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Checkmate?

Tribes cautiously position pieces on the iGaming chess board

Checkmate?

The story of real-money tribal online gambling in the United States is still being written, but it got off to an  inauspicious start in the summer of 2014, when a small California tribe managed to grab the attention of the entire online gaming world. In an unprecedented announcement, the tribe detailed its plans to launch a real-money online poker site in the coming months, whether California passed an online poker law or not.

The tribe was essentially challenging the status-quo interpretation of online poker’s legality with respect to tribes, and playing a dangerous game of chicken with the state and federal governments in the process.

The tribe, the Iipay Nation of Santa Ysabel, never launched its much-hyped online poker site, but they did still make good on their challenge, launching a real-money online bingo site in November 2014. The site was promptly shut down by California Attorney General Kamala Harris, despite the protestations of tribal leaders, who claimed their tribal sovereignty allowed them to offer Class II gaming, bingo and poker, online.

Even though Santa Ysabel was an unlikely vehicle to advance tribal online gaming in the U.S.—the tribe’s brick-and-mortar casino had closed just a few months before, leaving the tribe with a reported# $50 million of debt—their brief foray into the world of real-money online gambling has earned the tribe, and DesertRoseBingo.com, a footnote in gaming history.

The legal cases between Santa Ysabel and the state of California and Santa Ysabel and the U.S. government have yet to be decided.

Santa Ysabel certainly wasn’t the first, or the last, tribe to look into online gambling, but it has been by far the most aggressive. California tribes have been pursuing online poker legalization dating back as far 2008, and tribes across the country have launched social casinos to tap into the changing demographics and pursuits of their customers.

Since Santa Ysabel’s failed back-door attempt to get into online gaming, more steady and cautious progress has been made on this front by other tribes. Two tribes have launched real-money online gaming platforms in New Jersey (through the front door), and several others are making their own preparations in other potential markets.

Canaries in the New Jersey Coal Mine

The honorific of the first state-licensed tribal online gaming site goes to the Pala Band of Mission Indians. With online poker legalization in its home state at an impasse, the California tribe decided to launch a real-money online casino platform in New Jersey, some 4,000 miles away from their tribal lands. Partnering with and operating under the license of the Borgata casino, PalaCasino.com launched in September 2014. In March 2016, Pala added a real-money online bingo site in New Jersey.

But Pala isn’t the only tribe with a stake in the New Jersey online gaming market.

On July 20, 2015, the Connecticut-based Mohegan Tribe launched MoheganSunCasino.com in the Garden State. Like Pala, Mohegan used the license of one of the state’s brick-and-mortar casinos (a prerequisite for operating an online gaming site in the state), the Resorts Casino. Unlike the relationship between Pala and Borgata, Mohegan already had a relationship with Resorts, as the Mohegan Tribal Gaming Authority is responsible for the day-to-day operations of Resorts Casino.

Barring future expansion in states with tribal gaming operators, which has ground to a halt following the early flurry in 2013, this online gaming-by-proxy approach may be the foot in the iGaming door other tribes choose to adopt.

“In general, I think New Jersey has done an outstanding job on internet gaming,” says Chris Stearns, chairman of the Washington State Gambling Commission.

“Within that existing structure, there are opportunities for Indian tribes to get involved in internet gaming in other states like Pala has done. I don’t see any trouble for a tribe that chooses to go through the hoops to become an operator in New Jersey, or another well-regulated jurisdiction.”

Those opportunities exist not only for potential financial gain, but also for testing purposes. “The business—Pala Interactive—was founded in 2013, initially on the basis of being a poker operator in the state of California,” explains Jim Ryan, CEO of Pala Interactive. “In 2014, we concluded that it was going to be difficult to predict when the California market was going to open.

“We took the view that it made good business sense to launch in New Jersey, because it would allow us to build and perfect our product in the open market as opposed to the lab, and would allow us to build out the necessary infrastructure to operate in a regulated online gaming market—thereby preparing us of the opening of California or other U.S. state-regulated markets.”

California Gold Rush

As Ryan notes, Pala sees New Jersey as a proving ground of sorts for its online gaming platforms. The real prize for Pala, and more than a dozen other tribes, has always been California, and its 39 million residents—more than four times the population of New Jersey.

When California will actually open up for online poker is anyone’s guess. The state has been trying to pass an online poker bill for nearly a decade, and even though progress has been made, it always feels like the state’s two steps forward are followed by one step back. From licensing and taxation rates to regulatory structure, to the role of the horse-racing industry, to bad-actor clauses, there is never a lack of conflict for the state’s tribal and commercial stakeholders to choose from. 

Yet the stakeholders advocating for online poker, and the potential opportunities it can bring, continue to press the issue, and feel good about a new effort that finally offers a solution to the most pressing concern, the horse-racing industry.

“We are optimistic about the prospects for AB 2863,” says Ryan. “The bill is being driven by Adam Gray and other legislative leaders, and in our view has addressed the issues that have divided California’s online gaming stakeholders.”

Ryan is alluding to the bill’s proposed yearly payment of up to $60 million that would go to the horse-racing industry. But even if the horse-racing issue is solved, the recent legal entanglements of Amaya CEO David Baazov (Baazov has been charged in Canada with facilitating insider trading, and has taken a voluntary leave of absence) may reignite calls for bad-actor clauses to be included in any legislation legalizing online poker.

When it comes to online poker, progress in California is fleeting. Fortunately, tribal gaming interests in other locales are also exploring online gaming expansion.

