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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. 

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