How Tribes Will Affect US Online Poker Legislation

Jul.30, 2012 3:59:PM
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The federal government has repeatedly failed to get online poker passed on a national level in the U.S.  There has been little action outside of committee hearings.  There is just too much opposition to it.  At first, casino companies seemed to be the major opponents.  As the years have gone by, casino companies started to see that they were making the same mistakes the music industry made.  They were fighting technology that was coming whether they liked it or not.  The companies would have to learn how to adapt instead of fighting the inevitable.

Since the feds have failed to pass legislation, states have been forced to debate online poker on their own.  So far, two states have passed online poker legislation.  Those states are Nevada and Delaware.  The Washington D.C. city lottery has also passed online poker although it appears that it may never make it live.  Both of these states and D.C. have something in common.  There are no major tribal casino interests.

Several states that have debated online poker have run into a problem as it pertains to tribal gaming.  The problem is that the Indian Gaming Regulatory Act (IGRA) gives tribes an advantage in the gaming industry.  The law states that if a state approves any type of gambling any tribe within that state’s borders is entitled to offer that type of gambling tax free.  For example, South Dakota allows casinos in the city of Deadwood.  This gives the many reservations within the state the right to offer the same exact gambling as Deadwood.  The difference is that the tribal casinos do not pay any taxes to the state.

This is why most states with reservations give the tribes either additional gambling games or monopolies.  If they do not give the tribes preferential treatment, the state loses all potential tax revenue.  Many states with card clubs will allow tribes to offer slots so that the state can tax it.  Examples of this include California, Washington, and Minnesota.  Other states simply give tribes a casino monopoly.  These states include Oklahoma, Connecticut, and North Carolina.

While no court has ruled on it, the consensus is that the IGRA also applies to online gambling.  This not only causes problems at the state level, but it causes a major conflict on the federal level.

If U.S. passed online gambling on a federal level without concessions from the tribes, the tribes would be allowed to operate tax free.  This would mean that it would be almost impossible for commercial casino companies to compete without creating a partnership with tribes.  Tribes have expressed an interest in negotiating with states and the federal government.  The problem is that there is no uniform opinion by the tribal gaming groups.

States will have fewer problems with this.  Some states do not have any tribal casinos.  Others, like Nevada and Iowa, have tribal gaming but it is a non factor in the state’s overall casino industry.

California ran into problems with tribes during their last online poker bill proposal.  An online poker bill was drafted and debated.  The tribes balked at the idea of them having to pay a licensing fee and taxes on revenue.  Their position was that if online poker was allowed in the state, the IGRA gave them the right to offer it tax free.  The card clubs stated that they thought it was unfair that they would have to compete against tribes who were not paying taxes.  This issue killed the California bill.  The tribes might be willing to compromise, but they are not obligated to do so.  They can kill the bill though by making their position known.

Most reservation casinos are independent as are the tribes that manage the reservation affairs.  There are over 100 of these groups and they do not all agree on what they want in terms of online gambling.  Some tribes want all casino games, some only want poker, and some are against the expansion of online gambling in any way.  Unless the tribes can put forth an agreed upon position, there is going to be a major problem with negotiations.

Tribal gaming interests have already proposed legislation that would only cover online poker.  In that proposal, the tribes propose that they operate tax free.  There is virtually no chance this law passes but it shows that the tribes are thinking about the future and are willing to discuss their place in the future of online poker.

Online poker legislation will be a long road.  There are so many variables involved in it that go beyond those that are against all forms of gambling expansion.  There are so many interested parties and so many legal problems ahead that it in my opinion it will take years for there to be regulated online poker on a federal level or in states with major tribal gaming interests.