Washington State Surprise?

One such state where tribes could play a role in online gaming legislation lies two states the north of California, in Washington state.

Washington shares many similarities with California, as the state has tribal casinos and commercial card rooms, as well as the need for online gaming expansion to pass both houses with a two-thirds majority, a hurdle that makes consensus a necessity in both locales.

Washington state would seem to be a difficult nut to crack for online gaming expansion, as the state has the strictest anti-online gambling laws in the country—a 2006 law makes the mere act of gambling online a felony—but there are also reasons to keep a watchful eye on developments there.

“The reality is that any expansion of gambling would necessarily require all of the interested parties, and that includes the tribes, to sit down and plan together,” Stearns states. “My sense is that the tribes would have to play a central role for the legislature to authorize internet poker, other internet card games, or even internet casino gambling.

“I should add that unlike many other states, Washington does not have a revenue-sharing arrangement with the tribes in exchange for exclusivity. We have found that in terms of existing casino operations, that’s a system that has worked out well for everyone.

“So, if there was a bill to allow internet gambling, the question of whether that opportunity would only be for tribes, or only for existing tribal casinos and non-Indian card rooms, or for other operators, would have to be carefully and thoughtfully worked out in advance.”

Stearns says the recent legislative efforts that were by and large the results of grassroots advocacy (last year’s HB 1114) lacked this type of across-the-board input.

“I believe it would have more or less allowed any business the opportunity to get a license to operate an internet poker network, provided they met the qualifications,” he says. “If there is going to be progress on the legislative front, then an internet poker bill is going to have to have a focus that deals with questions like whether the number of operator licenses should be capped, whether licenses should be tied to existing brick-and-mortar casinos and card rooms across the state, or just to tribal operators.”

More Ambitious Efforts

While most tribal efforts are focused on opportunities in their own states, the Iowa Tribe in Oklahoma is taking a bigger-picture approach. The tribe has successfully (so far) petitioned for the right to host an online poker site not for Oklahomans, but for players overseas, as well as in the three legal U.S. jurisdictions, Nevada, Delaware, and New Jersey—a clever way of leveraging their tribal sovereignty without dealing with state prohibitions of online gaming.

Even though an arbitrator said the tribe’s plans wouldn’t violate federal law—nor was it in violation of the tribe’s compact with the state—the tribe still requires a circuit judge to sign off on the ruling, and there will likely be legal challenges if and when the site, pokertribe.com, comes to fruition.

That being said, if the venture is successful, it could flip the entire U.S. online gaming industry on its head and propel tribes to the forefront, affording them a cross-border opportunity commercial and state-run gaming interests simply don’t have without in-state legalization.

Skepticism Or Opportunities

Despite these potential opportunities, there is still a strong protectionist element harbored by the leadership of many tribes when it comes to online gaming, as tribes fear losing what they have spent so much time and energy building.

“From what I understand, the biggest issue is the economic impact on their brick-and-mortar casinos,” Stearns says. “Right now, the general gaming market seems strong in Washington, but the tribes are concerned that the introduction of internet gaming, fantasy sports or new casinos could upset the market.

“The WSGC is in the process of awarding a contract to an economic research firm to conduct a year-long study of the gaming market in Washington,” says Stearns. “We think that when the study is complete, the tribes will definitely benefit from that information as they make decisions about if, when and how they might want to enter the online gaming market.”

The problem is, every day of delay leaves the door open for other entities to walk through. Where there is a will there is often a way, and the industry could leave tribes in its wake as it continues to evolve. 

“In our view, it is clear that consumers will continue to increase the use of internet and mobile-based gaming irrespective of the availability of a regulated online poker market in the state,” Pala’s Ryan explains, adding that they’d like to see their brand compete in this space. 

Ryan also voices concerns over potentially longer delays, saying, “Should a poker bill remain stalled for the next number of years, other operators will provide online-based games that will address the consumer demand. These games will take on a different form than poker, as we have seen with the evolution of the daily fantasy sports, and as we expect to occur in the eSports gaming vertical.

“Pala simply does not want to be left behind, and this is the downside we see for all tribes should they not be able to collectively advance a real-money online gaming strategy in the state of California.”

Stearns outlines the case for tribal caution, citing Washington state’s law that forbids online gaming, coupled with non-tribal casino gaming being limited to table games, which gives the tribal casinos a leg up, much like in California.

Because of this advantage, the tribal gaming interests in Washington state may be content with the status quo. That said, Stearns understands this point of view, but also warns of the potential downside to continued inaction.

“I’d look at it from a different side,” Stearns says, “which is that tribes might be able to expand their customer base and entertainment value by eventually choosing to work with the legislature to allow online gaming in Washington.”

With the situation surrounding online gaming so fluid, Stearns is of the same mindset as Ryan, as he sees the potential for competitors beyond the state’s borders. “The major competition might come from British Columbia, or simply from competition from other states that allow online gaming and draw customers away from Washington over the long haul,” the WSGC chairman indicates.

Tribal gaming interests across the U.S. have been doing a terrific job positioning their chess pieces in a strong defensive position, willing to play the waiting game until the conditions are perfect. The question is: Will this conservative approach be the winning strategy for tribes?

Steve Ruddock is a freelance writer covering nearly every angle of the iGaming industry for multiple outlets, including Bluff magazine and Online Poker Report. His primary focus is the developing legal and legislative picture for regulated U.S. online poker and gambling.

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