Internet gambling could be either an economic savior or the downfall of brick-and-mortar casinos, depending on with whom you’re speaking. Debates on the topic are occurring at both the federal and state levels, and the recent discussion over legalizing intrastate internet poker in California has been divisive.
Past and Present
The Morongo Band of Mission Indians has been at the forefront of the internet poker movement in California, though a push for legislation last year was unsuccessful. Morongo Chairman Robert Martin is attempting to garner more support for an internet poker bill this year, and recently testified at a state Senate hearing on the matter. In 2007, the Morongo tribe partnered with cardrooms in Los Angeles to offer card games online when legislation is passed.
“I think the handwriting is on the wall,” Martin says. “Legislation is coming at some point. State lawmakers made clear at that hearing that they realize online poker is growing and are interested in tapping that revenue stream for the state. They also clearly want to protect Californians and regulate the industry, and they seem to agree with Californians that regulation should happen on the state level.”
Internet poker opponents think the writing on the wall says something entirely different. California Tribal Business Alliance spokesman Doug Elmets says the fact that no legislators have penned a bill is indicative of a lack of support for internet poker.
“It’s a non-starter from the vast majority of tribes and clearly has very little support, if any, in the California legislature,” Elmets says. “In fact, the Morongo tribe has not been able to find an author for their legislation. They weren’t able to find an author for their legislation last year. It appears to be running into the same roadblock this year.”
The California Tribal Business Alliance represents many of the gaming tribes in California.
Testing the Waters
It is unclear how much support intrastate internet poker has from California residents themselves. There are few definitive studies showing how Californians feel about legalizing intrastate internet poker, though the Innovation Group recently surveyed 550 internet users in the state on the issue. The study was commissioned by the California Commerce Club-a company affiliated with the Commerce Casino cardroom in Los Angeles-and was skewed toward people who had played online poker before.
The study was conducted online, and asked questions like, “If internet poker were legalized, would you visit your local casino or cardroom more or less often?” Fifty-two percent of respondents said they would continue visiting their nearby casino or cardroom as frequently as before, while 14 percent said they would visit less and 13 percent said they would visit more.
“What that suggests to me, at least among this subset of folks, is that they’re playing online poker, and if internet poker was legalized, they’re saying they wouldn’t really change their habits,” says Paul Girvan, managing director of the Innovation Group. “That suggests to me there would not be a significant impact on brick-and-mortar casinos.
“The other reason why I believe that is the level of wagers that occur in an internet poker room are very low. We’re talking quarters, 50 cents. The Native American casinos and brick-and-mortar casinos don’t want that business. Their bets are $5 bets. They can’t afford to provide the services, the room, the staff to accommodate all these people who want to play quarter games.”
Contention in California
Many tribes disagree with Girvan’s analysis, and have said they are concerned about the potential effects of intrastate internet poker on land-based casinos. Considering that no bill has been proposed in the California legislature, it is uncertain if internet poker would be exclusively operated by tribal gaming enterprises, or if non-tribal gaming companies would be allowed to operate gambling sites.
“A lot of it would depend upon what is and what isn’t legalized and who can offer it and who can’t,” Lewis and Roca attorney Anthony Cabot says. “It could be very favorable for the tribes if only the tribes were authorized to do it. It could have a different impact if it were more open so others could do it as well, such as the cardrooms.”
The partnership between the Morongo Band of Mission Indians and Los Angeles cardrooms is cause for concern, Doug Elmets says, because of the exclusivity agreements that California tribes have in their gaming compacts.
“We’re opposed to the state legalization of intrastate internet gambling of any kind, because we believe that it’s going to violate the exclusivity provisions in our compacts,” Elmets says. “Those exclusivity provisions in our compacts give tribes the sole right to operate gaming devices, which are broadly defined and include personal computers.”
Tribes with exclusivity provisions in their gaming compacts share a portion of their revenues with the state, which totals $365 million per year for California’s general fund. Elmets says that if tribal gaming exclusivity is violated, California will be left with a budget gap amounting to hundreds of millions of dollars.
“Tribes that have compacts with the state that have exclusivity provisions are helping in a substantial way offset the state budget deficit,” Elmets says. “Should that exclusivity provision be violated by the legalization of intrastate internet gambling, then clearly the tribes would no longer be compelled to contribute to the state’s general fund. That is a substantial amount of money (to lose) on an annual basis.”
