States of Complexity: Sports betting in the tribal gaming industry
Tribal gaming operators are gearing up for sports betting, but many first have to navigate challenging political and legal landscapes
The ICE London conference and tradeshow, which took place earlier this year in London, had a little bit of everything, including high-level discussions on tribal gaming.
A key session in this tribal gaming track was a panel that took a deep dive into how Indian Country is responding to expanded sports wagering opportunities in North America. This session was ably moderated by Sheila Morago, executive director, Oklahoma Indian Gaming Association. The speakers were Holly Cook Macarro, a partner with Spirit Rock Consulting, an Alexandria, Va.-based Native American-owned government affairs firm; Steve Bodmer, general counsel for Pechanga Tribal Government, owners of Temecula, Calif.-based Pechanga Resort & Casino; and Derrick Watchman, president and owner of Sagebrush Hill Group LLC and former CEO and CFO of Navajo Nation Gaming Enterprise, the operator of four tribal casinos in Arizona and New Mexico. Among the topics this group tackled: potential federal involvement in sports wagering; updates on tribal sports wagering initiatives in California and Arizona; reflections on the revived Wire Act; sports betting’s impact on IGRA and compacts, and much more. Here’s a excerpted recap of what they had to say:
Let’s start at the federal level. What’s coming down the pike in Washington D.C. for tribal gaming and sports betting?
MACARRO: We are beginning a new Congress and we have what is being termed “divided government.” Tribes have been preparing for the usual onslaught but it has actually been really quiet.
Last year we saw Congressman Frank Pallone (D-N.J.) re-introduce the Gaming Accountability and Modernization Enhancement (GAME) Act [calling for state control of sports wagering], which we expected after the Supreme Court PASPA ruling. At the end of the last Congress, we also saw Senator Orrin Hatch (R-Utah) and Senator Chuck Schumer (D-N.Y.) introduce their sports betting bill [calling for federal oversight of sports betting], which didn’t receive a whole lot of support. Sen. Hatch is now retired and Sen. Schumer is looking for a Republican partner for his bill. Senator Dianne Feinstein (D-Calif.) is considering giving her support, which would be significant given the huge role that California plays in driving the sports betting debate and gaming policy in the U.S.
That is playing out, but saying that’s a priority for us doesn’t mean it’s a priority in the 116th Congress, in either the House or the Senate. I’ve spoken pretty frequently to Rep. Pallone, who is now the chairman of the Energy and Commerce Committee, which is generally regarded as the most powerful Committee in the House of Representatives—it has jurisdiction over more than 30 percent of all legislation that is introduced to Congress. He has a lot of relationships with tribes and Indian Country. Even though he has no tribes in his state he has been very engaged on our issues. His staff is looking to hear from tribes as states begin to enact sports betting legislation.
Have there been any names thrown out for the new Secretary of Interior and how is that going to play out for Indian gaming?
MACARRO: David Bernhardt has been the Acting Secretary of Interior and the President has nominated him to replace Ryan Zinke. I don’t see Paula Hart [director, Office of Indian Gaming] going anywhere anytime soon. She is a longtime career employee at the Department and I don’t see any changes there.
What’s the tribal sports betting policy position in California right now?
BODMER: I don’t think Indian Country in California has coalesced around a singular position. I think you’re going to start seeing this pulled together over the next couple of years. When PASPA was repealed last year, one of the first things we said—to try to take some of the noise out of the excitement—was, “now, the work begins.” We knew that nothing would get moving in California until 2020, which is the earliest something can make it onto the ballot. So you’re looking at possible 2021 until the first live bet.
What we’ve done internally at Pechanga, and what I’ve heard from other tribal attorneys, is counsel patience. I know that’s not the word that most people have used in the U.S.—a lot of legislatures have rushed to get a sports betting bill. Unlike a lot of these states, in California a constitutional amendment is required because the Constitution limits gaming. That’s why we have to wait until 2020, which gives us the chance to reflect.
One of the things that I look at from the attorney perspective is that tribes in California have an exclusive right to certain games, and if you go into the California Constitution to amend it to allow additional games, some level of exclusivity is going to be taken. As Chairman [Mark] Macarro mentioned in an earlier session, we’re not in gaming for the same reasons as a corporation. This isn’t just about dollars to the bottom line, this is about programs, government support and things of that nature. So everything right now is being looked at with a deliberative approach to what the next steps are.
Arizona just had a sports betting bill introduced… what do you think is going to happen there?
WATCHMAN: As a former gaming operator, I know one of the big goals is to work with all of the tribes and the state to push a gaming compact amendment. That’s still the path but, in January a bill was introduced that would basically allow Arizona tribes to offer sports betting in the state. I believe that caught many tribes off guard; they were in a wait-and-see position. Now they are coalescing with the governor and the legislature to see how this is going to work.
