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Even if there were no tribes in the United States, adopting appropriate legal rules for internet gambling would still be a difficult endeavor. To begin with, the major problem is distributing power between the federal and state governments. Although there are a few helpful guideposts for resolving the issue, for the most part it is completely unsettled legal territory.

The 50 state legislatures have traditionally enjoyed a constitutional right to make and enforce their own laws for gambling that takes place within their territory, and none of the states do so in precisely the same way. Nevada, for example, has authorized literally hundreds of gaming operators in its territory. Twenty-one other states also license and regulate casinos, but unlike Nevada, most states (except New Jersey and Mississippi) statutorily restrict the number of casinos to a small number.

Theoretically, the regulatory decisions of each state should be based on its citizens’ value judgments about the appropriateness of gambling in their communities. And a significant factor in making these decisions is the recognition that gambling is a unique sort of activity which creates no product of tangible value, but nonetheless can exert great social costs on the community, including addiction and crime, if not managed properly.

The state legislatures should maintain control over these decisions even when gambling takes place on the internet rather than in brick-and-mortar casinos. States like Utah might very well always continue to insist that all gambling be prohibited in their territory. But more importantly, among the states that will dare to allow gambling on the internet, there will be differences in terms of precisely how it should be regulated.

For example, states may disagree on what sort of consumer safeguards, such as betting limits and advertising restrictions,

will be necessary to protect communities from the social costs

of gambling. Other substantial considerations include how

many and what type of entities should be permitted to operate gambling on the internet, and what sort of tax rate will be acceptable.

Furthermore, these decisions will be influenced heavily by circumstances that are unique to each state. The presence of organizations with vested interests in the decisions, such as gambling companies and other informed groups, will be particularly important to the process. In 28 of the states, this includes Indian tribes.

Power Struggle

The unique status of tribes compounds the crisis of distributing power between the federal and state governments. Legally, tribes resemble states in important ways. Tribes generally enjoy the freedom to make and enforce their own laws, even if those laws differ from the laws of the state in which the tribe is located. But there are also important ways in which tribes are very different from states.

Tribes began experimenting with gambling in the late 1970s with games of bingo. Although the game of bingo was legal in the states in which the tribes who ran the games were located, the tribes did not completely comply with the laws of the states. For example, some of the tribes operated games for higher stakes than would otherwise be permitted by the states. Over time, some of the tribes grew bolder with regard to the wagering opportunities they provided on their territory.

From the states’ perspective, oversight over Indian gaming was essential because the great majority of customers were citizens of the states, which meant that the great majority of the social costs of gambling were absorbed by the states. Meanwhile, the tribes incurred few of the social costs of gambling and delivered no tax revenue to the states to justify or offset those costs.

A series of conflicts between states and tribes culminated in 1987 with the U.S. Supreme Court case California v. Cabazon Band of Mission Indians. In deciding the Cabazon case, the Supreme Court relied on an earlier case which held that the states have no power to apply gambling regulations to the tribes. The court noted, however, that the states could obtain the power to impose regulations on the tribes if the U.S. Congress were to delegate the necessary power to the states. The reason for this is that the U.S. Constitution empowers the federal government rather than the states with authority to enter legal relations with the tribes.

The logical result is that the states only have power to interact with tribes to the degree that Congress has delegated its own power to the states. Hence, the court ruled in favor of the Cabazon tribe because Congress had not delegated power to the states to administer gambling regulations on the tribes.

And so, one year later, as an immediate reaction to the Cabazon case, Congress enacted the National Indian Gaming Regulatory Act of 1988 as a means of delegating some of its power to the states. The statute was enacted as an attempt to

balance the states’ interest in controlling the social costs of

gambling against the tribes’ rights to sovereignty and economic development.

Internet Grounds

Today, Indian gaming is a $26.5 billion-per-year industry, regulated every bit as thoroughly as the state-licensed commercial casino industry. Overall, 237

tribes operate 442 casinos of varying sizes within 28 of the states.

Refusing to allow tribes to participate in internet gambling is not likely to severely harm their land-based establishments or the jobs they support. After all, internet gambling has already been flourishing in America despite its official prohibition. Simply introducing new state-approved operators into the market therefore seems unlikely to dramatically shift action away from Indian casinos.

But then again, since legislation on average will make it easier for Americans to establish accounts with internet operators and to feel safer about the funds they deposit, then the amount of wagering on the internet is likely to increase, so in that regard, there is a real chance that some dollars that might otherwise have been spent on Indian gaming will instead be spent on the internet. But there is also the chance that legalization of internet gambling could stimulate more land-based gaming as well. For many players, the internet is a way to practice, but it cannot replicate the thrill of playing and socializing at a casino.

The real question is not whether tribes will be hurt if they cannot compete, but rather whether they are entitled to compete on the internet with operators in the states. Of course, tribes already do possess the power to license and regulate internet gambling, but because of their small populations, the benefit of doing so is not very attractive unless they can reach outside their territory and into the states.

In some cases, there are compelling reasons why a state should select a tribal operator to become one of the state’s licensed internet operators. In Connecticut, for example, there are two large tribal casinos but no state-licensed casinos. These two casinos can therefore present a good case that they are the most competent prospective operators because of their already-existing relationship with the state and its citizens.

Meanwhile, in California, a coalition of 29 tribal poker operators has banded together for the purposes of competing for one single operating license in the state. Of course, if any of these tribes were to obtain licenses, they would be expected to deliver tax revenue to the state.

The few examples of legislation that has been introduced so far in the states generally give preference to entities that are already located within a state. Nevada’s interactive gaming statute, for example, only allows an entity to apply for a license if the entity is a “resort hotel” that already possesses a non-restricted gaming license. However, there really is no particular reason grounded in law why a state must prefer to award licenses to entities that already have a presence in the state.

If an entity from another state or tribe or country is a better candidate, then it would probably be in the state’s best interest to select that other entity rather than a local one, provided the foreign entity establishes necessary connections in the state. Hence, there is no legal reason why the coalition of California tribes should be barred from applying for a license in another state if they can show they are the most suitable operator and are willing to establish necessary connections in the state.

Jump In The Pool

While states may be perfectly capable of conducting their internet gaming markets in isolation, the ability to pool players together from multiple states presents the opportunity for better multi-player games such as poker and hence the potential for higher revenue. One way this could happen is through negotiated state-to-state and state-to-tribe agreements. Another way is through an enactment of Congress establishing minimum standards for participation in an interstate network.

In the event a federal statute were to be enacted, the fair and easy solution would be to permit tribes to participate in the interstate network to the same degree that the states and their operators can. In that scenario, tribal regulators would be permitted to license and regulate their own operators in conformity with the minimum standards of the federal statute.

Certain federal legislators already seem poised to make sure that Indian gaming interests are an active part of the discussion and will be dealt with fairly by any prospective federal legislation. The leaders of both committees who have conducted hearings on internet gambling—Rep. Mary Bono Mack of the House Subcommittee on Commerce, Manufacturing and Trade; and Senator Daniel Akaka of the Senate Committee on Indian Affairs—insist this must be the case.

Incidentally, the one already-existing federal agency with any experience regulating gambling is the National Indian Gaming Commission, which was created pursuant to the federal Indian Gaming Regulatory Act. The agency currently shares the responsibility of overseeing gaming on tribal land with regulatory bodies local to the tribe.

If the federal government is to assume new duties with regard to gambling on the internet, it might make good sense to delegate those duties to the agency that already has relevant experience. And based on its purpose and experience, there is good reason to believe the agency would make a fair guardian of tribal rights to participate.