gaming operator from the gaming regulator, thereby limiting the tribal government’s role and authority. Perhaps the most bizarre provision would have excluded any tribe earning less than five percent of total U.S. gaming revenue from participating in the initial launching of Internet gaming, cutting dozens of small Indian casinos out of the market.

The buzz about Internet gaming legislation has quieted to whispers in D.C. lately, but the issue is still very much alive, says Tom Rodgers, a Blackfeet Nation citizen and owner of Carlyle Consulting, a lobbying firm that represents Indian tribes. “This is the quiet before the storm,” he says. “Our job representing Indian country is to be prepared, and even though it’s as quiet as a Sunday morning now, the storm is coming and if you’re not prepared, if you’re not informed and if you haven’t done your due diligence and worked through all the permutations, unintended consequences and the collateral damage, then you haven’t done your job.” The worst possible collateral damage, he says, is that tribes would be completely shut out of the market if they aren’t ready to negotiate. Being ready means knowing in advance what needs to be included in any online gaming legislation in order to protect tribal interests.

Once the tribes have the answers they need on how best to protect Indian country, the next step is to engage in the political process. “What are you doing to carry your message to the people running for office?” Rodgers says. “Are you reminding those already there of their obligations to support Indian country? Indian country can influence the vote in a lot of places and may even be dispositive in several states. What are you doing about getting out the vote?” He says the best approach is for all of Indian country to reach a consensus and act in unity, and that strategy is best achieved through large tribal organizations like the NCAI and the National Indian Gaming Association (NIGA).

Internet gaming was again a hot topic this year at NIGA’s annual trade show and convention April 1 to 4 in San Diego. In October 2010, NIGA adopted the following set of principles, stating that federal internet gaming legislation must:

• Protect the right of sovereign Indian governments to operate, regulate, tax and license Internet gaming without subordination to any nonfederal authority;

• Uphold the right of Indian governments to authorize Internet gaming to customers anywhere that such gaming is not criminally prohibited;

• Protect federal law and policy exempting tribal revenues from taxation;

• Respect existing tribal government rights under the Indian Gaming Regulatory Act (IGRA) and tribal-state compacts;

• Protect IGRA from being opened for amendments;

• Provide positive economic benefits for Indian country.

At a recent Internet gaming conference, California Tribal Business Alliance Chairwoman Leslie Lohse (Paskenta Band of Nomlaki Indians of California) urged tribe leaders to engage in the process. “It is critical—no, I would say incumbent upon—tribal leaders to weigh in on the legislative proposals now to ensure that there are no foreseeable negative consequences that may undermine and compromise the inherent rights of tribal governments.”

Rand (left) and Light think legislation will go beyond IGRA, so now is a good time for tribes to start diversifing.

Rand (left) and Light think legislation will go beyond IGRA, so now is a good time for tribes to start diversifing.

Additionally, tribal leaders need to consider a number of issues and answer several questions in order to be prepared to help shape the federal legislation that will impact Indian country. Rodgers suggests the following topics of discussion:

• Tribes should have the right to offer online gaming even if a state “opts out” of the federal regulatory scheme;

• Should tribes support the National Indian Gaming Commission as their continuing partner in regulating Indian gaming rather than another agency that’s unfamiliar with tribal gaming?

• There should be a common start date for online gaming for commercial and Indian gaming so that no operator gets the unfair advantage of being first and glomming the biggest market share;

• Internet cafes should be prohibited from online gaming;

• How will revenue from Internet gaming be allocated?

• How will revenues be allocated if a tribe enters a partnership with a big commercial gaming brand?

• What are the implications for world trade and its regulations in terms of taxes and revenue sharing if a tribe partners with businesses off shore, in Europe or beyond?

• How will tribal-state compacts play into online gaming regulations?

The issue of tribal-state compacts will be crucial. At a recent forum, Connecticut Governor Daniel P. Malloy, tribal officials from Foxwoods Resort Casino and Mohegan Sun (the two largest casinos in the country) and representatives of the Connecticut Lottery met to explore the prospect of online gambling and create a strategy to deal with mounting competition both in brick-and-mortar casinos in surrounding states and online gaming. “Internet gaming is going to come to the United States,” Malloy said, according to a Global Gaming Business report. “The tribes, the lottery, we’re all trying to figure this out together.”

One of the issues to resolve is the tribal-state gaming compacts signed in the 1990s with the Mashantucket Pequot Tribal Nation, owner of Foxwoods, and the Mohegan Tribe. Both tribes give 25 percent of their slot revenues to the state, and both insist that Connecticut would have to renegotiate that deal if the state intends to implement online gaming. Mohegan Chairman Bruce “Two Dogs” Bozsum wants the governor to allow the tribes to take charge of Connecticut’s online enterprise. It’s also an area that Mashantucket Pequot Tribal Council Chairman Rodney Butler is exploring. “There’s been a lot of talk about [Internet gambling] lately,” Butler says. “Nothing is certain. It’s something we’re interested in and studying. We need to know more from the state before we start forming assumptions. The financial values people are placing on it vary widely. You have to be first to market to make it a success.”

