Introduction

As this firm discussed in a prior client alert, the Department of the Interior (DOI) published proposed amendments to 25 Code of Federal Regulations (CFR) part 293, which governs the review and approval of tribal-state gaming compacts for Class III gaming.¹ The public comment period was extended and DOI was still taking comments into late June.² These proposed amendments remain pending, but if finalized, are likely to result in an historic expansion of online tribal gaming.

Passed in 1988, the Indian Gaming Regulatory Act, 25 U.S.C. § 2701, et seq. (IGRA) was meant to “provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments.”³ IGRA was intended to balance the interests of the tribes, the states, and the federal government with respect to Indian gaming and apportion responsibility for regulating it accordingly. To do this, IGRA divides Indian gaming into three classes:

1. Class I includes traditional or social gaming and is subject to exclusive tribal regulation;

2. Class II covers games of chance, including bingo, and similar games and is subject to tribal regulation and oversight by the National Indian Gaming Commission (NIGC); and

3. Class III includes all other gaming, including house banking card games, casino or Las Vegas-style gaming, slots, sports betting and parimutuel wagering, and lotteries. 

Notably, in order for a tribe to conduct class III gaming, the tribe must first enter into a compact with the state in which its lands are located.⁴

Advancements in gaming technology and changes in state and federal gaming law as a result of the U.S. Supreme Court's 2018 repeal of the Professional and Amateur Sports Protection Act (PASPA)⁵ have significantly impacted the compact negotiation process since the passage of IGRA. This evolution has resulted in tribes and commercial operators directly competing for market share with states being forced to choose winners and losers. For example, Connecticut has created a closed master licensee system wherein only the State’s two tribes and the lottery corporation can offer Class III gaming and commercial enterprises are only eligible to serve as concessionaires to these three master licensees. Compare this to Arizona, where tribes are placed on equal footing with the “owners and operators of Arizona professional sports team or franchise, an operator of a sports facility in this state that hosts an annual tournament on the PGA tour or a promoter of a national association for stock car auto racing national touring race in this state”⁶ when it comes to eligibility to offer retail and/or mobile sports wagering.⁷ Class III gaming compacts have expanded in scope and complexity as the tribes and states seek mutually beneficial terms. As the DOI’s proposals explain: “IGRA did not anticipate the compact negotiation process would be between competitors, rather sovereign governments seeking to regulate gaming.”⁸

This article will address the two most notable components of the proposed regulatory amendments: (1) the enlargement of the scope of Class III gaming negotiations under IGRA’s attendant regulations;⁹ and (2) the expansion of statewide remote wagering for tribes.¹⁰ The first section of this article examines the proposed amendment to 25 CFR 293.27, which codifies the Second Circuit’s holding in Mashantucket Pequot Tribe v. Connecticut, 913 F.2d 1024 (2d Cir. 1990) (affirming DOI’s interpretation of § 293.27). In that case, DOI argued, and the Court agreed, that § 293.27 should be read to mean “if a State allows any form of Class III gaming, it is regulating all forms of Class III gaming, which are a subject for good faith negotiations.”¹¹ In addition, the first section of this article provides additional analysis of new “good faith negotiation” requirements found in DOI’s proposed rules that states must adhere to when negotiating Class III compacts with tribes. The second section of this article examines the proposed amendments to § 293.29, which address expansion of tribal iGaming and clarifies that a compact may allow for statewide tribal iGaming.

Scope of Class III Gaming Under IGRA

The first notable proposed rule would clarify the scope of Class III gaming negotiations between a tribe and the state. IGRA requires states to negotiate tribal-state gaming compacts “in good faith” to allow tribes to offer Class III gaming if the state “permits such gaming.”¹² The phrase “permits such gaming” under IGRA has been subject to inconsistent interpretation. A number of federal courts have adopted a narrow view that the phrase “such gaming” refers only to specific types of Class III games that a state otherwise permits non-tribal commercial operators to offer.¹³ Under this narrow interpretation, states are only required to negotiate with tribes regarding forms of gaming that its laws affirmatively permit.

