Not So Fast On Sports Betting: Legislation Will Need Approval Of Tribes In Many States

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Tribes approve sports betting

Efforts to legalize sports betting in California and elsewhere may conflict with federal law and casino regulatory agreements governing American Indian tribes in 29 states, according to legal experts.

California sets stage for tribes, sports betting

Some 244 tribal governments operate in accordance with the Indian Gaming Regulatory Act (IGRA) and in many cases enjoy guaranteed statewide or limited exclusivity to operate casinos. Tribes often pay states a share of revenue in exchange for the exclusivity.

Expanding the scope of gambling beyond what is offered by indigenous governments under IGRA could jeopardize tribal-state agreements, or compacts, potentially costing states hundreds of millions of dollars in revenue and upending the regulatory structure.

Introducing legal sports wagering will likely be more complex – if not controversial – in states such as Michigan, with both tribal gambling under IGRA and commercial gambling regulated and taxed by the state.

Tribes in some states operate under compacts that limit the scope of gambling on Indian lands.

In most instances tribal and state officials and regulators will need to scrutinize compact language, which vary significantly among the various states with Indian casinos. Most of them will likely need to be amended and the revenue share revised.

California Assemblyman Adam Gray on July 20 became the latest lawmaker to introduce legislation in the wake of a pending US Supreme Court ruling on sports wagering in New Jersey. Connecticut, Oklahoma and Mississippi are considering similar laws.

Justices are expected to rule on the Professional and Amateur Sports Protection Act (PASPA) prohibition in early 2018.

Gray is proposing a constitutional amendment to authorize sports wagering in California. The amendment would take effect if federal law changes to allow sports gambling. There is already a state constitutional amendment giving tribes casino exclusivity.

“I am pleased to see the US Supreme Court has shouldered the burden of bringing legal clarity to the issue of sports wagering,” Gray said in a statement.

“Whether we like it or not, Californians are already betting on sports through illegal and often unscrupulous websites in foreign countries.

“We need to crack down on illegal and unregulated online gaming and replace it with a safe and responsible option which includes safeguards against compulsive and underage gambling, money laundering and fraud.”

Gray and his staff did not respond last week to requests for comment.

Some tribes are pushing back on sports betting

The California Nations Indian Gaming Association (CNIGA), a group of 31 tribes with and without casinos, is expected to reject any expansion of legal gambling in the state. The group meets Aug. 17 in San Diego.

“We have to look at how expansion of gaming will impact our brick-and-mortar casinos, whether its sports betting or poker or anything else,” CNIGA Chairman Steve Stallings says. “That’s the issue.”

Gray’s proposed amendment – which needs approval by two-thirds of the state legislature to get on the ballot – could also require a massive effort to renegotiate several, most or all 75 tribal-state compacts. Sixty-two tribes operate casinos under compact.

“I would think so,” Stallings says. “But people like Gray don’t give that any consideration. You wonder where we’re even going with this. It’s premature. There’s no thought being given to all these implications.

“There’s been no consultation with anyone in the industry,” Stallings says. “Why do this when there are so many unanswered questions?”

Some 60 boilerplate tribal-state compacts agreed to following passage of Proposition 1A in 2000 have since been amended and renewed. Additional agreements have been negotiated, signed and ratified.

“We have probably over a dozen unique compacts with unique provisions,” a tribal official says. “It’s not a one-size-fits-all anymore.”

One tribal attorney and an official with one of the state’s more politically prominent tribes anticipate such an effort would likely end up in court, possibly with several tribes refusing to make revenue sharing payments to state and local governments.

“It’s not going to be just the tribes, right?” asks the attorney, who requested anonymity. “It’s going to be tribes, the card rooms and racing. That’s expanded gambling in violation of public policy and the compacts.

“Some tribes will say if the state allows sports gambling it will violate their exclusive rights under the compact.  They’ll perhaps stop making revenue sharing payments to the state.”

A trend among tribes nationwide

Tribes in several other states have taken a similar position on sports wagering, daily fantasy sports (DFS), esports and other new forms of wagering outside IGRA.

Oklahoma Rep. Jon Echols introduced a bill earlier this month to pave the way for door for sports betting in the state.

“It’s occurring right now in almost every office in America,” Echols told KOCO News 5. “It would make more sense to do it in a regulated, secure, safe fashion that then would generate revenue for the state without a tax increase.”

“That could be a potential breach of the compacts,” says Tulsa, Okla., attorney Michael McBride, jeopardizing more than $1 billion in exclusivity fees paid by tribes to the state in the last decade.

Some 33 Oklahoma casino tribes recently rejected DFS, as was the case with most California tribes when Gray introduced similar legislation. The DFS bill hasn’t moved.

“The issue remains whether tribes want to embrace that enhanced gaming, or if they do not,” McBride says. “What is their benefit? Is it worth modifying or renegotiating compacts?

“That’s 33 tribes and 125 locations,” McBride says of a $4.2 billion state gambling industry that ranks second to California, which last year generated $8.4 billion.

But other tribes are mulling their options

Compact language varies a great deal among states with tribal gambling, a $31.2 billion industry with revenue used to fund services for indigenous communities. Many require revenue sharing payments to the states. Some have expirations dates. Some are specific about defining games.

Revenue sharing payments without a major benefit to the tribes – most often statewide or regional exclusivity – has been ruled by the federal courts to be an illegal tax under IGRA.

Without exclusivity, the U.S. Department of Interior and Bureau of Indian Affairs frowns on proposed compacts with revenue sharing mailed to the office for approval.

Most compacts limit the scope of compacted games to slot machines and house-banked table games. They are defined under IGRA as Class III games. Sports wagering as a banked game would also be a Class III activity.

Class II gaming – poker and bingo machines approved by the National Indian Gaming Commission – can be operated on tribal lands under IGRA free of tribal-state compacts and revenue sharing payments.

A number of tribes in California and elsewhere have discussed sports wagering as a potential revenue generator and driver of customers to the casino floor.

“We would like to have it,” a tribal source says, “but under what condition?”

“Some will. Some won’t,” a tribal attorney says, noting that tribes – large and small – have vastly different markets depending on their locations.

“I don’t think you’re going to get a unified position on sports wagering any more than you didn’t get a unified position on online poker.”

National movement on sports betting

The National Indian Gaming Association (NIGA), the industry lobby and trade group, last week joined the American Sports Betting Coalition, a group of state, local and law enforcement officials lobbying for the legalization of sports wagering.

Formed by the American Gaming Association (AGA), the group is pushing to regulate what is estimated to be a $150 billion industry.

“AGA is thrilled to have NIGA join the coalition and we look forward to working with them to overturn the failing federal ban on sports betting,” says Steve Doty, director of media relations.

The tribal and commercial casino segments of the legal gambling industry equally shared about $61 billion in 2015, according to several sources. They also each operated about 480 casinos.

Racino slots and poker rooms generate about $8.5 billion a year, according to economist Alan Meister, author of the annual Indian Gaming Industry Report.

Commercial and tribal government gambling are roughly equal in size. Yet Stallings says policy makers, industry officials and elected officials at the federal and state level often fail to consider tribes when debating issues such as internet gambling, DFS and now sports wagering.

That Gray in California and Echols in Oklahoma introduced gambling bills without consulting tribal governments came as no surprise.

“What’s new?” Stallings says.