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House Hearing Shows Commercial Gaming Industry Split on Internet Gaming

Gale Courey Toensing
12/14/13

Indian gaming experts and tribal leaders were conspicuously absent at a House subcommittee hearing on Internet gaming Tuesday, but it was probably just as well that they didn’t participate. The House Energy and Commerce Committee’s subcommittee on Commerce, Manufacturing, and Trade’s (CMT) hearing on “The State of Online Gaming” turned out to be an arena for some of the most powerful players in the commercial gaming industry to display their disagreements on Internet gaming. 

New Jersey became the third state in the country to go online with state-sanctioned virtual gaming earlier this month, joining Delaware and Nevada. But the long running controversy over federal legislation to regulate online gaming continues; the December 10 hearing was its latest manifestation. CMT Chair Lee Terry (R-NE) presided. “While unfettered online gaming here in the U.S. is surely not the ideal, absent a clear mandate from Congress, we risk exposing our constituents to an environment where a ‘race to the bottom’ could present itself. It is my hope that hearings such as this one will shed light on what logical steps Congress can take to address this growing dilemma,” Terry said in his opening statement.

Geoff Freeman, the chief executive of the American Gaming Association, was on first. He told legislators that online gaming is here to stay and it needs federal approval. “It’s not often an industry comes to you asking for regulation. The gaming industry is coming to you today,” Freeman said.

Freeman argued that federal regulation is needed to protect consumers, ensure the integrity of online gaming and give law enforcement agencies the tools they need to combat illegal operators. “[It will] provide Americans with access to an online gaming marketplace they unquestionably desire,” he said.

Last year before any state authorized legal online gaming, Americans spent nearly $3 billion on illegal, unregulated offshore gaming sites, Freeman said. To put that into further context, Americans accounted for nearly 10% of the entire $33 billion worldwide online gaming market in 2012. “Rather than pursuing more futile attempts at prohibition, the American Gaming Association supports strong regulation and oversight of online gaming that respects states’ rights to pursue what is in the best interest of their residents,” Freeman said.

Next up was Andrew Abboud, vice president of Government Relations and Community Development of the Las Vegas Sands Corporation whose chairman, billionaire casino magnate Sheldon Adelson, recently announced plans to push Congress to ban online gaming.  He launched an advocacy group called The Coalition to Stop Internet Gambling to carry his message.

“Internet gambling takes gambling too far,” Abboud said. “Just because we can do something doesn’t mean we should,” he said, urging federal legislators not to legalize online gaming.  He argued the opposite of what Freeman said. When the Justice Department attorneys issued a legal opinion in December 2011 that the 1961 Wire Act prohibits online betting only for sporting events, not lotteries or online gaming, they did not consider the potential impacts of Internet gaming on security, child safety, problem gamblers, and the financial consequences for brick and mortar casinos, Abboud said. “We urge Congress to hit the ‘reset button’  and restore our government’s long -standing interpretation of the Wire Act, leaving any changes to laws governing Internet gambling to be considered under regular order.”

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John Pappas, executive director of the Poker Players Alliance, lined up with Freeman in advocating for Internet gaming and was spoke in favor of HR 2666—the Internet Poker Freedom Act of 2013, which was introduced last summer by Rep. Joe Barton's (R-Texas), a committee member. Barton’s bill provides federal regulation for online poker, allowing individual states to opt out, if they choose.

“The Internet Poker Freedom Act is not about the expansion of gambling in America. It focuses on corralling the current unregulated marketplace and turning it into a system that is safe for consumers and accountable to regulators and our government,” Pappas said.

National Indian Gaming Association (NIGA) Chairman Ernie Stevens Jr. attended the hearing but did not testify. He did, however, submit a written statement reiterating that any legislation must adhere to the principles unanimously adopted in a resolution by the association’s members. The principles include that all tribal governments must have the right to operate and regulate Internet gaming within their borders without taxation or state government interference; that the Indian Gaming Regulatory Act (IGRA) and tribal-state gaming compacts will be respected; and that federal legalization must provide positive economic benefits for Indian country.

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Stevens also asserted that any legislation should be considered through the normal legislative process, meaning the law should not be slipped into an omnibus spending bill or other must-pass legislation.

Barton’s HR 2666 improves on past federal bills to legalize Internet gaming – for example, by authorizing the National Indian Gaming Commission (NIGC) to work with tribal governments under the bill’s regulatory scheme—but it does not meet NIGA’s standards.

For example, Barton’s bill does not clearly protect the exclusivity provisions in some tribal—state gaming compacts. “Tribal governments have invested significant resources to reach compact agreements, and continue to make significant investments based on these agreements. Federal legislation that would disturb established and successful compact agreements would set a dangerous precedent for not only Indian Tribes, but also for the settled expectations of the States that negotiated with the Tribes,” Stevens wrote.

H.R. 2666 legalizes Internet poker, but does not address non-poker Internet gambling, Stevens pointed out. ”The legislative process should consider the relevant provisions of the Wire Act or other federal laws that could impact the Internet gaming debate.” The bill is also deficient in the area of taxation of Internet poker revenue. “The Subcommittee should add a provision specifically acknowledging the tribal government Internet gaming revenues are not subject to federal or state taxation, acknowledging that such revenues are used solely to fund tribal government programs and services and the needs of nearby communities,” Stevens said.

But to start off, the bill limits Internet poker licensees to entities that have operated a gaming facility with 500 or more slot machines in one location or 175 or more poker tables in one location. “More than half of the 246 tribal governments that currently operate Indian gaming facilities would be ineligible under these criteria,” Stevens wrote. “It would also prevent all tribes that operate only Class II gaming from participating. Finally, these limitations would prevent all tribes that currently do not conduct Indian gaming from participating in Internet gaming. This limitation on some of the most disadvantaged tribal communities is not acceptable.” 

While consultant Joe Valandra (Sicangu Lakota) agrees with NIGA’s principles on Internet gaming, “I just don’t think they go far enough,” he told Indian Country Today Media Network. Valandra is the owner and president of VAdvisors, LLC, chairman and CEO of Tehan Woglake, Inc., and former chief of staff of the National Indian Gaming Commission.

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He said he would start with the primacy of tribal jurisdiction over-land based and Internet-based Class II gaming—and take it from there.

The primacy of tribal authority over Class II gaming is the key, Valandra said. “If the mantra’s going to be that you’re going to protect and defend tribal sovereignty then you have to do it with the tools we have and we have the tools of the

Indian Gaming Regulatory Act (IGRA) and the Cabazon case to make that work,” Valandra said.

In the 1987 Cabazon case—California v. Cabazon Band of Mission Indians—the Supreme Court ruled that Indian nations have the inherent sovereign right to conduct gaming on Indian lands. The next year, IGRA was enacted as a constraint to that wide open ruling and to provide a mechanism for state governments to take a cut of tribal profits. But the tribes achieved a major acknowledgement through tough negotiations, Valandra said, “and that was to have the legislation recognize that tribes have primary jurisdiction and primary regulatory authority over Class ii gaming—and that is still the law of the land.”

It’s easy to lose sight of the powers tribal nations have. “We get tied up in some of the technicalities of IGRA, the details of tribal-state compacts that related to Class III gaming,” Valandra said, “but the broad principles that protect and defend tribal sovereignty are in place and need to be exercised—often and aggressively.”

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