Future uncertain for tribes as legal US sportsbetting nears

10 October 2017

Ahead of the Supreme Court decision on legalising sports betting, Suzanne Perilloux Leckert of TMG Consulting and iGB North America's tribal gaming editor Paul Girvan consider the implications for the tribes.

The hottest topic of discussion in the gaming and igaming industries this summer has been sports betting. In June, the Supreme Court surprised many by agreeing to hear arguments on the New Jersey law that would legalise sports betting under state law.

At issue is the legality of the 2012 New Jersey law signed by Governor Chris Christie that removed state law prohibitions against sports betting at any of the state’s 12 casinos and four racetracks.

It stated that betting on professional and college sports would be legalised under state law as long as events were not played in New Jersey and did not involve New Jersey college teams. The NCAA, NBA, NFL, NHL, and MLB together filed an injunction in federal court to stop the law, and the District Court struck it down in 2013.

Later that year, the Court of Appeals for the Third Circuit voted to uphold the lower court’s decision, prompting the Christie administration to appeal the case to the Supreme Court, which is expected to hear the case this fall, with a decision in 2018.

The looming case has added to momentum that has been building for some time, and legalised sports betting in the United States now appears to be inevitable.

The state of play
Public support for sports betting has grown over the years, from the voter referendum in New Jersey back in November 2011 that started the legal saga when the state’s citizens overwhelmingly approved legal sports betting, to the explosion of fantasy sports (yes, we all know that we aren’t supposed to call it betting, but who are we kidding?).

Even the professional sports organisations have moved away from their ‘never’ position to a ‘maybe’ or ‘eventually’ position. Elected officials (and now the Supreme Court) are paying attention, and the legal environment for sports betting is on the verge of change.

The ruling in the New Jersey case is likely to determine the future legal environment for sports betting. If the state wins, states could be allowed to regulate sports betting much as they do casino gaming — as they see fit.

This opens the door not only to sports betting at casinos, where it might contribute between 3% and 8% of total land-based revenues, but also online within states that chose to offer igaming. This would represent a boon to internet operators, where sports betting could account for as much as 35% of total win, especially if ‘in-play’ betting is permitted. 

This will have a knock-on effect because states looking to raise tax revenue will consider igaming, which — with the addition of sports betting — would represent a more significant source of revenue, and as a pastime will have broader appeal to constituents.

If New Jersey wins, expect to see other states legalise online gaming. For the tribes, this may be the most advantageous development. Tribes in states that approve igaming will, or should, have the opportunity to participate within their own state where they have land-based casinos and where competition from the larger operators which might dominate a nationwide federal market would be absent, or at least curtailed.

Larger tribes, such as the Mashantucket Pequot, Pala and Mohegan, which already have experience in providing igaming, could have a particular advantage.

If New Jersey loses the case, then the door is still left open to a federal law change. Were sports betting legalised nationwide, interstate online wagering could emerge. Such a model could potentially impact brick-and-mortar casino operators, including Native American tribes, negatively and would benefit only a few large online providers. 

Tribal concerns over federal legislation
Already members of Congress are addressing these issues. Rep Frank Pallone of New Jersey is reportedly drafting a bill in the House of Representatives that would legalise sports betting nationwide, while still recognising tribal sovereignty and the potential impacts on tribal state gaming compacts. At this juncture, it is unclear how federal legislation would achieve this.

National Indian Gaming Association (NIGA) chairman Ernie Stevens says: “Of chief concern to NIGA is to ensure that tribal interests are protected, particularly avoidance of any negative impacts on existing compacts and exclusivity clauses.”

This concern is echoed by Michael Boyce, executive director of the Grand Ronde Gaming Commission, who has advised tribes to, “continue to monitor it, and see what your situation is… see what’s available”.

Even if  sports betting was legalised on the state level at brick-and-mortar facilities only, Boyce cautions that there would be limited “upside for tribal interests, unless exclusivity is given to tribes”.

However, in this respect location could be a big determining factor. The largest share of sports betting occurs within a few days (or right up to the minute) of the event being wagered on. Easy access to a sportsbook will likely be a key driver for bettors, if sports betting is allowed only at brick-and-mortar locations.

Tribes close to urban centers, for example, “tribes in California, Arizona, and back east, and even in Washington State … may well benefit if even the state offered it”, according to Boyce.

However, in states such as Oregon, where speculation is that sports betting could be carried out at the almost 12,000 existing video lottery terminals, rural tribes such as the Confederated Tribes of Grand Ronde could lose out. That said, Boyce leaves open the possibility that his tribe could offer sports betting as an amenity at their facilities.

If sports betting were allowed nationwide over the internet, Boyce believes that “it would be dominated by a few big players”. This sentiment appears well founded, because large corporations such as Microsoft have already filed patents for platforms that could handle online sports betting. Were tribes to offer online gaming, “the majority of that would be their existing customer base,” according to Boyd.

The devil, however, as always, will be in the detail. Valerie Spicer, the former executive director of the Arizona Indian Gaming Association and co-founder of Trilogy Group, points out that “the draft legislation by Representative Pallone would introduce another federal agency than the tribes work with now, and it’s outside of IGRA [Indian Gaming Regulatory Act] and IRGC [Iowa Racing and Gaming Commission].” If this becomes law, tribes with sports betting will be operating in an unfamiliar environment under an unfamiliar agency.

Preparation is vital
Spicer points out that “this is a business decision” for tribes and that they “have to look to the future whatever technology brings forward”. She urges tribes to undergo due diligence and ask, “How does this work in the context of my compact?” National and regional associations are also expected to be contributing to the discussion, helping tribes to evaluate their position.

NIGA has previously stated: “We want to ensure that if it’s legalised, our members have the opportunity to offer this activity as part of their overall entertainment package and as an additional source of revenue for tribal government gaming to promote tribal economic development, tribal self-sufficiency, and strong tribal government.”

Although smaller tribes may seem to be at a disadvantage in an online sports betting environment, Spicer points out that “just because they’re small, it doesn’t mean they can’t seize an opportunity” and “they need to get engaged with their regional association, who would really understand the direct implications of the compacts, and make sure that they’re making a decision for themselves”.

Regardless of how sports betting is legalised, and what formats may become available, Native American tribes with experience in casino gaming could have a great opportunity. Compliance and integrity are areas where Spicer believes “tribes will have an opportunity to shine.

“Tribes are very good at regulation, and have established very strong regulatory commissions and agencies; they operate in gaming at a higher level of oversight than anyone else.” If tribes were able to bring this expertise to sports betting, they might be able to ensure a place at the table.

For tribes, it would appear that unless strong protections for their interests are included in any federal legislation, the most attractive option for them would be if the New Jersey case was decided positively and sports betting is introduced state by state with licences focused on existing land-based casino operations.

In this environment, we know the tribes can effectively compete. Tribes are familiar and comfortable with the environment of tribe-state compacts. The legalisation of sports betting has the potential to be a boon for tribal operators, but they should be making plans now so they are able to quickly leverage opportunities as they arrive.

Suzanne Perilloux Leckert is the director of gaming and feasibility at TMG Consulting, where she assists clients in the gaming and igaming industries with their investment decision-making processes.

Paul Girvan is a 30-year veteran of the US commercial and tribal gaming industry, and iGaming Business North America’s Tribal Gaming section editor.

Related articles: Sports betting: what does NJ’s Supreme Court hearing mean for US? (paywall)
US state-by-state sports betting: a fool’s bet? (paywall)
Interview: Ernie Stevens Jr, Chairman, National Indian Gaming Association (paywall)