Florida’s Gambling Compact Set Up To Fail? Federal Rejection Of Mobile Sports Betting Likely To Trigger A Tribal Monopoly
By Daniel Wallach
May 10, 2021
When the Florida Legislature convenes next week for a special session, lawmakers will be asked to approve a new tribal-state gambling compact that veers decidedly and aggressively across tribal borders. The new compact gives the Seminole Tribe of Florida— the largest tribal gaming operator in the United States—exclusive control over all sports betting conducted statewide, including over mobile devices (regardless of the bettor’s location) and at licensed racetracks and jai-alai facilities located well beyond tribal borders.
This arrangement, however, brazenly flouts the 1988 federal law which allows states and Indian tribes to enter into compacts for Class III gaming activities, such as sports betting. That federal law—known as the Indian Gaming Regulatory Act (or “IGRA” for short)—mandates that any gaming activities authorized under a tribal-state compact occur only “on Indian lands,” which is specifically defined by IGRA to mean “all lands within the limits of any Indian reservation” or any lands held in trust by the United States for the benefit of any Indian tribe. The new compact, however, authorizes an extensive amount of gambling off tribal lands—essentially every online sports bet made in State of Florida and all sports wagers initiated from state-licensed pari-mutuel facilities.
This “off-reservation” piece will likely spawn two parallel litigation tracks—one brought in a Florida state court asserting that sports betting outside of Indian lands violates the Florida Constitution’s prohibition against non-voter-approved casino gambling, and the other filed in a federal court contending that the same activity also violates IGRA’s strict requirement that all “gaming activity” occur solely on Indian land. While a Florida state constitutional challenge is unlikely to succeed because sports betting does not constitute “casino gambling” for purposes of Amendment 3, a federal lawsuit would be on much stronger (if not rock solid) legal ground based on how strictly federal courts and federal agencies have interpreted the statutory language “gaming activity” and “Indian lands” in the context of IGRA disputes concerning gambling over the Internet and from locations external to tribal land.
IGRA permits gaming only on Indian lands, “and nowhere else”
Congress has unambiguously indicated that IGRA applies only to gaming activities that occur “on Indian lands.” IGRA’s text refers explicitly only to gaming activities on Indian lands, not to those occurring outside such lands’ boundaries. For example, Section 2701(3) of IGRA pronounces that the Act is necessary because Congress “finds that . . . existing Federal law does not provide clear standards or regulations for the conduct of gaming on Indian lands.” Similarly, § 2702(3) declares that one of the purposes of IGRA is to establish “independent Federal regulatory authority for gaming on Indian lands.” Further, when certain conditions have been met for Class III gaming (which includes sports betting), § 2710(d) authorizes Tribal-State compacts “governing gaming activities on the Indian lands of the Indian tribe.” Notably, there is no similar language in IGRA referring to gaming activities off tribal lands.
In Michigan v. Bay Mills Indian Community, the U.S. Supreme Court observed that “[e]verything—literally everything—in IGRA affords tools (for either state or federal officials) to regulate gaming on Indian lands, and nowhere else.” In other words, as one federal appeals court put it, “gaming on non-Indian lands is not authorized by or regulated under IGRA.” Instead, “IGRA requires that all gaming take place ‘on Indian lands’”—which is narrowly defined to mean the boundaries of the reservation or tribal trust property. Thus, in negotiating a Class III gaming compact with an Indian tribe, a state is limited to negotiating only over those “gaming activities” that are actually conducted “on Indian lands.” A state may not stray beyond what IGRA authorizes.