The urgency for tribes to be informed about and prepared for any online gaming legislation was sparked by the dramatic change in the landscape since December, when the Department of Justice released a legal opinion that the 1961 Wire Act prohibits online betting only for sporting events and contests, not lotteries and other gaming. This ruling was suspect for at least two reasons: the Justice Department’s sudden reversal of an opinion it had held for decades and the fact that the opinion was completed in September, but not released until December. “The reason for the delay is unclear, but the results are very clear,” says Joe Valandra, a citizen of the Sicangu Lakota and principal owner and president of VAdvisors, LLC, chairman and chief executive officer of Tehan Woglake, Inc., and former chief of staff of the National Indian Gaming Commission. “I believe it was hoped that this would be enough to push federal legislation over the top—using the floodgates argument—very similar to that used to produce the Indian Gaming Regulatory Act.”

IGRA followed the U.S. Supreme Court’s 1987 decision in California v. Cabazon Band of Mission Indians, which affirmed the right of sovereign tribal nations to conduct gaming in Indian country. Believing that the decision opened the floodgates to unregulated Indian gaming, Congress rushed to enact IGRA the following year—a bill that both recognizes tribal sovereignty and paradoxically restricts it by giving states control over certain gaming regulations and the extent of gaming played on Indian lands. It also allows states to get a cut of Indian gaming’s profits through compacts.

Reid and the head of a powerful online lobbying group made comments recently that support Valandra’s floodgates theory. When asked to comment on the Justice Department’s new opinion, GamblingCompliance reported that Reid said, “It’ll give us an incentive to get something done. We cannot have a series of laws around the country related to [Internet] gaming. I know a lot about gaming. I’m a former chairman of the Nevada [Gaming] Commission, and I think it’s very important that we have a national law.” His comments indicate that lawmakers realize 2012 is the time either to pass a federal online gaming bill or be caught on the sidelines as some states enact regulations on their own.

The site also quoted John Pappas, executive director of the Poker Players Alliance, responding to Reid’s comments. “It’s very positive that someone like Reid is openly talking about the need to get this done this year,” Pappas said. “We’re hoping we can transfer words into law. It’s preferable for the players, for the business side of things, to have some clear and consistent standards across 50 states instead of a patchwork of state laws and activities that would be legal in one place but illegal somewhere else.”

The states are now moving—some say frantically rushing—to adopt laws and regulations that will enable them to be “first” in the market, Valandra said. ”This will clearly bolster the floodgates argument. In addition, former FBI director Louis Freeh and former Homeland Security director Tom Ridge are now leading an argument that federal legislation is needed to address law enforcement issues only the feds can address,” Valandra said.

The Justice Department opinion has indeed sparked a feeding frenzy among cash-hungry states looking to bolster revenues in the face of big budget deficits. By the end of February, a dozen states had either passed or proposed legislation for online gaming, according to Global Gaming Business magazine.

Other states also may not wait for the lame-duck session to enact legislation, Kathryn Rand and Steve Light said. They are the founders and co-directors of the Institute for the Study of Tribal Gaming Law and Policy, a component of the Northern Plains Indian Law Center at the University of North Dakota School of Law. Rand is the dean and Floyd B. Sperry professor of law at the University of North Dakota School of Law; Light is associate professor of political science and public administration at the university. “Legalization will happen—it’s just a matter of when, and most folks believe nothing will happen at the fed level until the election sorts out,” they say. “We think fed legalization is likely to be best for tribes, because of uniformity and more likely respect for sovereignty. But states may not wait for the presidential election.… The pressure here is economic.” Rand and Light think it’s “highly likely” that tribal online gaming will “push Indian gaming beyond IGRA, so we expect to see a legal and regulatory evolution of tribal gaming, with different policy goals than IGRA focused on.”

But neither federal nor state legislation will focus on tribes or tribal sovereignty, the partners warned. “Instead, the likely main focus will be regulation and taxation. That spurred our encouragement to tribes to think about how online gaming could serve tribal policy goals.” And not all tribes are poised to take advantage of the looming legalization, they said. “Those with recognizable brands and technological and regulatory capacity are in the best position, leaving behind the same tribes that have modest brick-and-mortar operations.” The partners predict that online gaming will exacerbate the divisions that exist between the financially successful gaming tribes and the less successful. Their advice: “Time to diversify!”

NIGA Chairman Ernie Stevens Jr. says, “whatever legislation has been rolled out so far does not meet what we believe are the appropriate standards for dealing with sovereign tribal government. [We] continue to be disregarded to a large extent—and then they wonder why we stand in opposition to their proposals. We’re not opposed to progress, we’re not opposed to technology and helping our economies, but as long as people make proposals without the appropriate respect to tribal governments, we have a huge problem with that.”

In their rush to expand from lotteries to casino gaming online, many states have left behind their former “moral objections” to gaming. The double standard is not lost on the experts. “States are rational actors in the worst way possible. They’re so broke that when they see novel revenue sources, they almost can’t help themselves. They clearly can’t reduce costs effectively, and we taxpayers have nothing left to give. New money is about the only option they have left,” says Anthony Broadman, an attorney a partner in Galanda Broadman, a firm specializing in Native American and gaming law. Broadman predicts that the moral objection arguments will arise in future political campaigns. “Certainly that’s been the pattern. Whether you’re morally opposed to gambling or not, states have been sanctioning games for decades through horse racing, card rooms, lotteries.”

Broadman thinks tribal gaming is likely to be more respected in federal legislation as opposed to “simply surviving through whatever carved out space exists in the states’ patchwork.” But whatever approach tribes take toward the opportunities presented by online gaming—whether it’s lobbying Congress, litigating with states or just venturing out into the cyberspace marketplace, “it’s going to take a fight,” Broadman says.