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Proposed changes to a draft Michigan internet gambling bill will not alleviate many of the legal challenges legislators face in trying to mesh state law with the federal regulatory scheme for 12 American Indian tribes with casinos, indigenous law experts say.
Senate Bill 203, authored by Republican Senate Majority Leader Mike Kowall, is being tweaked to specify that tribes can only operate online gambling by amending tribal-state casino agreements, or compacts, required under the Indian Gaming Regulatory Act (IGRA).
Tribes under SB 203 would self-regulate online gambling as they do their casinos in exchange for a negotiated revenue sharing agreement with the state. The revenue share would equal the online gambling tax rate paid by three Detroit commercial casinos, or no more than 10 percent.
Meanwhile, the three commercial casinos under the new bill draft would not be allowed to launch gambling websites for a year from the bill’s enactment, giving tribes time to negotiate online compact amendments.
The initial version of SB 203 permitted tribes to apply for online website licenses either as a commercial venture taxed and regulated by the state, or by amending their compacts under IGRA.
The draft changes to SB 203 – which are being circulated this week – are an effort to alleviate concerns by tribes that the initial legislation eroded their government sovereignty and delayed their entry into the market, giving commercial gambling companies a competitive advantage.
“This appears to be more accommodating from prior versions in acknowledging the unique legal and governmental status of tribes,” said a tribal official who requested anonymity.
“This whole area of law is fraught with ambiguities. This may be the only way there will be any intersection between tribal gaming and state online gaming.”
But a number of legal issues remain, including anti-tax provisions in IGRA, state and tribal jurisdictional matters and the unsettled legal ability of tribes to accept wagers from beyond reservation boundaries.
“Those are all things I’m waiting for some answers on,” Kowall said Wednesday.
Similar conflicts have not arisen in other states which have legalized online wagering or are debating online gambling bills because they do not have the have the combination of commercial and tribal government casinos that are found in Michigan.
“It’s really difficult when you try to be inclusive with both commercial gaming and the tribal gaming community,” Kowall said. “It’s a tough walk.
“I’m getting a real education here. The best thing we can do is keep referring back to the federal guidelines and IGRA. That pretty much sets the rules as to how tribes operate. It’s difficult for states to intervene due to the fact they are sovereign nations.”
The three Detroit casino companies are neutral on the legislation, largely concerned that the tax rate does not give the tribes a competitive advantage.
“The commercial industry has been good,” Kowall said. “They’re played a pretty active role in the process. They seem to be satisfied with this stage of the game.”
Eric Hollreiser, spokesman for international online giant Amaya, which has been lobbying for passage of online gambling, declined by email to discuss the bill. Mike Cox, the state’s former attorney general and a Republican, is Amaya’s lobbyist.
Several of 12 Michigan tribes – notably the Saginaw Chippewa Indian Tribe and Nottawaseppi Huron Band of Potawatomi – previously expressed opposition to SB 203. A number of them, however, are receptive to the revisions.
Tribal and state officials said the myriad of legal and regulatory issues and potential litigation will likely delay enactment of SB 203 for several months, if not years.
Kowall doesn’t disagree with that assessment.
“That’s a possibility,” he said. “We have one or two tribes that don’t want a compact with the state, yet they want to do online gaming. They’re going to have to come to the realization they’re going to have to do things through the feds.”
The senator sees SB 203 as a consumer protection bill that may generate significant revenue to the state.
“It is a consumer protection bill, first and foremost,” Kowall said. “As a sidebar to that it can generate some money. I don’t think it will generate as much as some people say. I’m guesstimating, starting off, around $5 million a year.”
Some tribal leaders do not believe they need to amend their compacts to engage in online gambling – particularly games such as bingo and poker which under IGRA are classified as Class II games excluded from compacts and state regulatory oversight.
Others question whether the Department of Interior, Bureau of Indian Affairs will permit a compact amendment that calls for a significant revenue share, or tax, when tribes do not enjoy a significant benefit, such as statewide casino exclusivity, as is the case in Michigan.
“If it’s gaming under IGRA, the answer to that is no,” said Joe Valandra, a tribal gambling consultant and former executive director of the National Indian Gaming Commission.
“The statute does not allow taxes. If the tribes want to agree to a revenue share, that’s OK.
“But without the economic balancing test that’s been the standard – certainly for the last eight years, nine years – it just wouldn’t get through Interior, even under the Trump administration,” Valandra said.
There also is the unsettled issue of off-reservation wagers. The Iipay Nation of Santa Ysabel in California is arguing in the Ninth Circuit Court of Appeals that it can accept what are known as “proxy” wagers on bingo and poker games if the internet server is on tribal lands.
A lower court ruled that off-reservation wagers violated the Unlawful Internet Gambling Enforcement Act (UIGEA) as well as the Wire Act.
SB 203 authors contend the bill does not constitute expansion of legal gambling requiring a voter-approved amendment to the state constitution because gambling is limited to existing commercial and tribal casinos. The legal premise is that the gambling occurs at the facility.
“They have to be acknowledging that the gaming is occurring on Indian lands, otherwise the compact and IGRA wouldn’t apply,” said Kevin Quigley, Santa Ysabel attorney. “IGRA only applies to gaming on Indian lands.
“They [Michigan legislators] can declare that for purposes of state law online gaming wagers are conducted at the server, or where the wager is accepted,” Quigley said.
“But the Department of Justice just might come in and do what they did in our case, which is to say, ‘We don’t care what the state law says. We’re saying it’s illegal because it [wager] is initiated off the reservation.’”
A Michigan attorney involved in tribal-state compact talks agrees that the law is unsettled.
“What this [SB 203] does is establish a statutory and regulatory regime for the Detroit casinos, then for the tribal casinos incorporates IGRA, which has not chimed in in any way on online gaming,” said the state official.
“There are plenty of arguments why tribes can’t do online gaming because it is not necessarily gaming on tribal lands.”
Finally, the state is in the midst of renegotiating compacts with five tribes that expired several years ago.
There are at least three gambling bills in the Michigan legislature that may impact tribal and commercial casinos. They involve internet race track wagering, charitable wagering and fantasy sports. Michigan also has one of the country’s most profitable lotteries.
“To what extent will online gambling cannibalize the other forms of gambling?” asked a state official who requested anonymity.
“The studies are done to sell it,” the official said of online wagering revenue predictions. “The studies may show what things are going to be in two, three years. What about 10 years from now?
“I’m not carrying [Sheldon] Adelson’s water,” said the official, referring to the Nevada casino mogul pressing for a national ban on online gambling. “But he obviously sees Internet wagering posing some threat to land-based casinos. I don’t know the answers to those questions.”
Kowall is hopeful the bill will eventually get to the governor’s desk.
“I’m fairly optimistic,” he said. “When some stakeholders go from being hard-nosed to being silent, believe it or not, that’s forward movement.”
Valandra suspects the bill language will be a tool for future negotiations.
“The only thing I can figure is the bill itself will be a negotiable document, not with the federal government, but with the tribes,” he said.
“Michigan have litigated enough with the tribes over the years that they have a pretty good sense of what will work and what won’t.”
Meanwhile, the anonymous state official anticipates a big payday for lawyers and lobbyists.
“There’s all kinds of unresolved issues, let me put it that way,” the official said. “There’s going to be full employment for a lot of lawyers. You have Michigan law, federal law, tribal issues; all kinds of things. We don’t have a lot of precedence and guidance.”