So why then would the new Seminole compact authorize—as a critical component of its structure—gambling activity (such as mobile sports wagering) that unquestionably originates off of tribal land? Presumably, the State’s negotiators were wrongly led to believe that the location of the bettor is irrelevant under federal law so long as the computer server processing the bet is located on tribal land. In that regard, the State and Seminole Tribe are seeking to emulate the approaches taken in New York, New Jersey, Michigan and Rhode Island, where those states’ constitutions limit where gambling can take place by dictating that certain types of wagers can only be placed at a specific location (such as at a casino). In the context of mobile sports betting and iGaming legislation, state lawmakers have sought to comply with these “location-specific” constitutional provisions by importing common law contract principles—i.e., offer and acceptance—to legislatively specify the location of the bet, regardless of where it originates from. In each of the above states, lawmakers have authorized statewide mobile betting under the premise that a “bet” is a contract under state law and that the contract is legally “deemed” to be made at the place where the bet is “accepted”—which, in the case of mobile betting, is the server located inside a casino.
While this “deemed accepted” approach may work under state law, especially since it involves the application of state-law contract principles (and state lawmakers are afforded significant discretion under state law to interpret undefined and ambiguous constitutional provisions—New York is a great example of that, by the way), it’s an entirely different story under federal law, where courts have consistently rejected attempts to import state-law contract principles to sidestep IGRA’s clearly-defined jurisdictional mandate that all of the gaming activities occur solely on Indian land.
The focus is on the action, not the equipment
In Bay Mills, the U.S. Supreme Court gave a definitive—and definitively limited—meaning to the statutory phrase “gaming activities,” declaring that “numerous provisions of IGRA show that ‘Class III gaming activity’ means just what it sounds like—the stuff involved in playing Class III games.” Focusing on the actions and perspective of the gambler, the Supreme Court defined “gaming activity” as “what goes on in a casino—each roll of the dice and spin of the wheel.” The Supreme Court concluded that this use of the term was consistent throughout the statute, declaring that “the gaming activity is the gambling in the poker hall, not the proceedings of the off-site administrative authority.” You could really just substitute the word “server” in place of “off-site administrative authority” and the import is the same.
The Supreme Court’s narrow definition of the words “Class III gaming activity” leaves no room for the Seminole Tribe’s assertion that the gaming associated with mobile sports wagering should be deemed to occur “exclusively” at the server location on Indian lands where the bet is received, notwithstanding the fact the bettor may be located outside of tribal lands when the wager is initiated. The Tribe’s focus on the location of the server is fundamentally at odds with the Bay Mills definition of “gaming activity,” which looks to the actions of the player—not the downstream processing of the wager—as the relevant consideration under federal law.
As discussed below, every federal court and federal agency which have analyzed this issue have concluded—without exception—that gambling over the Internet and from locations external to tribal land flunk IGRA’s clear requirement that the “gaming activity” occur only “on Indian land.” As these authorities make crystal clear, the location of the gambler (rather than the server or other processing software) is the appropriate measure for determining the situs of “gaming activity” for purposes of IGRA.
The server location is irrelevant under federal law
A leading case for the proposition that Internet gambling falls outside the scope of IGRA is California v. Iipay Nation of Santa Ysabel, which involved a server-based bingo game that allowed patrons to play computerized bingo over the Internet. Citing Justice Kagan’s analysis in Bay Mills, a California federal district court held, in a December 2016 ruling, that the “gaming activity” for purposes of IGRA “is the patrons’ act of selecting the denomination to be wagered, the number of games to be played, and the number of cards to be played per game.” It is this activity—viewed from the gambler’s perspective—and “not the on-site ‘administrative authority’ of the servers,” that is “the gambling in the poker hall,” the district court added (referring to Justice Kagan’s definition of ‘gaming activity” in Bay Mills). Pointing to the plain language of IGRA and other federal materials, the district court declared that “it is evident that the phrase ‘on Indian lands’ was intended to limit gaming to those patrons who participate in the gaming activity while in Indian country.” Thus, when a patron initiates an Internet wager from a geographic location that is outside of tribal lands, “it is the patrons’ activities off Indian lands that serve as the appropriate measure for determining the situs of gaming activity for purposes of IGRA,” the district court concluded.
