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Considerations for Indian Tribes Seeking to Conduct Intrastate Internet Gaming

Joseph H. Webster
5/17/12

With federal internet gaming legislation apparently unlikely in the near future, many Indian tribal governments are considering the prospect of conducting intrastate internet gaming. The Justice Department widened the opening for intrastate internet gaming last December when it issued an opinion that the Federal Wire Act only applies to sports wagering and thus does not bar state lotteries from selling lottery tickets online. Tribal leaders in a number of jurisdictions are actively talking with state officials about how to structure legislation or other agreements that would allow tribes to offer internet gaming to state residents located beyond Indian lands. As discussions in various states move forward, there are a number of threshold issues for tribal leaders to consider.

First, even intrastate internet gaming is likely to involve a combination of tribal, state and federal law. The Indian Gaming Regulatory Act (IGRA) governs gaming that takes place on Indian lands. If any aspect of the internet gaming (e.g. prize, chance or consideration) occurs on Indian lands, then IGRA may apply. If it does apply, then federal requirements, including sole proprietary interest limitations, Class II technical standards and the requirement for approval of management contracts would need to be considered. Similarly, tribal gaming ordinance requirements could be implicated. Any state law or agreement would need to be structured to respect these requirements of federal and tribal law.

Second, the class of game to be offered is critical to the regulatory approval process. If the game is Class III, then a compact or compact amendment could be necessary to authorize the game to be hosted on Indian lands. A compact or compact amendment would require review and approval by the Interior Department. In contrast, if the game is Class II (such as bingo and poker in most states), then it may be possible to offer the game without any further federal action or approval. However, it would be critical to ensure that the game actually has Class II status and that it is conducted in conformance with all applicable Class II requirements.

Third, the role of tribal regulators cannot be ignored. While some states may want to have an exclusive role with respect to licensing and regulating intrastate internet gaming, tribal regulators have jurisdiction to the extent that the gaming takes place on Indian lands. Tribes may choose to enter into a cooperative regulatory relationship with state regulators (as is the case under many tribal-state compacts), but states do not have the power to unilaterally exclude tribal regulators from the process.

Fourth, if tribes are paying for exclusivity or substantial exclusivity to offer games via the internet that are hosted on Indian lands, then those payments must be consistent with federal law. As noted above, some agreements may require a tribal-state compact, in which case the Interior Department would be required to approve the payments. However, even if the agreement does not require federal approval (for example, if the game is Class II), the agreement may still need to comply with IGRA's sole proprietary interest requirement.

Finally, the true level of competition that a tribe will face (both to its online and brick-and-mortar gaming) if non-tribal entities are permitted to offer internet gaming must be evaluated. For instance, an internet gaming bill that fails to clearly and completely prohibit internet gaming parlors could have a significant negative impact on the revenue from a tribe's brick-and-mortar casino operations. Further, if a bill allows Las Vegas gaming interests to participate as licensees or as major vendors to local licensees, then it could be very difficult for a tribe with a small or even moderate size gaming operation to compete online.

While the above list is not exclusive, it serves to demonstrate the range of issues that tribal leaders should consider as they begin discussions with state officials about possible arrangements to permit intrastate internet gaming. While entering into arrangements for tribal participation in this important new market could prove very beneficial and have a significant impact on tribal economies for years to come, the manner in which these legal issues are addressed will play an important and necessary part in whether or not these efforts are successful.

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

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