Arizona is a state where there are many limits put on the tribe, in terms of numbers of machines, and there is some language in there that counts a sports book against those machine allocations…
WATCHMAN: That is correct. In Arizona, a maximum of 18,000 gaming machine units are allowed in the state for the 16 different tribes that offer gaming. The proposal that’s out there right now would count against that allocation. Of the 18,000 available slot locations about 15,000 are in use right now. The only tribe that is not using its allocation right now is the Navajos. So if sports betting was allowed, it would basically use some of those gaming positions that are available and presently being used.
Ultimately, it gets back to the compacts, which are soon coming to term. Tribes would like to get those re-negotiated and in that include a sports betting feature.
Could this affect the non-gaming tribes transfer agreements as well?
WATCHMAN: I believe it will. There are four or five non-gaming tribes that have compacts and they can transfer those rights to other tribes. The state of Arizona is growing by leaps and bounds and there is definitely a need for additional slots to be put in play, particularly the four big tribes who operate in the metropolitan Phoenix area. The ability to transfer slot righst will be quite powerful in my opinion; they weren’t, but I believe they now will be.
Will the Department of Justice (DOJ)’s recent interpretation of the Wire Act do anything to affect the online and mobile sports betting conversations that are happening in the states?
MACARRO: States are trying to keep their finger on the pulse of what’s happening in the Congress and what the DOJ action may spur over there. In terms of what might happen in Congress, the Democrats have a long list of priorities; it has been a long time since they’ve been in control of either chamber. I don’t see Democratic leadership getting this on the floor. Sen. Schumer has an interest, but he’s not in the majority in the Senate; he has to find a strong Republican partner to try and get this on the floor. Floor time in general, between now and the end of the year, is at a premium. When you have a shutdown, and basically nothing happens, everything is pushed back.
Does the DOJ letter have any effect on what’s going on in California?
BODMER: Operationally, no, because we don’t have sports betting or online gaming. The one thing that it does do is sow additional concerns and questions about how we are going to do this. What Holly said about states is important; we have to remind ourselves that we are hyper-engaged on this issue. Meantime, even in California, there are only one or two legislators who are looking at his issue that aggressively. What this DOJ letter does is signal, “wait a second, there’s a lot to figure out here before we rush through this door.”
What does the opinion mean? It depends on what side of the argument you’re on and what kind of distrust you want to sow with people who are going to make decisions on this. It means little-to-nothing is one answer, but not if I want to create confusion. What we saw in the Internet poker debate in California was any additional exposure of unnecessary vulnerability for politicians on an issue like this is not going to be something they want to jump into.
WATCHMAN: The political atmosphere in Arizona is very calm right now. There has really been very little discussion about this opinion among the tribes and at the state level. The legislative session started in January and bill introduction is just starting to happen. We’ll see, time will tell.
Let’s talk a little about problem gambling. We have addressed it in our own tribal governments and health care systems and a section on problem gambling is in all of our compacts. How do you think sports betting will change that?
BODMER: We certainly do a lot of good work with respect to problem gambling. Not enough of it is public and it will never be enough for people who are directly impacted by problem gambling. From the tribal side, we do a great deal, not just saying, “Here’s money,” but actually deploying that money in places that are going to have a great impact on the needs of problem gamblers. The AGA has also made support for problem gambling initiatives more widely known in the industry. The industry was alerted a few years ago when $500 million of media ad buys were made for fantasy sports. Questions were raised on where this could all go and what this could mean for our communities. You’re now seeing a bit of a backlash here in the UK with tighter restrictions on how gambling is displayed on TV. I think it’s the result of years of being hit with sports betting every other commercial. So I think this is something to keep our eyes on; not giving the appearance of doing something negative when we’re doing something positive for our industry.
MACARRO: The National Council on Problem Gambling is very active on the Hill. They are a very influential lobby and they will be watching this. This is similar to the last several years of the legalization of marijuana in the States. It’s available, it’s legal, and the pool of users is greater. With more opportunities, there are more problems. The overarching message on the federal framework that has been proposed in both chambers has been consumer protection.
WATCHMAN: With the coming of sports betting, I think the public focus on problem gambling will probably increase. It’s going to happen.
On the federal level, we have to deal with IGRA and the National Indian Gaming Commission. Is sports betting something that is going to be incorporated into the NIGC or will there be a broader framework for everybody?
MACARRO: Sports betting oversight is really being pushed much more toward the states, recognizing their role in advancing legislation. There are many variations amongst the tribes in states and their political roles. There are 500 tribes, gaming in 29 states… how they approach sports betting is going to be very different.
For instance, the Minnesota Indian Gaming Association just announced that they are opposing any sports betting legislation. That’s partially because compacts in the state of Minnesota, where my tribe is from, are in perpetuity with no revenues for the state. So there are a lot of reasons for ever opening those up. And there are only one or two tribes in the state who would actually benefit from sports betting. Tribes in the northern part of the state, for instance, may not have the necessary resources, infrastructure or technical expertise to run sports betting operations. There are variances among states; I actually admire the Minnesota Indian Gaming Association for getting everybody on the same page right away when their interests are not equal. It’s an example of the differences within Indian Country of how tribes are going to approach sports betting.