The proposed rule clarifies DOI’s interpretation that the phrase “permits such gaming” under IGRA broadly refers to Class III gaming categorically.¹⁴ This new interpretation codifies the holding in Mashantucket Pequot Tribe that “if a State allows any form of Class III gaming, then the state is regulating all forms of Class III gaming.”¹⁵

The practical effect of this new rule will be to allow tribes to offer all Class III games in a state that its laws do not expressly prohibit. For example, a tribe may seek to negotiate a compact for sports betting in a state where it is not expressly prohibited, as long as the state law allows any one or more forms of Class III gaming (such as a lottery, casino games, or horse racing).

In addition, under the proposed rule, if a state allows any form Class III gaming, then the state would be required to negotiate in good faith a compact for every type of Class III gaming not otherwise prohibited.¹⁶ A state’s refusal to negotiate such a compact in good faith would be considered evidence of a violation of IGRA.¹⁷

Critics of the proposed rule have commented that the expansive interpretation to broaden the types of Class III gaming that states must negotiate with tribes oversteps DOI’s authority and encroaches on Congressional powers.¹⁸

Statewide Remote Wagering 

The second notable proposed rule would allow state-tribal compacts to include provisions addressing and allowing tribes to offer remote wagering¹⁹ and internet gaming (collectively referred to herein as “remote wagering”) beyond the borders of sovereign tribal lands. 

Specifically, the proposed rule allows for remote wagering outside of tribal lands if:

1. State law, the compact, or an amendment to the compact deem the gaming to be taking place on the tribe’s lands where the server accepting the bets is located;

2. The tribe regulates the gaming; and

3. The participant initiating the wager is not located on another tribe’s land.²⁰

This comes on the heels of recent litigation concerning whether a state and tribe can agree to statewide mobile wagering via a compact. In West Flagler Associates v. Haaland, a federal court recently invalidated an amended compact between Florida and the Seminole Tribe which authorized the Seminole to offer online sports betting throughout the state.²¹

The amendment granted the Seminole Tribe the exclusive right to operate online sports betting throughout Florida^.22 The amendment further provided that consumers who are physically present in state, but not on the tribe’s lands, may participate in online sports betting because such wagers are “deemed to be exclusively conducted by the tribe” at “its facilities where the sports book(s), including servers and devices to conduct the same are located.”²³ In other words, the amendment allows for online sports wagers to be made from off reservation lands, almost anywhere in the state, so long as the server accepting the wager is located on the tribe’s land. This arrangement is referred to as the "hub and spoke" model, wherein the tribe's wager-accepting server is the hub, and the spokes are the consumers’ mobile devices across the state.²⁴

In West Flagler, the court held that the hub and spoke model violated IGRA because compacts under IGRA may only apply to activities on tribal lands.²⁵ As part of this holding, the court rejected the theory put forward in the compact amendment, and advocated for by the Seminole, that the state may deem off-reservation activities to occur on a reservation solely because of the location of the server that accepts the wager.²⁶

As in the compact at issue in West Flagler, DOI’s proposed rule authorizes tribes to conduct gaming outside the physical boundaries of tribal land – creating an arguable conflict with IGRA. DOI notes that its proposed remote wagering provision is permissible because IGRA allows negotiation between a tribe and state over the application of the criminal and civil laws and regulations over gaming and other activities directly related thereto.²⁷ Accordingly, via its proposed rule, DOI’s stance is that a tribe’s ability to offer remote wagering (such as iGaming or mobile sports wagering), hinges on where the bet is “accepted,” as opposed to where the bet is placed; and, further this determination is a question of state law for the contracting parties to resolve.²⁸ DOI further takes the position that Congress in enacting IGRA did not contemplate that DOI would address or resolve complex issues of State law during the 45-day review period.²⁹

Federal law outside of IGRA may also place restrictions on the tribal remote wagering activities proposed by the new rules.³⁰ Federal statutes such as the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA⁾³¹ and the Wire Act of 1961³² respectively restrict states’ ability to approve online gambling and tribal casinos’ ability to cater to customers outside of their tribal lands. Legal challenges grounded in the provisions of UIGEA and the Wire Act have previously questioned the right of tribal casinos to enter the online gaming scene.³³ If adopted, this proposed provision appears ripe for further litigation in this area.

