Amid multiple launches of tribal sports betting operations, federal regulators are taking on some new questions.
On Tuesday, the National Indian Gaming Commission (NIGC) released a new bulletin, their fifth this year. This bulletin, however, was the first this year to address tribal sports betting directly.
More specifically, the bulletin provides “supplemental guidance on emerging trends and issues the National Indian Gaming Commission Office of General Counsel has encountered during its review of sports book agreements.”
2020 tribal sports betting bulletin
The 2021 bulletin follows a similar document released in 2020, which outlined potential options that tribal sportsbooks could use and still comply with the Indian Gaming Regulator Act (IGRA).
In the 2020 bulletin, titled “IGRA and Sports Book Operations,” the NIGC laid out that tribes had four options for how they could operate a sportsbook:
- Complete tribal operation of the book;
- A tribally owned sportsbook with data from third parties;
- A managed sportsbook; and,
- An individually owned sportsbook
What is the right answer?
The bulletin suggests that the first option raises the fewest questions because the tribe keeps everything in a “closed-loop.” However, according to the memo, the second option, which is noted as popular, is rife with “danger” as “this type of arrangement can veer into management or violate a tribe’s sole proprietary interest.”
IGRA and NIGC require that tribes submit management agreements to the NIGC Chair for approval. Failure to comply with the regulations is an IGRA violation, and could result in fines or even a closure order.
The third option, where tribes farm out the day-to-day operations of their sportsbook, is permissible if approved by the NIGC. However, there are strict regulations including that a management partner cannot receive more than 30% of the revenue (40% if the Chair determines there is a justification.)
The fourth option, where a tribe effectively licenses out space for a non-tribal entity to operate a sportsbook under tribal regulations, faces stringent rules. This includes that the tribe must impose regulations at least as strict as the laws of the state that surrounds the tribal property, and the tribe must receive at least 60% of net revenues from the book.
The 1994 memo
The 2020 bulletin followed a 1994 memorandum that detailed a difference between management and consulting contracts.
The difference requires a fact-specific inquiry, with management contracts typically having greater authority over the business operations. The critical difference is that consulting agreements, unlike management agreements, do not require the approval of the NIGC chair.
What’s in new tribal sports betting memo?
The latest memorandum from the NIGC may raise concerns for some because of the detail it provides in the tribal sports betting context.
When the 1994 management memo was written, there were far fewer tribal sports betting operations, and the internet was still in its infancy. 2021 is a far different world.
The new memo outlines several areas that may raise concerns regarding whether a tribe is delegating “management” or failing to maintain a sole proprietary interest in its sports betting operations.
The memo states that contracts must be absolute in their prohibitions of vendors exerting management functions. The memo further notes management concerns whenever a vendor can revise sportsbook or risk management rules.
A vendor can provide recommendations regarding these subjects, but the tribe must maintain the ultimate authority over the decision-making. Relatedly, contracts that renew automatically and indefinitely may raise sole proprietary interest concerns in the eyes of the NIGC.
While advertising of sportsbooks has received a lot of attention recently, with New Jersey regulators and the NBA talking about its ubiquity, the NIGC memo states:
A vendor may not control how a sportsbook is advertised, and/or marketed, and may not unilaterally make decisions related to the location of interior and/or exterior signage for the sports book.
Specific predetermined parameters can be agreed upon.
The bigger problem?
The memo states that other areas raise concerns as well. Amongst them are kiosks, about which the notice states:
(tribes’) agreement[s] must make clear that the tribe has the sole discretion to make all final determinations as to when and how to use, or not use, the sports betting data supplied to the kiosks. The tribe must be able to alter lines and suspend betting, and must ensure that it has ultimate control over the kiosks and data.
There are also concerns raised about sharing shortfalls and whether that may create an impermissible partnership. This concern is related to a particular concern with vendors footing the costs (at least upfront) for buildout and whether that could create a joint venture. This may not be an issue, provided the tribe maintains the sole proprietary interest.
While the bulk of the memo notes some areas of concern, the NIGC also lays out ways to mitigate problems at the end of the notice.
What to make of this?
The memo reads as though the NIGC has been fielding many new questions surrounding tribal sports betting.
It appears they feel it was time to add some clarity to the old 1994 memo.
The memo also seems to serve as a reminder for tribes of their obligations under IGRA.