Internet poker would generate approximately $50 million per year, according to early estimates.
Few tribes currently support legalizing internet poker in California, though Agua Caliente Band of Cahuilla Indians Chairman Richard Milanovich says he is interested in discussing the issue further. Morongo Chairman Martin says he is optimistic that more tribal leaders will be swayed.
“We respect the views of all tribes and have taken time to have many conversations about this subject,” Martin says. “We are continuing those conversations and finding more and more tribes that are interested in intrastate internet poker. They’re recognizing that legitimate online poker is not a threat to our casino businesses or our exclusivity but a new opportunity to maintain and expand our business models.”
Martin also contends that a large number of Californians are already gambling online, and that the state should take control of the industry.
“Legalization of intrastate internet poker will provide Californians with important consumer protection against fraud, identify theft and cheating that they currently do not get from illegal offshore operators,” Martin says. “Californians are playing on sites operated by offshore companies that don’t pay taxes and don’t generate local jobs. Legalization also offers the state an opportunity to tap into a multibillion-dollar revenue stream, all of which currently is pouring into the pockets of offshore companies.”
The Innovation Group’s Girvan says that additional studies are needed to determine if tribal casinos would be positively or negatively affected by intrastate internet poker.
“I understand what the issues are on both sides of this,” Girvan says. “Would more studies help alleviate some of the concern? I think it would. To really hammer down these issues, two things would need to happen. One, you would need to survey the actual customers of Native American casinos, and have them as your survey base. Two, you’d probably want to do focus groups with these folks. I think those are two aspects that could be put together and could at least provide some information on that issue that would be really unequivocal.”
The Big Picture
Tribes are not only concerned about the legalization of intrastate internet poker in California. The Unlawful Internet Gambling Enforcement Act is currently dominating the discourse among internet gambling supporters and foes. Many tribes oppose the UIGEA, and are anticipating the federal debate to “fix” the bill and legalize online gaming in the United States.
Though the Indian Gaming Regulatory Act enables tribes with established reservations to conduct gaming, many tribal reservations are in rural areas, where a gaming facility would be unsuccessful. Legalizing online gambling would enable tribes in remote locations to launch internet gaming enterprises.
Other tribes, like the Morongo Band, support the UIGEA because of its allowance for intrastate internet gambling. While the UIGEA prohibits the transfer of funds from American banks to offshore gambling websites, there are no federal restrictions on intrastate internet gambling.
“We support the regulation and taxation of internet gambling at the state level as the best mechanism to ensure consumer protection and to maximize the benefits to local economies,” Martin says. “Current federal law that provides states the ability to assume regulatory control of Internet gambling is appropriate and no new federal law is needed.”
Organizations like the National Indian Gaming Association and the California Tribal Business Alliance have remained neutral on the subject of U.S. Rep Barney Frank’s bill to neutralize UIGEA, but NIGA is expected to address the topic at its conference. The California Nations Indian Gaming Association opposes Frank’s bill.
“The California Tribal Business Alliance hasn’t taken a position on the Frank bill or the various other federal bills to legalize and regulate internet gambling,” CTBA’s Elmets says. “We need to understand how their enactment is going to affect the tribal gaming business. The reality is that the legalization of internet gambling in the United States could be a disaster for tribal governments as it relates to gaming, or it could be a wonderful new avenue for tribal economic development.”
Many tribes outside of California have expressed support for internet gaming, as it presents additional opportunities, and as long as it does not threaten the exclusivity that some tribes enjoy in their own states.
“It has the potential to create economic development opportunities for Indian country,” Miko Beasley Denson of the Mississippi Choctaw tribe and Chairwoman Lynn Malerba of the Mohegan tribe said in a letter to United South and Eastern Tribes President Brian Patterson earlier this year. “States like Connecticut and Mississippi are unable to support an intrastate internet gaming system.”
In addition, tribes that haven’t been able to capitalize on land-based gaming because of their remote reservations would be able to participate, according to some experts.
Internet gaming expert Sue Schneider told Indian Country Today, “Internet gambling is inevitable and the sooner tribes get entrepreneurial about it and not be afraid of it the better off they will be. Some tribes are there with it. Others are not, and should be.”
