The contracts that will play a huge role in tribal sports betting
Legal Sports Report

Tribal Compacts: A Primer For Legal US Sports Betting

Tribal compacting

Note: With the 20th annual TribalNet Conference wrapping up this week in Nashville, we look at one of the most important stakeholders in the sports betting conversation, and how tribal compacting may impact states’ desires for sports betting in the coming years.

The spread of legal sports betting in the United States accelerated greatly in the past year. Thirteen states now offer some form of sports wagering, with another half-dozen approved and awaiting launch.

Sports betting on Native American tribal lands, though, is moving at a cautious pace. Given the prevalence of tribal gaming throughout the country, the role of tribes in the growth of US sports betting cannot be overstated.

New York, as an example

During the May sports betting hearing in New York, there was a panel titled, “Native American Tribes/Conditionally.”

Those who watched the hearing, however, were likely confused as none of the speakers represented a Native American tribe. Witness Sarah Walters, who has extensive work experience at the federal level with tribal issues, even clarified that she was testifying on behalf of Caesars.

Legal Sports Report spoke with committee chair Sen. Joseph Addabbo about the absence of tribal representation.

Addabbo made it clear that the NY tribes are actively involved in drafting New York’s proposed legislation, and that the tribes were invited and declined to testify. Furthermore, Addabbo said the tribes were in attendance at the hearing.

The tribal impact on sports betting in many states is going to be significant.

We have already witnessed Florida’s hopes of seeing sports betting begin and likely end with the Seminole Tribe. However, the tribal gaming landscape is important to understand. It affects various states, from Oklahoma to Arizona, from California to Washington.

How big is tribal gaming?

In November 2018, the American Gaming Association (AGA) released a report detailing the impact of tribal gaming across the country. The report details that in 2017, tribal gaming was a $32 billion market segment with operations in 28 states.

Amongst the states with the highest economic impact from tribal gaming are California, at nearly $20 billion, followed by Oklahoma, Florida, Washington and Arizona. Tribal gaming employs almost 650,000 people across the US and contributes more than $15 billion to states via revenue sharing agreements.

If sports betting is going to happen in several states, it will as a result of an initiative pushed, or at minimum, supported by the tribes. Wednesday’s news of a California sports betting initiative backed by tribes is the latest example.

The Indian Gaming Regulatory Act

The Indian Gaming Regulatory Act, or IGRA, set the stage for how tribes, states and the federal government interact when it comes to tribal gaming.

IGRA was catalyzed by the US Supreme Court case, California v. Cabazon Band of Mission Indians, which held that California’s efforts to control which gaming activities could occur on tribal land via regulatory mechanisms conflicted with tribal rights.

Perhaps, IGRA is best known for establishing three classes of gaming activities:

  • Class I refers to “social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as a part of, or in connection with, tribal ceremonies or celebrations.”
  • Includes bingo and card games authorized by state law, Class II games exclude banked card games like baccarat, Chemin de Fer and blackjack, or electronic versions of these games and slot machines.
  • Class III covers all games that are neither Class I nor Class II, likely including sports betting.

Compacting under IGRA

While tribes have broad authority to regulate Class I and Class II gaming, IGRA requires that states seeking to offer Class III gaming must enter into negotiations with the state that the tribe is located in. The state must negotiate in good faith.

For a tribe to offer sports betting, it must satisfy several requirements:

  • The activity must be authorized by an ordinance or resolution that
    • (i) is adopted by the governing body of the Indian tribe having jurisdiction over such lands,
    • (ii) meets the requirements of subsection (b), and
    • (iii) is approved by the Chairman,
  • (B) located in a State that permits such gaming for any purpose by any person, organization, or entity, and
  • (C) conducted in conformance with a Tribal-State compact entered into by the Indian tribe and the State under paragraph (3) that is in effect.

Let’s get together

The paragraph (3) mentioned in subsection (C) requires tribes and states to enter into negotiations for tribal-state compact governing gaming activities.

After an agreement is reached, the deal is subject to approval by the Secretary of the Interior and becomes effective upon publication in the Federal Register.

IGRA also lists the subjects it may include in a compact:

  • Determining which laws will apply.
  • The allocation of jurisdiction between the tribe and the state.
  • Assessments done by the state regarding the costs of regulating the activity.
  • Taxation by the tribe.
  • Remedies for breach of contract.
  • Operating standards, including licensing.
  • Any other subjects directly related to gaming regulation.

IGRA essentially renders compacts the primary and exclusive means for states to engage in agreements with tribes over exclusivity and revenue sharing of gaming profits.

But tribal and commercial gaming do not always have the same objectives, or at least face different challenges.

Sports betting might be too costly

Sheila Morago, the executive director at the Oklahoma Indian Gaming Association, explained, “The fact of the matter is that unlike commercial operations, tribes have legal and political issues that must be addressed first.”

These agreements between tribes and states often come together after months or even years of negotiation. The prospect of renegotiating a compact and potentially having to give up a greater share of revenue to the state to offer a low-margin product, like sports betting, may not be worth it for all tribes.

Each state and tribe are going to need to evaluate sports betting and see if it makes sense, Morago said.

“They may be in states that require a constitutional change or their compacts may be coming up for renegotiations. So, tribes have to weigh the implications to the potential revenue to their properties.”

The cost-benefit analysis of sports betting is somewhat unique for tribes, in comparison to commercial operators.

While we have seen some action on the tribal front in New Mexico and Mississippi, other tribes — particularly those enjoying a relatively quiet period around the subject of their compact — may elect to kick the sports betting can down the road.

John Holden
- John Holden J.D. / Ph.D. is an academic. His research focuses on policy issues surrounding sports corruption.
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