You bring up a good point. Given the rural nature of tribal gaming, which is a big percentage of our market, why should we care so much about sports betting?
BODMER: To your point about not all tribes being in a metropolitan area, the reason why it matters is if you are in a highly-competitive area, such as southern California, this is an amenity that is going to be valuable to you because other casinos in the area may have that.
And that’s just from the operational side. What we’ve said for over a decade now in looking at Internet poker is the reason to care is because of what comes next… it has never been about Internet poker or sports betting, this is about expanding gaming to a larger, more free-flowing market similar to what you have in Europe. That means anybody who is a stakeholder in gaming should be very interested in what that next step looks like. With Internet poker, people said it was just poker, a marginal business at best, now it’s sports betting that’s just a marginal business at best. Well there are a lot of people running around here looking for “marginal” business. There must be something beyond that. That’s why I think tribes, metropolitan and rural, should be looking at this. Put the operational component aside for a moment and look at what is going to happen to tribal gaming in the U.S. This is a matter of great importance.
MACARRO: When any federal legislation is introduced or processed, it’s important that tribes are at the table. Whether or not sports betting is good for you, there are potential impacts on tribes that participate or don’t participate. You need to monitor the legislation the entire time. It’s really critical for all of us; you don’t want any unintended consequences.
WATCHMAN: Sports betting in rural areas is probably going to be a marginal business. But on the other hand, it may give people in those areas an opportunity to game. I know as a Navajo that 90 percent of our customers at our four casinos are Navajo patrons and there’s still that goal to try to bring folks from the border towns to come in. Sports betting could be that missing element that brings other folks in and adds to the customer base.
Now that we’ve decided this is something to watch, give us a sense of the challenges we face in enacting legislation… we have compacts that are in perpetuity, compacts coming up for renewal, sometimes we have exclusivity agreements, we have lists of things we can and can’t offer. So what are some of the challenges here?
WATCHMAN: There is a challenge in terms of game classification. In New Mexico, with the new compact and sports betting classified as Class III gaming, tribes are allowed to offer it. Right now, no one’s challenging it, including the New Mexico attorney general. Now we’ll see if it will be challenged by the New Mexico Restaurant Association or the state’s horse racing industry. The state allows five racinos to operate and I don’t put it past them to challenge what the one tribe (Santa Ana) is doing in New Mexico.
In Arizona, Class III does not include sports betting. There is a bill out there that would include sports betting in Class III and also allow them to offer sports betting in the entire state, on- and off-reservations. So the challenge will be how will tribes do sports betting? They could partner with an OTB, for example. It’s an interesting piece of legislation.
MACARRO: In addition to the technical hurdles that you and Derick have discussed, in states that have a large number of tribes, a political hurdle can be making sure all of those tribes are on the same page as legislation is crafted. Indian gaming associations are big voices in the state legislatures and the process of the tribes hashing out what is the best approach for them and their state legislatures is going to be a hurdle in and of itself.
BODMER: There are a few things that will need to be hammered out before we just walk into an open discussion of sports betting for all in California. We have card rooms, for example, that have been offering illegal card games for the last 10 years and that has really ramped up in the last seven years. Do you let them offer illegal card games and have sports betting? Card rooms, very quickly, are only permitted by law to offer games in a certain way and they’ve changed it so it is essentially no different than if you were in Las Vegas or a tribal casino and that’s inconsistent with state law and the Constitution.
If you say sports betting for some in California, there’s an issue of whether you have enough consensus to have a constitutional amendment. You can either take it straight to the ballot through a referendum measure and where getting a no vote is easier than getting a yes vote. If you have enough people who feel they’ve been removed from a market that they need to be involved in, you could have a substantial campaign against that constitutional amendment. Or you could take it to the legislature, where you have to have a two-thirds majority vote. Folks that have dealt with legislatures know that if it’s a tough issue, it’s hard to get a two-thirds majority.
In California, there has been a lot of business that has been left unattended and is now going to come to the forefront. Who are the stakeholders? Who should be the winners in terms of being able to offer sports betting? There is a lot of underlying business that needs to be vetted.
You’ve done multiple ballot initiatives on gaming in California, is that something you’d be willing to do if the legislature doesn’t go your way or are you going to concentrate more on the legislative process?
BODMER: Hopefully the discussions with the legislature are fruitful. We don’t have a position completely staked out. We’re analyzing both. The legislative solution could be the best alternative because that would signify a level of compromise and agreement amongst the people that matter. That being said, you still have to look at all your alternatives and make sure you have the front door and the back door taken care of. SBM
Casino Arizona inks marketing deal with AAF team
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