Conclusion

The proposed amendments to 25 CFR 293 have the potential to create seismic shifts in both the balance of power amongst gaming operators and how gaming is regulated across the United States. The finalization of these rules could usher in a raft of litigation from states, operators, and other interest groups all seeking to restore or alter the equilibrium between gaming stakeholders and decision makers. As currently drafted, finalization of the DOI rules will invariably create the single largest expansion of tribal gaming in American history and re-establish a level of tribal gaming supremacy not seen since at least the 2018 repeal of the Professional and Amateur Sports Protection Act.

Nelson Mullins’ Gaming Industry Group includes an experienced team of Native American law, gaming, and government relations attorneys and policy advisors who regularly advise clients on these types of matters. Tribes, Native organizations, and individuals that are interested in these proposed regulations, applying for a land into trust application, negotiating a Class III tribal state gaming compact, or otherwise providing services to a tribal gaming operator should retain qualified counsel to assist them with the process and ensure compliance with applicable law.

FOOTNOTES

1 87 Fed. Reg. at 74916.

2 Bureau of Indian Aff., Rulemaking Docket, Class III Tribal Gaming Compacts.

3 25 U.S.C. § 2702(1).

4 25 U.S.C. § 2710(d)(1)(C).

5 Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1485 (2018).

6 Ariz. Rev. Stat. § 5-1301(7).

7 Tribes in Arizona maintain the exclusive ability to offer all other Class III retail casino games in the state.

8 87 Fed. Reg. at 74917.

9 25 CFR 293.27.

10 25 CFR 293.29

11 Mashantucket Pequot Tribe v. Connecticut, 913 F.2d at 1032 (2d Cir. 1990)

12 25 U.S.C. § 2710(d)(1).

13 See Rumsey Indian Rancheria of Wintun Indians v. Wilson, 64 F.3d 1250, 1258–59 (9th Cir. 1994); Cheyenne River Sioux Tribe v. South Dakota, 3 F.3d 273, 279 (8th Cir. 1993); Seminole Tribe of Fla. v. Florida, No. 91-6756, 1993 WL 475999, *8 (S.D. Fla. Sept. 22, 1993).

14 87 Fed. Reg. at 74937.

15 Id. at 74947 (emphasis added).

16 Id.

17 Id.

18 Id. at 74918.

19 Including sports wagering.

20 87 Fed. Reg. at 74947.

21 W. Flagler Assocs. v. Haaland, 573 F. Supp. 3d 260, 275 (D.D.C. 2021), appeal filed sub nom. W. Flagler Assocs. v. Haaland, Nos. 21-5265, 22-5022, (D.C. Cir. Nov. 23, 2022).

22 2021 Gaming Compact Between the Seminole Tribe of Florida and the State of Florida (April 23, 2021) [hereinafter “Compact”].

23 Compact § IV(A).

24 Letter from Bryan Newland, Principal Deputy Sec'y, U.S. Dep't of Interior for Indian Aff. to The Honorable Marcellus W. Osceola, Jr., Chairman, Seminole Tribe of Florida (Aug. 6, 2021).

25 W. Flagler Assocs. v. Haaland, 573 F. Supp. 3d 260, 273-74 (D.D.C. 2021).

26 Id. at 275.

27 25 U.S.C. § 2710(d)(3)(c)(i)-(ii)

28 87 Fed. Reg. at 74942; W. Flagler Assocs. v. Haaland, Nos. 21-5265, 22-5022 (D.C. Cir. Nov. 23, 2022).

29 87 Fed. Reg. at 74942.

30 Id.

31 31 U.S.C. § 5361 et seq.

32 18 U.S.C. § 1084 et seq.

33 For example, in Iipay Nation of Santa Ysabel, a Tribe was not allowed to operate its online bingo casino because it violated UIGEA's requirement that gambling be permitted in the location where a wager occurs. State of California v. Iipay Nation of Santa Ysabel, 898 F.3d 960 (9th Cir. 2018).