If I were writing a Hollywood screenplay, I don’t believe I could fabricate any more twists and turns to the characters and plotlines than those related to recent developments in the tribal online gaming space. Conflict, felony charges, political indictments, lawsuits, international intrigue and serious government clashes have all been elements of this first act.
I start with my home state of California…with New Jersey, Delaware and Nevada legalizing online gaming, all eyes are on the big “prize” of California with its 38 million residents and current tribal land-based gaming operations that account for 25 percent of all current tribal gaming revenues nationwide. There are several proposals addressing the legalization and regulation of online gaming in California, with one of the more popular (that has been reworked over several legislative sessions) being SB 51—the Internet Gambling Consumer Protection and Public-Private Partnership Act of 2013. Over the bill’s lifetime, several tribes and tribal coalitions have supported both the bill and its author, state Sen. Roderick Wright (D-Inglewood). However, in January 2014, Wright was found guilty on eight counts of perjury and voter fraud. This caused many in the gaming community to doubt his ability to be effective and focused on gaming legislation any further. In a nearly comedic confirmation of that premise, two days after he was convicted of the perjury and voter fraud charges,Wright introduced a bill that would allow felonies to be converted to misdemeanors. Our screenplay plotline certainly continues, but the Wright character may need to be rewritten with another actor.
Speaking of replacing cast members, the Tribal Internet Gaming Alliance (TIGA), founded by several tribes in the Wisconsin area and based at the Lac du Flambeau Tribe, demoted one of its founding organizers to the role of mere supporter when his past 14 felony charges related to racketeering and fraud, five counts of theft and eight counts of making false statements in a securities sale came to light. TIGA, which, according to its website, aims “to collectively bring Internet gaming to Indian country, within the framework of IGRA and all other state and federal laws,” sounds promising conceptually and is actively engaging tribes under a unique treaty model. However, it clearly also has had to rethink their original cast of characters.
And in yet a third intriguing plot twist, the Cheyenne Arapaho Tribe of Oklahoma was applauded by many for being progressive and launching Internet gaming from proprietary servers based on its reservation in 2012. But in a predictable move, the state of Oklahoma prohibited the online activity, claiming the state-tribal compact did not allow for it. In a respectable response, however, the state and the tribe sat down to negotiate and mutually agreed on a revenue share that would allow the tribe to offer online gaming to international gamers and the state to receive a small percentage of the take. This negotiated compact amendment was agreed to in September 2013. However, according to federal law, the Department of the Interior (DOI) must approve all tribal-state compact amendments, and, in a frustratingly legalistic move, the DOI disapproved the agreement—not based on the issue of whether Internet gaming is lawful or not—but because it found that the state was not offering any “meaningful concessions” to the tribe in exchange for the agreed-upon revenue share. This definitely appears like an over-protective parent because in trying to “protect” the tribe’s interests the DOI is actually blocking it from realizing significant revenue.
Taking the proactive approach, in January 2014 the Cheyenne-Arapaho Tribe filed a lawsuit against the Interior Department, seeking “declaratory and injunctive relief” in the suit that names Secretary Sally Jewell and Assistant Secretary of Indian Affairs Kevin Washburn as defendants. In a further complication, the tribe is experiencing severe political conflict in which the membership is divided into factions and actually held two separate elections for the same offices in 2013. In January 2014, the Bureau of Indian Affairs confirmed that the federal government does not officially recognize either administration as the tribe’s legitimate authority. I am definitely pulling for the tribe in the DOI lawsuit, as I think it is its right to negotiate a compact amendment, but I am just unsure which side of the tribe I would be supporting? Hmmmm…
Even with the volatile cast of characters, analogous to Hollywood, the show definitely continues on, rather robustly, and the industry as a whole believes online gaming is coming to a channel near you very soon. To demonstrate the popularity of the industry, two legislative conferences were held in February focused solely on the regulatory environment of online gaming, and two separate global conferences dedicated to all aspects of online gaming will be held in March 2014, both in Las Vegas. The eGaming Summit will be sponsored by predominantly European and international organizers and use an invitation-only format taking place behind closed doors. According to the website, the summit offers senior e-Gaming professionals and product and service providers an “intimate environment for a focused discussion on the key drivers shaping the industry of online gaming.” The eGaming Summit will be held March 13 to14 at the Bellagio Hotel and Casino. iGaming North America (IGNA) offers a more traditional conference format and will be held March 19 at Planet Hollywood.
