Opinion: Legal Chaos Looms as Feds Leave the Question of Bet Location to States

It’s looking like some key parts of the federal government want no hand in deciding the thorny legal question of where a bet takes place. The US Court of Appeals for the DC Circuit has expressed the opinion that it’s one state courts should decide. Meanwhile, the Bureau of Indian Affairs (BIA) is preparing to release new rules which, unless changed from their draft version, say it will not reject compacts that assume a liberal answer to that question.

The public comment period for the proposed rules closed on March 1, 2023. However, the final rules are still pending, per the BIA website. Critics say that some of the provisions in the new rules are likely to create chaos, and they’re probably right.

Most US gambling laws predate the internet, from a time when gambling remotely was mostly unheard of. The Wire Act was created to address the placing of sports bets over the phone across state lines. However, 20th-century lawmakers weren’t considering that someone might be playing roulette with a casino on the other end of the state, across the country, or overseas.

That leaves it an open question whether a digital wager “happens” at the player’s location or that of the server hosting the casino or sportsbook. The answer to that will be important on many levels, especially to gaming tribes. That’s because it will determine whether they can take online bets statewide while still benefitting from the terms of the Indian Gaming Regulatory Act (IGRA).

Unlike the DC Circuit, the BIA has an opinion, siding with the tribes’ preferred interpretation. However, it acknowledges that its opinions don’t carry the weight of law and may be trying to force courts to clarify the issue. The explanation that accompanied the proposed changes states:

The Department notes the ultimate legality of gaming activity outside Indian lands remains a question of State law, notwithstanding that a compact discusses the activity.

A Brief History of the Bet Location Question

The original credit — or blame — for this bet location question probably lies with New Jersey. It pioneered the now-commonplace idea of online-retail market access partnerships, whereby online gambling operators must strike a deal to host their servers at a retail gambling property and share the owner’s license.

New Jersey only permits casinos within Atlantic City. Yet its 2013 online casino law allowed mobile gaming throughout the state on the logic that Atlantic City casinos were the ones taking the bets.

But New Jersey lawmakers’ motivation was less to exploit a legal loophole and more to build consensus. At the time, the retail gambling industry resisted online gambling. Guaranteeing that retail casino owners would be able to negotiate a share of the revenue helped remove that roadblock.

Fast-forward to 2021, and Florida attempted to use the same logic to bypass its own constitution. Gov. Ron DeSantis wanted legal sports betting in the state, but doing it the conventional way would have required persuading lawmakers to pass a bill and then voters to approve it in a referendum. Negotiating a compact with the Seminole Tribe was much easier but relied on the uncertain legal premise that Hard Rock Sportsbook could take bets statewide and still be “on tribal land” as long as that’s where its servers were.

Inevitably, the state’s commercial gaming operators sued, led by West Flagler Associates. Although the DC Circuit failed to find that the Secretary of the Interior should have refused the compact, it left the fundamental legal question of bet location open for a future case in state court.

Is the BIA Forcing the Issue?

The BIA’s new rules are implicitly related to the West Flagler case. The preliminary draft appeared in December 2022 while the appeal was in full swing.

Here, the DC Circuit found that the Secretary of the Interior had not erred in allowing the compact. However, in Amador County v. Salazar (2011), the same court ruled that the BIA must reject compacts that don’t comply with the law.

That puts the BIA in a bind. IGRA states that the BIA can only reject compacts on the basis of illegality. The BIA points out that if it must do so, it is potentially required to decide complex legal issues within the 45-day approval window. That’s a job better left to courts that also have the luxury of more time to hear arguments and consider the matter.

In anticipation of repeats of the Florida scenario, the draft rules establish the BIA’s official position on bet location. It will effectively give itself permission to approve all such compacts until courts or lawmakers tell it differently.

However, in another portion of the rules, the BIA seems to be actively attempting to force the issue. 

IGRA requires that states negotiate with tribes “in good faith” for any form of gaming that they’ve made legal for commercial operators. The new BIA rules reinterpret this to mean that if one type of Class III gaming is legal in the state, tribes can negotiate for anything within that category.

Class III gaming is a catch-all for anything that isn’t Class I (traditional tribal games) or Class II (bingo, pull-tabs, etc.). So, under the new rules, if there’s one legal slot machine operating anywhere in a state, tribes can drag the governor to the negotiating table for online casinos, sports betting, or anything else.

Will 2024 See a Flurry of Tribal Gaming Litigation?

West Flagler has demanded a rehearing of its case and may subsequently appeal to the US Supreme Court. Meanwhile, the BIA has not finalized its new compacting rules and may make further changes.

However, if the Florida sports betting decision stands and the BIA proceeds with its proposed rules, the picture for tribal online gambling in 2024 will look very different than it has in the past. Tribes nationwide will likely seize the opportunity to try to bring online casino gaming and sports betting to states that have not yet legalized it.

Anywhere that some form of Class III gaming exists, they could compel a negotiation for online gambling. The BIA will approve any such compacts. And the DC Circuit Court of Appeals has now indicated that it won’t block such approval. Both the BIA and the DC Circuit feel this is up to state courts.

However, that means every state has to decide this individually. Most such compacts will undoubtedly face a challenge at the state level. Different state courts might decide differently, inevitably leading to hard feelings for those who don’t see the decisions go their way.

Meanwhile, many questions are hovering over the requirement to negotiate in good faith. The California and Oklahoma governors’ offices have both faced lawsuits for failure to do so. Meanwhile, a federal lawsuit out of Washington State questions whether that provision of the IGRA is even constitutional.

What does “good faith negotiation” mean when the parties might disagree on an ambiguous legal question inherent in the proposal? This could be the year we find out.

About the Author

Alex Weldon

Alex Weldon

Alex Weldon is an online gambling industry analyst with nearly ten years of experience. He currently serves as Casino News Managing Editor for Bonus.com, part of the Catena Media Network. Other gambling news sites he has contributed to include PlayUSA and Online Poker Report, and his writing has been cited in The Atlantic.
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