Tribal gaming well positioned after new regulations and Supreme Court ruling

Saturday, August 17, 2024 4:30 PM
Photo:  Shutterstock
  • Buck Wargo, CDC Gaming

With new federal regulations and assistance from the U.S. Supreme Court, Indian gaming is positioned for online-gaming expansion and greater sovereignty.

The U.S. Supreme Court’s refusal in June to take up a case that challenged the Seminole Tribe of Florida’s exclusive rights to online sports betting in the state continues to be celebrated by tribes across the country. By not acting, the Supreme Court upheld a 2023 D.C. Circuit Court of Appeals decision that paved the way for tribal online sports betting and igaming off of Indian land.

Earlier this year, the U.S. Department of Interior updated federal regulations regarding Class III gaming compacts that look away from some of the heavy-handedness of states in negotiating compacts with tribes and better protect tribal sovereignty.

Those new rules piggyback on the D.C. Circuit’s decision that enables tribes to strike deals with states and offer online gaming to customers off the reservation, as long as the computer servers sit on tribal lands. The new regulations mirror the Department of Interior’s 2021 approval of a compact between the Seminole Tribe and Florida.

The Florida development was unsuccessfully challenged in the courts by commercial operators that complained the tribe was given a statewide monopoly and that the compact violated the Indian Gaming Regulatory Act adopted by Congress in 1988, because the gambling wasn’t occurring on tribal lands.

“As a result of those tremendous victories, you’ll see tribes take a much more active role in offering statewide mobile sports wagering,” said Arizona-based tribal attorney Scott Crowell. “You have to look at it on a state-by-state basis to see how much opportunity was created by the new regs and the order out of the Supreme Court. What we do know is if they’d gone the other way, it would have been devastating for tribes.”

The new DOI regulations enacted in March provide “a clear road map in which states and tribes can structure statewide mobile sports wagering such that it will be lawful under IGRA and federal law and approved by the Department,” Crowell said. “In many respects, it was the codification of the position they took in approving the Florida-Seminole compact. The decision was a validation of the legitimacy and appropriateness of those regulations.”

Under IGRA, sports betting is classified as Class III gaming, so it requires amendments to compacts for tribes to engage in it unless previously authorized. Tribes in Michigan, for example, entered sports betting under state laws authorizing sports betting and online gaming that also enabled commercial operators.

“A number of tribes are well positioned to take advantage of it,” Crowell said. “In states that authorized a great number of non-tribal licenses (Michigan and Arizona), this decision may not yield a great opportunity for those tribes.”
California, however, will still require an amendment to the state Constitution by a voter referendum – the same process that legalized tribal casinos in the state, Crowell said.

“The decision provides an excellent model for the California tribes to consider putting a measure on the ballot, but people thinking it will be on the next election need to take a step back. California voters (in 2022) made it clear that they don’t have the appetite to approve the game at this juncture. This decision encourages the tribes and others impacted by the decision to get a measure on the ballot not in 2026, but in 2028 or 2030.”

Washington and New Mexico have retail tribal sports betting only, while Oregon, Idaho, Montana, Oklahoma, and Minnesota are among states that offer no tribal sports betting. In Oklahoma, Gov. Kevin Stitt is battling with tribes over sports betting expansion.

“The Seminole ruling dropped like a bomb at the Northwest Indian Gaming Trade Show (in June),” said Jason Giles, executive director of the Indian Gaming Association. “Everyone was talking about and analyzing it, because a lot of the tribes in the Northwest don’t have the opportunities right now. The regulations, the courts, and the compact system are finally catching up with where technology is headed. We still see obstacles out there, like recalcitrant governors who refuse to negotiate in good faith under IGRA. But for the most part, we’re happy with the new regulations coming out of the DOI and this recent court case. Right now, tribes have a positive feeling about where Indian gaming is headed.”

Giles said it will continue to be a big topic of discussion at the (IGA) mid-year conference in Washington state, G2E in Las Vegas, and the National Congress of American Indians, all between now and the presidential election. He doesn’t expect the ruling and regulations to “spur anything in the near term” in states looking to expand sports betting.

Despite the positive developments, there’s still angst among tribes that the Supreme Court could act against them in the future over gaming exclusivity, as commercial operators argue they’re getting race-based privileges.

Mike McBride III, a Tulsa-based tribal gaming attorney for Crowe & Dunlevy, said tribes are also worried about the Supreme Court’s so-called Chevron decision, which opens up challenges to government regulations.

Those Department of Interior changes are important; bcause they mean that states can’t bully tribes as much as they have in the past and trying to litigate is expensive and difficult, McBride said. The DOI can still disapprove overreaching compacts if tribes aren’t given sufficient exclusivity or enough revenue.