Of particular interest to tribal operators, IGNA will host a tribal panel of entities that have actually launched some form of online gaming. Prior to this event, most tribal i-gaming panels have been focused on projections and hypotheticals, asking the question “what if?” This will certainly be an interesting change to hear from experienced operators. Slated for the tribal panel titled “From Words to Action … Case Studies in Tribal Online Gaming Operations” are Joe Valandra, Great Luck, LLC; Richard Grellner, Cheyenne and Arapaho Gaming Commission; Jeff Voyles, Inter-Tribal Online Gaming Alliance (ITOGA); Jeffrey Nelson, Tribal Internet Gaming Alliance (TIGA); and William Bills, chief, Winnemucca Indian Colony of Nevada. Sue Schneider, founder of eGaming Brokerage and one of the organizers of the IGNA Conference, is excited about this particular panel. “The tribes undoubtedly have some unique challenges when it comes to the legalities of i-gaming, but hopefully those will be sorted out in the near future,” she said.“In the meantime, it’s good to see that there are five or six projects that are actually moving forward toward implementation. They’re all different models in terms of legal structures, target markets and products offered. This will be the first time that they’ve all been assembled in one session so it should make for some interesting contrasts.”
I actually was present at Great Luck LLC’s i-gaming launch in September 2013, and I had a chance to catch up with Valandra about the progress thus far of the tribal online gaming operation. In a move that I believe to be very wise, Great Luck has launched its play-for-free bingo games but has spent the ensuing months since its premiere carefully and methodically applying for certification from the Alturas Gaming Commission (which will host the operation), as well as from outside regulators for all its games. Valandra believes this to be essential as the operation is based on the proxy play theory in which servers are based on Indian lands, and the games are certified as Class II so there will be no need for a state-tribal compact. Valandra said Great Luck welcomes the process of the regulators due to the “magnifying glass” scrutiny they will receive. Great Luck plans to be very prepared when it launches for-money play. Valandra will be representing Great Luck on the aforementioned tribal panel at IGNA. Undoubtedly the IGNA tribal panel will address the most widely bantered question in online gaming today—whether launching online gaming cannibalizes the brick-and-mortar customer base of land-based gaming facilities. The majority of tribal gaming operators I speak with struggle with this question more than any other.
Interestingly enough, the IGNA conference is receiving an immense amount of press due to its opening day event, a formal debate between commercial gaming representatives of Caesars and Sheldon Adelson’s Las Vegas Sands during a session titled, “Is iGaming the Problem or the Solution?”Andy Abboud, vice president of government relations for the Las Vegas Sands Corporation, will make a case for the prohibition of Internet gambling while Mitch Garber, former partypoker CEO and current CEO and director of Caesars Interactive Entertainment, will present the positive side of the topic.
Reverting back to the Hollywood analogy, as is often the case in the movies, I found a supporting cast member weighing in on this issue much more compelling than the big marquee names. The recent report titled, “The U.S. iGaming (Real) Opportunity” by Adam Krejcik, managing director of digital and interactive gaming at Eilers Research LLC, provides statistics and answers compiled from thoughtful and methodical data. Eilers Research is an independent research firm that provides both equity and market research on the gaming equipment and technology and interactive gaming sectors. The report concludes that online gaming does not cannibalize brick-and-mortar gaming, and I had an opportunity to ask Krejcik how he arrived at the conclusion.
“We analysts favor hard data and statistics. I examined gaming data from both the U.K. Gaming Commission and Canada’s gaming divisions, and in both cases we found there was no cannibalization between i-gaming and land-based gaming revenues. In fact, we discovered they are highly correlated. We also looked at U.S. land-based gaming revenue trends from CY04 through CY06 when i-gaming was highly prevalent; again we could not find any discernible evidence of it cannibalizing brick-and-mortar casinos. In fact, based on discussions with some casino operators, we believe it may have helped many operators increase their poker room revenues, as it helped drive significant new interest (especially for Texas Hold’em) across the U.S.”
I additionally asked him how he felt tribes were particularly positioned. “We think tribal casinos are in an enviable position, because we believe most states considering i-gaming legislation will favor existing brick-and-mortar casino operators. Therefore, not only will licensing likely be restricted to just tribal/commercial casino operators in many states, but we believe tribal casinos should be able to leverage their large existing database of customers and years of land-based experience. In California, we expect tribal casino operators to be the main beneficiaries as they will likely become the primary license holders and will get the biggest cut of gross gaming revenue.”
So as with many a film production, after a few cast replacements, script revisions, competing projects and dissension amongst producers, the plotline does in fact seem poised after all for that happy ending in the fourth act. However, we can’t forget we are still in the development phase, and the rewrites and polishes are essential. Valandra in all likelihood has the best advice for both Hollywood and i-gaming: “Be prepared for scrutiny.”For audience members, grab the best seats in the house and fasten your seat belts as the next few months will be interesting, exciting and possibly a little bumpy.