In August 2018, the Ninth Circuit U.S. Court of Appeals affirmed the district court’s decision in Iipay Nation, similarly concluding that the tribe’s patrons were engaging in “gaming activity” when they “initiated” the bet or wager from mobile devices while physically located within the State of California, but off of Indian lands. Calling it “[c]onsistent with the Supreme Court’s holding in Bay Mills,” the Ninth Circuit determined that the bettors’ actions in initiating the bet or wager from outside tribal lands “constitutes gaming activity that is not located on Indian lands” and, therefore, “is not protected by IGRA.”
Similarly, in AT&T Corp. v. Coeur d’Alene Tribe, an Idaho federal district court held that an Indian tribe’s operation of a national telephone lottery—to the extent that it depended on interstate telephone calls for the placement of wagers—was not “gaming activity” occurring “on Indian lands” and, therefore, was not covered by IGRA. Incorporating the plain-meaning of the word “activity”—defined by Webster’s New International Dictionary as an “actuating force” or “normal function” of a “process”—the district court determined that it was the customer’s act of initiating the wager by telephone that was the “activity” material to the operation of the lottery. As the district court explained, “[b]ut for the act of placing the ‘lottery wager,’ a player could not participate in, and the Tribe could not operate, the Lottery.” Accordingly, the court concluded that placement of wagers through a toll-free number from outside tribal lands “would have the effect of maintaining a gaming activity off Indian lands, and, consequently, take[s] the Lottery outside the . . . protection[s] provided by IGRA.”
In a footnote, the district court explained why it would not rely on common-law contract principles in determining the situs of the “gaming activity,” even though the computer software used to select the winning numbers was located on tribal land:
“Canons of statutory construction direct a court to resort to common law principles only when the term being construed itself is defined through common law concepts. . . . As the Webster’s definition demonstrates, ‘activity’ is not a conduit for the incorporation into IGRA of common law contract principles. Although Congress certainly could have limited the ‘on Indian lands’ requirement by reference to common law contract principles, it chose instead to require that all gaming ‘activities’ occur on Indian lands. For this reason, the Tribe’s discussion of offer, acceptance and consideration is simply not relevant.”
On appeal, the Ninth Circuit reversed the district court’s decision in Coeur d’Alene on jurisdictional grounds (lack of standing) without reaching the merits of the district court’s analysis. However, in a concurring opinion, Circuit Judge Ronald M. Gould wrote that “[t]he district court correctly concluded that the term ‘gaming activities’ plainly includes a player's ordering a ticket because, without that activity, the lottery could not operate.” Judge Gould stated that the proposed national lottery “beyond doubt, and with any common sense assessment, involves gaming activity off Indian lands because players (1) place their bets while outside the Indian reservation, and (2) can receive the winnings off the reservation.” “In short,” he concluded, “the essence of gaming is the placing of a bet and the collection of the winnings. Those essential activities occur off the reservation and not on Indian lands.”
Other federal authorities have likewise concluded that the placing of a server on Indian lands does not magically transform Internet wagers initiated by persons physically located off of tribal lands into “IGRA-authorized” gaming activity. For example, in a 2001 opinion letter addressing the legality of an online sports betting game, the General Counsel of the National Indian Gaming Commission (“NIGC”)—the federal agency responsible for enforcing IGRA—opined that Indian tribes in Arizona and California could not lawfully offer the game to patrons located outside of Indian lands, stating that “the use of the Internet for gambling purposes is not authorized by IGRA.” Because “IGRA does not authorize off-reservation gaming,” the NIGC’s General Counsel declared that “the use of the Internet, even though the computer server may be located on Indian lands, would constitute off-reservation gaming to the extent any of the players were located off of Indian lands.”
