The Arrival: Tribal Gaming, Nevada and the Future of Online Play

The long-awaited arrival of regulated Nevada and Delaware Internet gaming is bringing some uncertainty to the gaming industry. How will it affect traditional casinos? Will new customers be driven to existing brands? Will current market share be driven into the ether? We will know soon enough, as Nevada, and then Delaware, now have “legalized” forms of Internet gaming. You can bet other states will follow suit.

Even with these uncertainties, tribal gaming enterprises can rely on a few truths about the direction of online play. First, when for years gaming lawyers and casino pundits shouted “not if, when,” they were talking about today. In the wake of the U.S. Justice Department’s Christmas Eve memo, the piecemeal state-by-state approach to online gaming regulation appears to be the direction we are headed for now. That is not to say a federal solution or regulatory scheme is impossible, but online play may have already begun in Delaware by the time Congress again pays attention to a federal online poker law.

Second, the immediate pre-market infrastructure by non-tribal gaming interests should signal how important it is, or was, to be prepared. Before the ink was dry on Nevada’s online poker bill, IGT and Bally had obtained the first two licenses to provide online gaming technology. By the end of June, Bally had announced a partnership with Golden Nugget to power free-play online poker. As Golden Nugget Chairman and Owner Tilman J. Fertitta said in a press release, “We believe that online gaming is inevitable in the United States, and that our free-play site will enable the Golden Nugget to be well-positioned to compete when U.S. laws allow for online gaming.” Sound familiar? This is the approach taken by a consortium of tribal casinos and non-tribal card rooms in California with Calshark.com. Positioning was critical for Bally and Golden Nugget. Given the tribal gaming market share, tribal casinos must too be “well-positioned to compete when U.S. laws allow for online gaming.” Golden Nugget is not ramping up for Nevada legalization; by implication it is when “U.S. laws” allow for online gaming that the company will be meaningfully well-positioned. Nevada alone cannot support an Internet gaming market.

Third, regulation will evolve quickly, in particular the regulatory technology necessary for tribal Internet gaming. Microgeography is and will always be critical for Indian gaming. As long as IGRA contains an Indian lands limitation—and it always will—the location of players will be critical. Regulating play based on the physical location of players will be even more critical when Internet gaming increases. As industry giants dive into the geo-location technology necessary for Nevada’s gold standard regulatory compliance, Indian country can reap the benefits of technological improvements. Tribes who find it necessary to confine online activity to a city block trust parcel will benefit from the arrival of industry big boys to the legitimate online gaming sphere.

Fourth, tribes can now begin openly pushing at the edges of Indian gaming regulation. At its simplest, federal regulation of Indian gaming builds on the notion that if gaming forms are regulated in a state, tribes may employ them. Therefore, also very simply, if Internet gaming is legal in a state, Internet gaming is an option for tribes, subject to the other limitations of IGRA. Nobody is as intimately familiar with the limitations and arguably gray areas of federal Indian gaming regulation as tribal governments themselves. Tribal governmental gaming has seen this day coming. As the Chitimacha Tribe of Louisiana wrote last year:

The tribe understands the limitations of IGRA that all gaming be conducted on Indian lands. The issue created by Internet gambling is whether or not that form of wagering conforms to those requirements. The tribe believes that it would be extremely damaging to Indian gaming if IGRA were interpreted in a way that would prohibit Indian casinos from offering Internet gaming. The tribe further believes that IGRA does not mandate that interpretation, and that regulatory language should be developed to make that fact clear.
– Comments to the NIGC Regulations Submitted by Chitimacha Tribe of Louisiana, Aug. 8, 2011

Chitimacha went on to propose revisions to 25 C.F.R. part 559 that would make clear:

“Should Internet wagering be permitted within any state or by the federal government in a way that does not prohibit such wagering at Indian casinos, nothing in these regulations shall prevent the conduct of such Internet wagering … For purposes of the IGRA and these regulations, all wagers placed in the course of Internet wagering offered by an Indian casino shall be deemed to be placed when received at the Indian casino on Indian lands.”

There are arguments that gaming can be conducted via the Internet from outside of Indian country and still occur on Indian lands, but they have not enjoyed much traction. In general, tribes can assume that tribal gaming is confined to Indian lands in the most traditional sense of those boundaries (see 25 U.S.C. § 2701, et seq.). But if tribes can confine the elements of gambling to a reservation and insulate off-Indian-lands players from prize, chance and consideration, not all of these arguments have been exhausted.

Even more intriguing, as tribal casinos become anchor tenants in broad spectrum facilities offering sporting events, concerts, shopping, golf and hotels, more people will be located on Indian lands, even if briefly. In markets like the Puget Sound, Southern California and the Northeast, huge numbers are drawn to—that’s right—Indian lands for non-gaming entertainment and recreation. Arguably, Class II bingo for iPhones® could be rolled out at tribal casino ampitheaters, if limited to Indian lands and consistent with gaming ordinances. Every auto race at a tribal car track, every conference held at a tribal convention center, and every tribal golf course would become a virtual mobile-gaming hall. Of course economies of scale are necessary for success, and truly virtual gaming will dwarf physically present online play in both numbers and revenue. But that said, as many have suggested, getting tribal Internet gaming “shovel ready,” so to speak, is the best way for tribes to hit the ground running.

Finally, the taxes and profits Internet gaming will generate are apparent from the willingness with which states are now barreling toward regulated online gaming. Nevada will charge “interactive gaming” establishments a license fee of $500,000 (NRS 463.765(1)). Renewals will be $250,000 (Id. at (3)). According to a survey published on the Nevada Gaming Policy Committee website, however, the state has far lower barriers to entry than have been adopted and/or proposed in California ($30 million for a license and at least $1 million to apply), Delaware ($13.25 million), Florida ($10 million non-refundable advance payment of taxes) and Massachusetts ($10 million credit against taxes). These license fees reflect the expectations of industry and regulators regarding the volume of business to come. These numbers should shape the approach tribal governments take toward the online and mobile market.

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