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The Power of Indian Tribes in the Debate Over Internet Gaming

Joseph H. Webster
4/19/11

Some proponents of internet gaming have used what I will refer to as the "Netflix argument" to urge Indian tribes to support various proposals to legalize internet gaming, even if the terms of the legislation are not particularly favorable to tribes. According to this argument, internet gaming is "inevitable" and unless tribes embrace it they will be left behind. They cite the example of Blockbuster, which they note failed to adapt quickly enough to changes in the movie rental industry introduced by companies such as Netflix. As a result, it is now in bankruptcy, forced to close many of its brick-and-mortar stores, while Netflix, which offers flat-rate online video rental and on-demand video streaming, is prospering. The proponents argue that tribes that fail to embrace internet gaming by supporting its legalization will face a similar fate. However, there is a fundamental flaw to this argument.

When Netflix began offering its flat-rate rental service in 1999, no change in the law was necessary to allow it to implement its new business model. Instead, Netflix came up with an approach that was more convenient for consumers and the marketplace rewarded it accordingly. In contrast, internet gaming in the United States is generally illegal as a matter of federal law. Other than companies operating illegally, internet gaming companies will be able to compete with tribal brick-and-mortar casinos only if there is a change in the law to allow such competition. The recent indictment of individuals associated with three major off-shore internet poker companies by the U.S. Department of Justice dramatically underscores this point.

Thus, the real question is whether Indian tribes should support a change in the law to allow competition from gaming offered via the internet. While internet gaming legislation may or may not be "inevitable," the specific content of that legislation is far from certain. Some of the proposals that have been advanced would effectively exclude many tribes or force them to participate under conditions that are not at all favorable.

It is, therefore, critical that tribes be fully informed and appropriately active in the legislative process. The reality is that Indian tribes, which conduct nearly one-third of all gaming in the United States, have the ability to shape both the content and the timing of that legislation. Internet gaming companies and their lobbyists know that, collectively, Indian tribes have significant political power in Washington and in many state capitals, especially when it comes to blocking unfavorable legislation. With respect to federal legislation, tribal strength is increased by the fact that only a handful of Senators often can block legislation that tribes oppose. As a result, internet gaming companies have been actively lobbying tribes for their support (or at least lack of opposition) as a fundamental part of their legislative strategy. They recognize that it may not be possible to obtain internet gaming legislation, at least in the near future, without tribal support.

Thus, unlike Netflix, the internet gaming companies need support from tribes in order to achieve the opportunity to compete with brick-and-mortar facilities. Internet gaming interests should not be allowed to take tribal support for granted. Instead, they should be made to earn that support by agreeing to ensure that any internet gaming legislation protects both existing tribal gaming facilities and respects tribal sovereignty.

Joseph H. Webster is a partner with the law firm of Hobbs, Straus, Dean & Walker, LLP in Washington, D.C.

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