Congressional bill acknowledges there are “federal barriers” to mobile sports betting
Consistent with the above authorities, a recent bill introduced in Congress acknowledges that there are existing “Federal Barriers” to the inclusion of mobile sports wagering as an authorized Class III game within a Tribal-State Compact. House Bill 5502—revealingly titled the “Removing Federal Barriers to Offering Mobile Sports Wagers on Indian Lands Act”—would amend IGRA by broadening the concept of “Indian lands” to include wagers made over the Internet and “deeming” such wagers to be made at “the physical location of the server or other computer equipment used to accept the sports wager.” Under the proposed legislation, a mobile sports wager accepted through a server or other equipment located on Indian lands would be considered to be “exclusively occurring” on tribal lands, and, therefore, allowable under IGRA, if: (1) the person placing the wager and the server that accepts that accepts the wager are located in the same state; and (2) the applicable State and Indian tribe have entered into a gaming compact that authorizes online sports wagering.
This bill— which has four Congressional co-sponsors and is backed by several Indian tribes—is an implicit acknowledgment that IGRA does not allow for mobile or Internet sports wagering from customers who are not physically present on Indian lands. After all, if online sports betting was already permitted under IGRA regardless of a patron’s physical location, then there would be no need whatsoever for this bill. The very existence of this bill is yet another indicator that the new compact violates federal law.
The “Trojan Horse” provision that will shut out the pari-mutuel industry for decades
To sum it up, every federal court and federal agency that have analyzed this issue in depth have concluded that Internet gambling and other gambling activities originating from beyond tribal lands (such as wagers initiated at non-tribal facilities) are beyond the scope and coverage of IGRA, and therefore—to quote one federal judge—are “uncompactable.”
Consider the dire consequences that would result from the Legislature’s ratification of an IGRA-deficient compact. The brunt of it would be felt by Florida’s pari-mutuel industry. Here’s why: the compact has a severability provision which states that in the event that a federal court determines that any provision of the compact is “invalid” because it violates IGRA, the “remaining provisions” (i.e., those parts that were not declared invalid) “shall remain in full force and effect.” Anticipating the (very real) possibility that all mobile sports wagering and all sports betting originating from pari-mutuel venues located outside of tribal lands will be declared to be in violation of IGRA by a federal court, the compact provides that “[i]f at any time the Tribe is not legally permitted to offer Sports Betting to Patrons physically located in the State but not on Indian lands, then the Compact will not be become null and void.”
This is precisely why the Legislature’s decision on whether to ratify the compact is so critical. A legislative ratification followed by even a partial federal rejection of the compact would create the ultimate “doomsday” scenario for pari-mutuel operators: the compact’s severability clause would be triggered, resulting in the Seminole Tribe retaining the right to operate “in-person” sports betting on Indian lands (since that part seemingly complies with IGRA), while the pari-mutuel facilities would forfeit the right to operate sports betting after a federal court “blue pencils” the compact to strip out all sports betting originating off tribal lands. That means no mobile sports betting (unless you’re on Indian land) and no sports wagering from any licensed racetrack or jai-alai facility. In other words, the pari-mutuels would get shut out completely when all is said and done. That will be the resulting fallout from a federal court decision invalidating those parts of the compact that authorize “gaming activities” (such as the initial placing of a wager) outside of Indian lands, coupled with a “Trojan Horse” severability provision that “saves” the remainder of the compact.
And, wait, it gets worse: the new compact guarantees the Tribe “exclusivity” over all sports betting in Florida for the next 30 years—until 2051. So, if the pari-mutuels lose the right to offer sports betting due to an adverse federal court ruling and that part of the compact is “severed” by the court due to its noncompliance with IGRA, the tribal exclusivity provision—which would remain intact due to the severability language—would leave no alternative pathway to legalize sports betting at pari-mutuel venues until the year 2051, without causing a significant reduction in revenue-sharing payments to the State under the compact. This would be the unintended consequence of approving an IGRA-deficient compact. Or, perhaps, that was the plan all along.
This article was originally published in Forbes.com on May 10, 2021.