“States kept trying to slip things, such as tobacco and environmental issues, into compacts that didn’t have anything to do with gaming,” McBride said. “Tribes were so desperate for economic development that they ultimately agreed to those things.”

The new rules, however, won’t allow tribes to enact sports betting off reservations without a compact or support by state law, McBride said. He suggested state and federal constitutional challenges, so that case isn’t settled.

“Florida and the Seminole Tribe aren’t out of the woods yet,” McBride said. “There could be an equal-protection challenge under the U.S. Constitution that this is race-based preference by awarded exclusive deals at the expense of non-Indians. What is clear about the new rule is it sets a path for internet sports betting where the governor, legislature, and tribes work together on a compact that provides gaming statewide.” That doesn’t mean everyone will benefit, he noted.

“Florida is unusual. There are so few tribes and exclusivity is an important part of the Class III gaming compact, both to the tribe and to the state and revenue that will be paid,” McBride said. “Oklahoma has 39 tribes and 35 that have gaming, so it would be much more difficult to come up with that kind of deal. It would be hard to have sufficient revenue with so many tribes in the game.”

Daniel Wallach, a Miami-area attorney and sports-betting law expert who filed a brief asking the Supreme Court to either take up the case or reverse it outright, suggested the Florida gaming expansion now enabled by courts and regulations could have a “catalytic effect” there and other states.

Wallach suggested Florida could be the “most significant state” in the country in generating revenue for icasinos and online sports betting and create a spillover effect in other jurisdictions, both tribal and commercial. Given Gov. Ron DeSantis’s imprint on the Florida judiciary, he doesn’t expect any successful challenges to icasinos.

“The next level of gaming expansion in Florida will be igaming and because the compact was upheld by D.C. Circuit, it allows the tribe and state to include digital gaming in an IGRA compact,” Wallach said. “The notion of a sports bet taking place where the server is located can easily apply to igaming and online-casino wagers placed by patrons outside Indian lands. In a year with no momentum in igaming, Florida could represent momentum nationwide for igaming legalization, because of its size and expected handle. We could see the dawn of a new era in digital gaming.”

Carlo Santarelli, an analyst with Deutsche Bank, called “contortions” to put a positive spin on the (Supreme Court) outcome for online gaming operators as “surprising.” He struggles with any notion the ruling is a positive for the online-gaming group and that “a future with meaningful profit contributions” from Florida and perhaps other states with significant tribal influence appears less likely.

“For the foreseeable future, the Seminole Tribe controls online sports betting in Florida and could be launching icasino as soon as 2026,” Santarelli said.

The Seminole Tribe will be able to run online sports betting through 2051 when their compact expires. The Seminoles can also engage with an online sports betting operator for enhanced technology and B2B, he said.

Florida offers the blueprint that Wallach said could be followed for online sports betting off reservations in states like Wisconsin, Oklahoma, Minnesota, Washington, and California, even though others said the latter is not possible without a statewide vote. Wallach contends his reading of the California Constitution bans legislative approval of casino gambling, but says nothing about sports wagering. He sees that as exempt from a statewide voter requirement.

“The legislature may empower it by statute or by ratifying a compact,” Wallach argues.

The possibilities in California were echoed by Santarelli, who said the Supreme Court ruling provides a blueprint, as long as the servers accepting the bets are in tribal facilities and online wagering falls within the compact.

“For the California tribes, the case allows them to potentially amend their current compacts to permit sports betting and avoid a ballot initiative,” Santarelli said.

In 2022, California tribes successfully fought a move by commercial gaming operators to install mobile sports wagering in a campaign in which hundreds of millions of dollars were spent. The tribes failed in their bid for retail sports betting.

“While many believe the tribes would simply partner with existing online sports betting operators, we believe this view lacks an understanding of tribal politics,” Santarelli said. “In our view, given that the quantum of tribes in California far surpasses the number of online sports book providers and the balance of power among the tribes, we see this view as overly optimistic. Moreover, given the sensitivity around the control of gaming in the state, we believe it’s naïve to expect the tribes to turn over any element of gaming to outside entities without a significant and ongoing financial return.”

Casino industry consultant Brendan Bussmann said the DOI rules have more of an impact than the Supreme Court, because the high court didn’t issue any ruling other than not taking the case.

While the new rules are a positive for tribes, Bussmann said he doesn’t agree with those who see it opening the door for online sports wagering in California.

“People say it will up the timeline in California, but the only thing that will up the timeline is when all tribes get on the same page and say here’s what we want,” Bussmann said.